Indian Hotels faces stiff competition for Taj Mansingh

Indian Hotels Company Ltd (IHCL)’s re-entry into its crown property, Taj Mansingh, may not be smooth though the company is gearing for an aggressive bidding in the New Delhi Municipal Council (NDMC) auction next month.  A number of established hotel companies — ITC, Oberoi and Marriott — are jumping into the fray for this 294-room iconic property in Lutyens’ Delhi. 

SoftBank-backed Oyo, a budget-hotel aggregator with 70,000 rooms, is seeking clarification from the NDMC on eligibility norms (that says only luxury chains can bid).

Players who have purchased tender bid documents are being given time to visit the hotel from Monday in different slots to evaluate the property. The 39- year-old hotel needs renovation. In case a new player wins the bid, it will have to invest a few hundred crores for renovation. Tata group’s IHCL is said to be ready for the renovation, if they win the bid.  

ITC and Oberoi have purchased tender documents. Spokespersons for both the hotel chains, however, did not comment on queries. 

Craig Smith, president and managing director for the Marriott International’s Asia-Pacific region, had told Business Standard in October that the company needs more properties in downtown Delhi. “It is hard to break into that area and we have been looking at it for years,” he said, when asked about the company’s interest in Taj Mansingh. 

“The duration of the lease should have been at least 49 years and not 33, for a greater long-term viability of the business. While there is enough interest in the hospitality industry for this hotel, a longer lease would have made it more attractive. The decision to lease it only to 5-star operators is good to ensure quality operation and positioning in the luxury market, but the reality is that some of the bidders may have to depend on investor funding. We have all the credentials but we need to examine the fine print and decide on the bidding possibilities,” said K B Kachru, chairman emeritus and principal advisor, Carlson Rezidor (South Asia), which operates 85 hotels in India.

While the interest in the hotel is high because of its prime location, it is unlikely a new operator would make money in the initial years. The operator would have to assure a minimum revenue share of 17.25% and a minimum guarantee fee of Rs 2.96 crore per month, with a clause for escalation. There is also an upfront non-refundable fee of Rs 53 crore that the new operator has to pay to the NDMC. 

Taj Mansingh is learnt to have clocked a revenue of approximately ~200 crore and a profit before tax of Rs 45 crore. So, after paying the minimum monthly fee that translates into around Rs 35 crore, a revenue share not much may be left with the operator. This is not all. The new operator would also need to invest Rs 300-400 crore on renovation. If this money is borrowed, add an annual interest cost of about Rs 30-40 crore. So, there is hardly money to be made, though people will still bid for its trophy value. IHCL, which has earned profits all these years, could be more aggressive in the bidding. 

In 1976, IHCL had signed a lease agreement with the NDMC for Taj Mansingh, and two years later, the hotel was inaugurated. In 2011, the lease ended and a court battle began. Four years ago, the NDMC decided to auction the property, while IHCL challenged the decision in the Delhi High Court. After much back and forth, and several lease extensions, the Supreme Court in April gave a go-ahead for auctioning the hotel. The date of this auction is January 30.