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Indian Hotels Company Marches West: Where will Mistry Take it?

Cyrus Mistry Becomes Chairman of Tata Group as Ratan Tata Retires

By Sachin Dave, Hindustan Times, New DelhiMcClatchy-Tribune Regional News

Dec. 26, 2012--From a hotel that came under one of the worst terrorist attacks in Indian history, to a hospitality major that tried to acquire an American hotel almost double its size: there is a mark of Ratan Tata written all over Indian Hotels Company Ltd, which controls the conglomerate's hotel chains.

IHCL operates four brands -- Taj, Vivanta, Gateway and Ginger -- in different categories.

As the story goes, the first Taj Hotel was constructed in Mumbai in 1903 after Jamsetji Nusserwanji Tata, the group's founding entrepreneur, faced racial discrimination at a hotel that did not allow Indians to enter it.

Pride has always been an integral part of the Tata Group and in a case of history repeating itself, US hospitality major Orient Express refused Tata Group's proposal for a partnership in 2007 in a tale that has similar shades.

The incident, it is believed, wounded Ratan Tata's pride.

Four years later, the Tatas acquired a 10% stake in Orient Express for $211 million in September and raised it to 11.5% two months later.

The group, instead of getting a partnership it wanted, received a letter from Paul Whit, the then CEO of Orient Express, which said: "Any association of our luxury brands and properties with your brands and properties would result in a reduction of our brands and of our business and would likely lead to erosion."

And in October this year, just two months before Ratan Tata was set to retire, IHCL approached Orient Hotels to acquire 93% stake for $1.8 billion -- this time in an open takeover bid.

While the theme of hurt pride hung in the air, Ratan Tata, however, told IHCL shareholders that the decision to buy Orient Express was a rational one.

IHCL has grown fast under Ratan Tata. At present, 20 years after he took over as chairman, it is not just a collection of luxurious hotels, but a company that is fast expanding its footprint across the world in all categories.

At the time when Ratan Tata became the chairman of the group, the hospitality arm had a presence in Mumbai, New Delhi, Kolkatta, Bangalore and Chennai.

The group had less than 5,000 employees and a turnover of less than Rs.500 crore. In 2000, after being listed, the company's turnover stood at Rs.716 crore, and by 2012, it clocked a turnover of Rs.1,865 crore.

The company has 13,000 employees.

Today, the hospitality company owns and operates 76 hotels, 7 palaces in different parts of the world, 6 private islands and 12 resorts. The number was around 40% in 1991.

This rich legacy is what Ratan Tata will hand over to Cyrus Mistry when he steps down on Friday as chairman of Tata group.

As a company executive sums up:"In the last 20 years, IHCL has increased its footprint outside India, entered different market segments through different brands and forayed into the bottom of the pyramid with the Ginger brand."

During the 1990s, the hospitality chain consolidated its position in established markets through the upgrade of existing properties and development of new ones. However, it was not until 2000 that the mark of Ratan Tata was visible on the group's operations.

"You would have a Taj hotel in Mumbai, which was so opulent, and then you would have another in some tier-3 town, which was very moderate in comparison. So the management decided to separate and position different hotels in categories," said a senior official with Indian Hotels. A re-branding was a logical method to do this. Ratan Tata was integral to its re-branding exercise.

Raymond Bickson, managing director, IHCL, once told HT: "Ginger was Ratan Tata's brain child and it has penetrated in cities where no other similar brand is present."

Not all is hunky-dory. IHCL is sitting on a debt of R3,800 crore.

While Tata had seen many such cycles during his tenure as chairman and got around it, where Cyrus Mistry takes IHCL will be keenly watched.


(c)2012 the Hindustan Times (New Delhi)

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