Hot Bread

THE COMPASS

In a well-planned restructuring plan, the GVK Reddy group has brought its hotels business under one umbrella and inducted Indian Hotels as a strategic partner. The GVK Reddy group has two companies -- Hotel Sree Krishna (Krishna) and Novopan Industries (Novopan). Krishna operates The Holiday Inn Krishna in Hyderabad and Novopan operates The Krishna Oberoi in the same location.

In a recast process, Novopan first demerged its hotel business (it also makes particle boards) into a separate firm, Taj GVK Hotels and Resorts. Hotel Sree Krishna is being merged with Taj GVK. Thus, it will have two properties under it. Consequently, the Taj Residency license will be transferred to Taj GVK bringing one more property under its fold.

Indian Hotels will be investing Rs 40 crore in the equity capital of Krishna. Earlier, Krishna had allotted 48.5 lakh shares of Rs 10 each and 61.5 lakh convertible warrants of Rs 10 each. The effective price at which Indian Hotels is investing in Krishna is about Rs 25 per share.

Novopan shareholders will get one share of Taj GVK for every three shares held. Krishna shareholders will get one share of Taj GVK for every five shares held. They will benefit from the involvement of Indian Hotels, which will have a 25 per cent equity stake, and by holding a stake in a consolidated hotels company with a capacity of 575 rooms in Hyderabad. The increase in size means that apart from better competitiveness, centralising of common activities can result in lower overheads. Krishna earned revenues of about Rs 14 crore in 1998-99, while Novopan's hotel business earned it about Rs 20 crore.

Novopan will now be a focused particle board company and can focus on strengthening this business. Both, the particle boards and the hotels industries have been facing problems due to the economic slowdown. The separation enables both businesses to evolve independent of the other. The funds infusion will enable Novopan and Krishna to reduce their respective debt burdens. For Indian Hotels, this represents one more success in using its cash chest to consolidate its position in the hotel industry as attractive opportunities present themselves due to the problems plaguing relatively smaller players.

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