All eyes are set on the New Delhi Municipal Council (NDMC) meeting that will happen on Thursday to decide the future of 34-year-old Hotel Taj Mahal, more popularly known as Taj Mansingh.
It will decide whether the Taj Group will continue to run the property on re-negotiated financial terms or will NDMC go for an auction, inviting bids from other interested parties. In the latter case, Taj Group will face competition from rivals such as ITC, Sahara, Oberio, besides international majors.
Hotel industry experts believe that if Taj Hotel Group loses this property, it will be a big blow for the company financially as well as strategically.
A senior executive with a consultancy firm who did not wish to be indentified said, “Both Taj Mansingh and Taj Palace hotel alone contribute nearly a quarter to the group’s revenues. In addition, it’s a key and marquee property in a city like Delhi.”
The executive added that both the properties thrive on strong synergies and the hotel chain is likely to pull out all the stops to retain it.
Consultancy firm Ernst & Young is acting as advisor and the council’s decision will be based on their report.
It, reportedly, has suggested the advantages and disadvantages of the possibilities which includes calling for an auction and renegotiating the deal. The hotel is being operated by the Taj Group on a one-year extension that is expected to end in the beginning of October.
The group, which is expected to get the first right of refusal, will also have to match the highest bidder to retain the property.
Till 2011, Taj Group (Indian Hotels Company Ltd) was paying 10.5 per cent of its gross revenue which has been increased to 17.5 per cent by NDMC for the extension period, according to sources.
Industry trackers believe a higher share of gross revenue will also squeeze the operator’s profit.
“Typically, luxury hotels work on 36-38 per cent profit margin basis, and 17.5 per cent means giving half of it away, higher revenue sharing agreements will definitely squeeze profits for any hotel operator,” said another hotel consultant.