Debt-laden Bharat Hotels, which operates hotels under The LaLiT brand is looking for strategic investors for a stake sale, sources familiar with the matter told ET. As per a discussion document floated by Yes Securities which ET has accessed, the investment opportunity and the potential stake sale will deliver funds to Bharat Hotels for property renovation, besides closing the revenue per available room (RevPAR) gap with industry peers and adding to the bottomline of the company. As per the document, the investment also provides ‘growth acquisition’ opportunities through buy-outs/management contracts with Bharat Hotels.
Bharat Hotels and Yes Securities did not respond to emails seeking comments till the time of going to press.
The company, which owns and operates 12 hotels totalling around 2250 keys across prime locations in markets such as Delhi, Udaipur, Mumbai, Bengaluru, Jaipur, Goa and Srinagar had a debt of Rs 1266 crore in FY20 and its debt coverage may be impacted due to Covid-19. Bharat Hotels clocked revenues of Rs 729.2 crore in FY20 as per the document.
Hit hard by Covid, the revenue per available room (RevPAR) for its hotels declined to Rs 960 post-Covid from Rs 4031 pre Covid, while occupancies declined to around 24% from 60%.
As per the discussion document, the Covid-19 pandemic is expected to impact the chain’s performance in financial year 2021, however, the risk is ‘partly mitigated’ due to the company’s geographical diversification across segments and micro markets. The chain also has 45 restaurants, bars and outlets across its hotels which lead to about 42% of the revenues coming from F&B and banqueting operations.
Bharat Hotels has five city hotels in New Delhi, Mumbai, Bengaluru, Kolkata and Chandigarh, and seven leisure hotels in Goa, Jaipur, Udaipur, Srinagar,Bekal, Khajuraho and Mangar. Of these, hotels in Mumbai, Kolkata, Udaipur and Khajuraho are freehold with the balance on lease with long maturities.
As per the proposal, the area opportunities for strategic investors are around a ready target customer base, and cross synergies on loyalty programme, websites and sales infrastructure. It goes on to state that pre Covid, the chain was achieving a healthy margin in excess of 30% and the owned assets allow the company to get access to lower cost debt (offered as hard collaterals).
The second Covid-19 wave was particularly harsh for the hospitality sector, with leading chains reporting a significant uptick in losses for the quarter ended June. Though a revival in leisure travel did lead to a month on month increase in occupancies towards the end of the quarter, according to hospitality consultancy HVS Anarock’s Hotels and Hospitality Overview report.
According to the discussion document, Bharat Hotels has lagged behind industry players such as Indian Hotels Company (IHCL) and Chalet Hotels post Covid in terms of occupancy rates and revenue per available room.
The Indian hospitality sector has witnessed a low number of transactions over the past few years due to factors such as promoters expecting investors to provide premium for the appreciated land value and not just for the operating cash flow and promoters expecting investors to provide value at the peak of hospitality cycle. But that is expected to change according to this investment proposal as they now fear losing control over their assets National Company Law Tribunal (NCLT), and many would prefer to sell the assets prior to entering NCLT.
“The impact of Covid on hospitality has been unprecedented with many assets witnessing near zero occupancy. This will push many assets to look for solutioning,” the document stated.