Orient-Express is a good investment for Tata
With each passing day, the Tata group is making its intention clear. They are no more satisfied with industry leadership in India.
By Krishna Kant, TNN |
MUMBAI: With each passing day, the Tata group is making its intention clear. They are no more satisfied with industry leadership in India. They are now eyeing global leadership. Indian Hotels’ — owner of Taj chain of hotels — announcement to pick 10% stake in Orient-Express Hotel (OEH) is another step in that direction. The market was, however, not very happy with the deal. The stock was marginally down on BSE on Tuesday.
Though it’s difficult to visualise the final shape of the relationship between the two companies, Indian Hotels has indicated that the investment creates a platform to explore the possibility of an alliance. There are a lot of similarities between the two and a tie-up will help them generate more business without eating into each other’s revenues. The catch here is that Orient-Express will have to agree. Indications from New York are that they are anything but pleased with the move.
A company listed on the New York Stock Exchange, Orient-Express calls itself a global hospitality and leisure company with exclusive focus on the deluxe luxury segment. As of now, it operates 39 hotels, two restaurants, six trains and two river cruise operations. Some of the leading brands owned by it include Orient-Express, Hotel Cipriani, Copacabana Palace, ‘21’ Club, Mount Nelson and the Ritz. Its properties are located in North America, South America, Western Europe, South Africa and South East Asia.
This complements Indian Hotels’ existing strengths in corporate and business travel and its leadership in South Asia. Indian Hotels has almost equal focus on business travel and leisure travel and has only a limited presence in the super-deluxe luxury segment. Indian Hotels doesn’t operate any luxury trains or cruises either. There’s also a geographical fit between the two as the bulk of Indian Hotels’ properties is located in India and nearby countries in South Asia, West Asia and South East Asia. At the end of FY07, Indian Hotels owned or operated 82 properties across the globe.
India is one of the fastest-growing travel destinations worldwide and any alliance will help Indian Hotels get new business through cross promotion or brand promotion through each other’s network. Orient-Express will also gain as a greater number of Indians are now travelling more than before both for business and leisure. A formal alliance will be especially crucial in attracting business from MNCs who want a global account.
The alliance, if and when it happens, will also prove to be a good learning ground for the Taj Group. Its pure-play hospitality company, Oriental-Hotels is now getting into super-luxury property development and is launching villas, condominiums and yacht clubs. The company says the diversification will help it cash in on its expertise in property management and guest service skills. As the Indian market matures and income levels rise, similar kinds of opportunities will open up in India as well.
Many industry analysts view the stake purchase as a precursor to a formal acquisition bid. Though a mere speculation right now, a formal acquisition is within the financial reach of Indian Hotels and fits with the group strategy. However, it needs to fork out an additional $1 billion to take a majority stake in OEH. Not a big amount for a company that generated cash profit of over Rs 500 crore in FY07 and is sitting on reserves of over Rs 2,000 crore.
However, even without a formal acquisition, it will be a good investment as OEH is one of the world’s fastest growing hospitality chains. During 2006, OEH reported net sales of $511 million, up by 14% over the previous year. The net profit during the period grew by 28% to $46 million.
Though it’s difficult to visualise the final shape of the relationship between the two companies, Indian Hotels has indicated that the investment creates a platform to explore the possibility of an alliance. There are a lot of similarities between the two and a tie-up will help them generate more business without eating into each other’s revenues. The catch here is that Orient-Express will have to agree. Indications from New York are that they are anything but pleased with the move.
A company listed on the New York Stock Exchange, Orient-Express calls itself a global hospitality and leisure company with exclusive focus on the deluxe luxury segment. As of now, it operates 39 hotels, two restaurants, six trains and two river cruise operations. Some of the leading brands owned by it include Orient-Express, Hotel Cipriani, Copacabana Palace, ‘21’ Club, Mount Nelson and the Ritz. Its properties are located in North America, South America, Western Europe, South Africa and South East Asia.
This complements Indian Hotels’ existing strengths in corporate and business travel and its leadership in South Asia. Indian Hotels has almost equal focus on business travel and leisure travel and has only a limited presence in the super-deluxe luxury segment. Indian Hotels doesn’t operate any luxury trains or cruises either. There’s also a geographical fit between the two as the bulk of Indian Hotels’ properties is located in India and nearby countries in South Asia, West Asia and South East Asia. At the end of FY07, Indian Hotels owned or operated 82 properties across the globe.
India is one of the fastest-growing travel destinations worldwide and any alliance will help Indian Hotels get new business through cross promotion or brand promotion through each other’s network. Orient-Express will also gain as a greater number of Indians are now travelling more than before both for business and leisure. A formal alliance will be especially crucial in attracting business from MNCs who want a global account.
The alliance, if and when it happens, will also prove to be a good learning ground for the Taj Group. Its pure-play hospitality company, Oriental-Hotels is now getting into super-luxury property development and is launching villas, condominiums and yacht clubs. The company says the diversification will help it cash in on its expertise in property management and guest service skills. As the Indian market matures and income levels rise, similar kinds of opportunities will open up in India as well.
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Many industry analysts view the stake purchase as a precursor to a formal acquisition bid. Though a mere speculation right now, a formal acquisition is within the financial reach of Indian Hotels and fits with the group strategy. However, it needs to fork out an additional $1 billion to take a majority stake in OEH. Not a big amount for a company that generated cash profit of over Rs 500 crore in FY07 and is sitting on reserves of over Rs 2,000 crore.
However, even without a formal acquisition, it will be a good investment as OEH is one of the world’s fastest growing hospitality chains. During 2006, OEH reported net sales of $511 million, up by 14% over the previous year. The net profit during the period grew by 28% to $46 million.
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