Taking over from Ratan Tata exactly a year ago, Cyrus Mistry appears to have taken a tougher stance with acquisitions, and especially the Tata Group's $1.8-billion bid to acquire US-listed Orient-Express Hotels.

Though a buyout offer was on the table for an entire year, on November 8, the owner of the Taj Mahal brand of hotels decided to pull the plug on the deal that Orient-Express Hotels (OEH) had said undervalued the company. “By abandoning the offer, Cyrus Mistry has shown that he is keen to get his own house in order before going ahead with empire building,” said an analyst tracking the company. Indian Hotels Company Ltd (IHCL) had bid $12.63 a share at a 40 per cent premium to the then market price. Analysts said the decision to call off the bid was because IHCL’s market cap had slid to $600 million from a peak of $2.6 billion; and that IHCL was almost as leveraged as OEH was as its nadir, in terms of net debt relative to gross operating profits.

IHCL was on a buying spree between 2005 and 2009 and acquired hotels at high valuations. Some of IHCL’s past investments have declined in fair value resulting in erosion in net worth. “IHCL has recognised the diminution in the value of its OEH investment. The timing was wrong last year, but just right for chucking it now, since things have got harder in the hospitality industry,” said another market observer.

Was it the best decision that Mistry took? “It is a tough call that had to be made and Mistry has taken it. Ratan Tata would have pursued, but Mistry has been restrained in his eagerness to acquire. It has been a baptism by fire, and the new chief is focussed on increasing profits, both at home and overseas,” a source said. How this conservatism helps Tatas grow more profitable is something that will be visible only in the next few years.

amritanair.ghaswalla@thehindu.co.in

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