Bracing for slump, Taj to sell assets

Taj, the luxury hotel chain controlled by the Tata Group is looking to sell some assets and avoid owning new properties in an effort to further pare debt, as it braces for a slump in consumer spending.

Indian Hotels, Tata’s listed firm that operates the Taj brand, plans to dispose of certain budget hotel in the non-metro areas and lease them back for a fee, Puneet Chhatwal, managing director and the chief executive officer said.

“We are moving our focus to more management contracts rather than constructing hotels of our own,” Chhatwal said. “We have no plans to put our legacy and flagship properties under sale and leaseback.”

The Mumbai-based company’s measures to cut costs and liabilities come at a time growth has cooled to a five-year low, while a lingering shadow-bank crisis damps discretionary spending.

The nation’s biggest carmaker, Maruti Suzuki India, reported the worst sales drop since 2012 in July. Besides the slowdown, the grounding of Jet Airways has also hit Indian Hotels, forcing it to write-off some dues.

The chain has been reducing debt in the past few years by selling assets including apartments purchased for Tata Group’s executives. Consolidated net debt stood at Rs 20 billion ($282 million) at the end of March.

Indian Hotels is focusing on an “asset-light model” besides keeping costs under check and shedding non-core assets, Amit Agarwal, an analyst at Nirmal Bang Securities Pvt. said. All 12 brokerages, whose data Bloomberg compiles for this firm, have a buy rating on the stock.

The efforts to pare borrowings at the hotel chain are also part of a wider drive at India’s biggest conglomerate.

Tata Motors, the owner of Jaguar Land Rover, has said it is looking at options for the struggling British luxury brands.

Tata Steel is in the midst of a revamp of its European operations.

The hotel operator aspires to reduce ownership of properties to 50% by 2022, from 70% at present, Chhatwal said. The sale and lease-back plans include as many as six hotels at the group’s Ginger budget brand and a similar number held by joint ventures and associate companies, he said.

Indian Hotels, currently operates 151 hotels, including the Taj Mahal Palace that became the target of terrorists during the Mumbai siege in 2008.