Apart from the senior management at Taj, the board of IHCL is involved in the planning process ahead of the auctions that will give out the Taj Mansingh on lease for the next 30 years, based on the best revenue-share amount quoted in the bids.
When contacted, a senior official at the NDMC, which owns the 3.78 acres over which the Taj Mahal hotel is located on 1 Mansingh Road, refused to divulge the terms of reference, saying a decision should be taken on October 16 at the Council meeting. On whether talks had been held between the NDMC and the Tatas on Taj’s future ownership, the official said “there’s no question” as the “auction would be thrown up to multiple bidders.”
IHCL has been in the midst of top-level changes — Rakesh Sarna resigned as chief executive officer (CEO) and managing director (MD) in May citing personal reasons; September 30 was his last day in office. Puneet Chhatwal, who will take over as the next MD and CEO at IHCL, is expected to oversee the company’s participation in the auction.
According to Achin Khanna, MD at leading consulting firm HVS (South Asia), “my view is that IHCL will likely make every effort in order to retain the asset.” Many other hospitality sector analysts agreed that Tatas would be very aggressive in bidding for the property. But Tatas would have no first right of refusal in the auction process, to be conducted by SBI Caps.
The NDMC is clearly looking at maximising its revenue and several big names, including Marriott, ITC and Oberois, could be among the potential bidders for the Taj Mansingh.
In fact, the pace of demand increase in the branded hotel category during FY17 was higher (9.6 per cent) than the 5.9 per cent addition in new branded supplies. According to HVS data, occupancy of branded hotels hit a decade-high rate of 65.6 per cent in FY17, against 63.3 per cent in FY16. The last time India reported occupancy of about 65 per cent was way back in FY08. Average room rates, too, appreciated 2.4 per cent last year. Hotels continue to see a further increase in these parameters in FY18.
“We reiterate the need for recognising the fact that the demand-supply equation today as well as in the next 48-60 months is more than likely to present an opportunity for substantial average rate enhancement and hotel operators, that draft strategies to seize this occasion, will have a clear advantage,” HVS said last month. All leading global hospitality chains and organised domestic players have stepped up the expansion mode.
Earlier in the year, Ashish Jakhanwala, MD and CEO at SAMHI (a company owning several hotels and associated with brands like Marriott and Hyatt Marriott brands), had said, “We would be very keen to evaluate the opportunity….” He was referring to participation in the Taj Mansingh auction.
If a non-Tata entity wins the bid, the Tata group would get six months to operate the hotel before vacating the premises, the terms of the auction are likely to state, sources said. Also, in such a scenario, the non-Tata company would be given 18 months to refurbish and renovate the hotel before revenue-sharing kicks off with the NDMC. In that duration of one-and-a-half years, the successful bidder would need to make a down payment - equal to an average of the revenue-share amount paid to the NDMC in the last three years by the Tatas for this hotel. Also, the bidders would have to mention the percentage of revenue that they would want to share with the NDMC, and the entity quoting the highest revenue-share would emerge a winner.
It is learnt that a floor price, at an average of preceding three years’ top line share that the NDMC got from IHCL, would be set for the auction of Taj Mansingh. The previous year’s annual revenue of the Taj Mansingh, which is a part of the Tata group’s IHCL, was estimated to be over Rs 150 crore. IHCL’s revenue from operations was Rs 2,391 crore in FY17.
However, the floor price would not be for the value of the Taj Mansingh. Rather, the floor price is meant to create a yardstick for what the new lessee will owe the NDMC (lessor). That’s not the value of the hotel, but just the value of the revenue-share owed at the very minimum.”
In 1976, IHCL had signed a lease agreement with the NDMC for the Taj Mansingh, and two years later the hotel was inaugurated. In 2011, however, the 33-year-old lease ended and a court battle started off. 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.
HOW IT MAY UNFOLD
Decision on who gets to run the Taj Mansingh likely by January 2018
Entity quoting highest revenue-share with the New Delhi Municipal Council to emerge winner
Floor price for revenue-share to be set for auctioning the hotel
If a non-Tata entity wins the bid, the Tatas will run the hotel for 6 months