Three-way Asian Hotels split to unlock value

The proposed three-way split of Asian Hotels seems to be a positive move for its shareholders. In recent times, most corporate mergers and splits have raised the combined market capitalisation of the separate entities and there is no reason why it can’t happen in this case too.

The trifurcation is being done at the behest of its three co-promoters — Sushil Gupta, Shiv Jatia and Umesh Saraf, who are no more willing to work together. The differences between the three have been simmering for a long-time and has adversely affected Asian Hotels’ growth.

The company has been in the hospitality business for the past 25 years, but has grown to only three properties after establishing its first five-star property in Delhi in the early 1980s. In recent years, it opened a property each in Mumbai and Kolkata and has acquired development rights in Bangalore and Bhubaneswar. But many of its peers like Indian Hotels, East India Hotels, ITC Hotels and Hotel Leela Ventures have grown manifold.

The trifurcation will lead to the creation of two new companies — Vardhman Hotels and Chillwinds Hotels, besides Asian Hotels. With each individual promoter getting charge of their own property to manage and grow, it is expected to significantly boost the growth prospects for the three entities. It will also induce each promoter to take a long-term strategic decision about the company’s future, which may not be possible under the present arrangement.
The fundamentals for the hospitality sector remains strong and demand continues to outstrip supply in big cities. The flipside is that post demerger, individual entities would be standalone hotels making them more vulnerable in a business downturn. The new companies would have to roll out aggressive expansion plans to remain in the big league.

Ready for global buys

With the completion of latest fund raising exercise, Rolta has joined the club of mid-sized Indian IT companies scouting for global acquisitions. Several mid-rung IT companies in India have taken the inorganic route to expand their operations. This way, the acquirer gets not only an easy access to technological know-how — which is essential to stay afloat amid stiff competition — but also an opportunity to cross-sell to the existing clientele of the target company.

Domestic mid-sized IT companies have largely been focusing on creating a differentiation in their deliverables. In order to stand out in the fierce competition that characterises IT services space, which is largely dominated by big IT companies, mid-rung players often occupy a niche market place. Subex Azure, Sasken Communication and Rolta are some of the niche market IT players. Further, a rapid increase in size and scale becomes a necessity for such companies to stay ahead in their niche operations. Thus, many of these companies have undertaken FCCB route recently to fund acquisitions.

About $150 million raised through the FCCB will help Rolta undertake global acquisitions. The company has been on the lookout for acquisitions in the range of $10-100 million in the US and Europe. Further, such a move will strengthen the position, which Rolta enjoys in the segment of geospatial information system and engineering design system. Apart from business consolidation, the funds would also be sufficient for the company to carry out its plan to set up an IT park in Kolkata with a 5000-seat capacity. This is estimated to cost Rs 250 crore.