Indian Hotels plans mega Rs.3,000 crore Rights Issue

One of the premium hotels and hospitality companies in India and the owner of the Taj brand, Indian Hotels is planning a mega rights issue. The Tata group company has secured board approval for Rs.3,000 crore rights issue. This is the largest fundraising by IHCL and is twice the size of the last rights issue of Rs.1,500 crore in 2017.

While the pricing and timing of the rights will be determined in consultation with merchant bankers, the purpose of the issue is already laid out. Indian Hotels will use the proceeds of the rights issue to fund its capital expenditure, expansion of properties globally as well as repaying some of the debt in the balance sheet.

Let us focus on debt reduction first. The last 18 months have been tough for the hospitality industry, being a high-contact business. The restrictions on international travel, business travel and leisure travel had severely curtailed the top line, resulting in a spike in borrowings. In fact, between FY20 and FY21, the total debt of Indian Hotels increased by 67.5% from Rs.1,857 crore to Rs.3,110 crore.

Indian Hotels wants to capitalize on the expected revenge spending with an expanded portfolio. It plans to expand its properties by 36% to 300 over the next 3-5 years. As part of its asset-light strategy, Indian Hotels will prefer to inorganically acquire ready-made hotels rather than pressuring the balance sheet with development costs.

Currently, Indian Hotels has a portfolio of 221 properties of which 150 are located in India, 21 abroad and another 50 are work-in-progress. Over the next 5 years, IHCL also plans to restructure its business model so as to have 46% of properties on a management contract basis. The rights issue is expected to be priced at a discount to factor in its dilution effect.