The stock of US luxury chain Orient-Express Hotels has been witnessing re-ratings and downgrades this week. With the board of Indian Hotels Company Ltd (IHCL) announcing that it is set to take a call on its pending $1.8-billion bid for the luxury chain soon, could this be the right trigger for a new bid?

At an earnings conference call recently, IHCL Chief Financial Officer Anil Goel had said a decision would be taken with regard to the luxury hotel chain by the next quarter. He added that the board had not taken a decision on the Orient-Express bid, and that different options were open to the Indian hotelier. Earlier, the Indian company, which runs the Taj and Ginger brand of hotels, had said a decision would be announced by end-March.

IHCL had offered to pay a 40 per cent premium at $12.63 to Orient-Express Hotel’s stock price, for a total buyout of 100 per cent shares. On November 8, 2012, US-listed Orient-Express Hotels, which owns several luxury hotels, had rejected IHCL’s takeover offer.

Re-ratings galore

With the re-rating and the downgrade that the Orient-Express Hotels stock has been witnessing, investment managers, analysts and brokerage houses maintain this could be the right time for a fresh bid.

Analysts at JP Morgan Chase have raised their price target on shares of Orient-Express Hotels from $11 to $12, while analysts at Deutsche Bank too, have raised their price target on the shares of Orient-Express Hotels from $12 to $14. The latter now has a ‘buy’ rating on the stock.

The Goldman Sachs Group has also resumed coverage on shares of Orient Express Hotels, with a price target of $12.50 on the stock. As of August 21, Orient-Express Hotels stock clocked a one-year low of $8.47 and a one-year high of $13.13. The company’s market cap is $1.296 billion.

IHCL on the other hand, has seen its stock shed about a third of its value since it made its bid for the Bermuda-based Orient-Express Hotels last October. The company has already taken a hit of Rs 424 crore on its investment in Orient-Express Hotels for the quarter ended March 31.

Announcing its standalone Q1 results on August 12, IHCL said its auditors had invited attention to the company’s investment in Orient-Express Hotels through a wholly-owned subsidiary, “the carrying cost of which significantly exceeds the market value as on the reporting date”. The company noted, “In view of the strategic nature of the investment, in the opinion of the management, there is no diminution, other than temporary, in the value of the aforesaid investment.”

Moreover, at IHCL’s recently held 112th annual general meeting in Mumbai, Cyrus P. Mistry, Chairman, Tata Sons, had also said the company was exploring different ways of working together and that the board would check into any opportunity with regard to Orient-Express Hotels. Mistry told shareholders that the board held the shareholding in Orient-Express Hotels as a strategic investment.

As of June 30, Orient Express Hotels owned and managed 35 deluxe hotels and resorts located in the US, Mexico, Caribbean, Europe, South Africa and Southeast Asia, six tourist trains in Europe, Southeast Asia, two river cruises in Burma and one canal boat business in France.

>amritanair.ghaswalla@thehindu.co.in

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