Saddled with a debt of about Rs 3,800 crore, Hotel Leela Ventures has so far managed to deliver on its debt reduction plan. In a recent development, the company announced that it would hive off its Kovalam property for Rs 500 crore to Travancore Enterprises. Though it would still be left with significant debt on its books, the move is expected to bring it some respite.

In the right direction

The Leela group had acquired the Kovalam property for about Rs 150 crore in 2005. Given that, the sale price of Rs 500 crore does lock-in reasonable profits for the company. And since Leela would continue to manage the five-star property under its own brand name through a long-term management contract, it would continue to make some money from the property. Besides, the move to sign a management contract is in keeping with its long-term expansion strategy of using less capital while augmenting revenues.

The Kovalam property made up about 13 per cent of the company's total revenues of about Rs 526 crore in FY11. Being one of the main tourist attractions in Kerala, the property enjoys high room rentals and occupancies during the tourist season from November to March.

Long way to go

Last month, Leela had executed a joint development agreement with Bangalore-based developer, Prestige Group, to develop premium residential apartments on 2.3 acres of surplus land adjacent to its Bangalore property. It expects to realise about Rs 150 crore through this deal over the next four years. Even so, the company has a long way to go before it can bring its debt to reasonable levels. Timely execution (and at right valuations) of the expected sale of the commercial space in Chennai, property development at Hyderabad and raising equity (by way of private equity) would hold the key here.