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Tata Group to Increase Stake in Indian Hotels, which run the Taj Chain,
to 37.55%, up from 30.27%

By P. R. Sanjai, Mint, New DelhiMcClatchy-Tribune Regional News

Oct. 28, 2010--The Tata group will increase its stake in Indian Hotels Co. Ltd, which runs the Taj chain, through a preferential offer to Tata Sons Ltd, its main holding company.

The company will issue up to 3.6 crore equity shares and 4.8 crore warrants for cash to Tata Sons, raising the stake to 37.55% from 30.27%, it said while announcing second-quarter results on Wednesday.

Indian Hotels plans to raise approximately '850 crore in two parts. Some of this will be raised in the current fiscal, and the rest not before 1 April 2011. Separately, the company told the stock exchanges it will make the preferential allotments over the next 12 to 18 months.

According to a spokesperson, the company will use the money for the retirement of debt and strengthening its balance sheet. Indian Hotels has a consolidated debt of '4,210 crore, including overseas loans. On a standalone basis, debt stood at '2,362.76 crore as of 30 September.

Himani Singh, analyst at domestic brokerage Elara Securities India Pvt. Ltd, estimates Indian Hotels will get '500 crore by March 2011 and the rest over the next 18 months.

The company reported a loss of '6.30 crore for the quarter ended 30 September compared with a year-ago profit of '11.87 crore. Total income from operations rose 6.93% to '328.50 crore from '307.19 crore.

Managing director Raymond Bickson said the second quarter, typically the weakest in India, registered subdued occupancies in key markets as sentiment was hit by the 3-14 October Commonwealth Games, an event that was mired in controversy.

"In effect, the anticipated improved business surrounding the recent concluded CWG did not crystallize," Bickson said in a media statement.

Indian Hotels fell 3.19% on the Bombay Stock Exchange, or BSE, to '98.70. The benchmark Sensex lost 1.07% or 216.02 points to close at 20,005.37.

Singh of Elara said the earnings were disappointing.

"It's a lacklustre financial performance despite better occupancies and average room rates. This was mainly because of higher overheads of Vivanta brand launches and pre-launch expenditure done for Taj Mahal Palace hotel in Mumbai and Taj Falaknuma Palace in Hyderabad," Singh said. "However, the company's properties in the UK and the US did well."

She expects a substantial improvement in sales and margins in the second half of the financial year as the company will raise average room rates starting November.

The company didn't register any other operating income in the first half compared with '43.79 crore in the year earlier. The other operating income in the year-ago quarter stood at '21.27 crore. This represents insurance payments for business interruption following the terrorist attack of 2008 at the Taj Mahal Palace hotel in Mumbai. The property's cover against losses on account of business interruption was for a period of 12 months, which expired on 25 November, 2009.


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