Tata's Indian Hotels outbids ITC, retains Taj Mansingh for another 33 years

Move will allow IHCL to make investments to refurbish the 40-year-old hotel; Lack of clarity on the future of this hotel had prevented major investments

Tata group’s Indian Hotels Company (IHCL) will retain control of the Taj Mahal hotel, popularly known as Taj Mansingh, for another 33 years.  

IHCL, which operates a chain of luxury hotels under the Taj brand, emerged winner in an e-auction conducted by the New Delhi Municipal Council (NDMC) on Friday. The company outbid ITC, the only other bidder in the auction, for the prime property located on Mansingh Road in the capital.  

Though the result of the auction was declared after the market hours, the stock price of IHCL seems to have factored in the win. The price surged more than 7 per cent in intra-day trade on the BSE and closed at Rs 135.45, up more than 5 per cent. Shares of other listed hotel companies like EIH and Lemon Tree ended in the red. 

IHCL has agreed to pay a licence fee of Rs 70.3 million per month, or 32.5 per cent of the hotel’s gross revenue, to the civic body. Until now, IHCL was paying just Rs 39.4 million every month. The hotel is one of the key assets of IHCL and it brought revenues of Rs 2.2 billion in the financial year 2016-17. 

The decision will allow IHCL to make investments to refurbish the 40-year-old hotel. Lack of clarity on the future of this hotel had prevented major investments. Puneet Chhatwal, MD & CEO at IHCL, said he was “delighted” that the Taj Mahal hotel would remain part of the company. “We look forward to investing in the hotel and taking it to new heights of Indian hospitality. The Taj legend will continue to serve Delhi with elegance and charm,” he added. 

IHCL had signed a lease agreement with the NDMC in 1976 and the hotel was inaugurated two years later. In 2011, the 33-year-old lease ended. When the NDMC decided to auction the property, Indian Hotels challenged the decision in the Delhi High Court. After several lease extensions, the Supreme Court approved the auction last April. “This was an unequal race where the existing operator got a ready hotel while a new bidder would have only got an asset requiring a large investment and a long waiting time to make the hotel operational. In such cases, the existing lessee will always have advantages. The auction may have been done for revenue maximisation, but the conditions created did not reflect the same,” said an executive with a hospitality consultancy firm.

The road to auction was not easy for the NDMC. It failed to find the desired minimum three bidders to conclude the auction process twice. Following this, the NDMC decided early this month to relax the conditions for the auction. It brought down the minimum number of qualified technical bidders to two for a successful auction from three in the previous two tenders. It had also relaxed some of the financial conditions of eligibility. The average revenue requirement from prospective bidders was brought down. The three-year average revenue required was brought down to Rs 3.5 billion compared to Rs 4 billion previously.

When the NDMC got a green light to auction the hotel last year, a number of hospitality players expressed an interest to bid for the iconic hotel. These included EIH (which runs Oberoi chain of hotels), Lemon Tree, SAMHI and Saraf Hotel Enterprises. However, none of these companies bid mainly due to restrictive clauses in the tender.

Some in the industry thought it was best for IHCL to remain the operator for this hotel. Jean-Michel Cassé, the chief operating officer (India and South Asia) at French hotel firm Accor, said in March that the hotel should remain a Taj property. “I believe this hotel has been known as Taj for so many years and it should remain a Taj. If you bring a Pullman there what are you going to do? You have to break everything, renovate, spend money and the investment is huge. Then you will relaunch. You will lose business as you will spend time in all these. It is a very-very complicated deal to be able to go through smoothly,” he said. Pullman is a luxury brand owned by Accor.

The Milestones

1978: Taj Mansingh inaugurated
2011: 33-year-old agreement between IHCL and NDMC comes to an end
2012-13: NDMC decides to auction the hotel
2013: IHCL challenges the auction in Delhi High Court
2016: Court rules in favour of auction IHCL moves Supreme Court
2017: NDMC gets the go-ahead for the auction
2018: IHCL wins the auction