Hotel Leelaventure: Sell :: Business Line

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The stock of luxury hotel chain Hotel Leelaventure, on a downward spiral from late 2010, saw a temporary revival last year. An upbeat market and hopes of relief on the debt front saw the stock double from ₹15 last December to ₹30 in early July.

But then, it slid again and is at ₹21 now. That’s because there has been no substantial fund infusion to repay debt, and losses have mounted.

The company’s financial situation seems precarious. Debt is at more than ₹5,000 crore. Losses for ten consequent quarters have shrunk its net worth and the debt-to-equity ratio has ballooned to nearly 11 times.

The annual interest cost of about ₹500 crore is far higher than operating profit, and interest cover ratio for the half year ended September was just 0.14 times. The company has defaulted on servicing its debt to LIC for three quarters. An improvement in Hotel Leelaventure’s fortunes seems unlikely anytime soon. A few more quarters of losses and the net worth will be eroded. Investors can exit the stock.

Bad timing

This state of affairs is primarily due to two factors — the sharp rise in the company’s debt and an insipid economy.

Buoyed by the good run prior to the 2008 financial crisis, many hospitality players including Hotel Leela went for big expansion, funded mostly by debt.

About half of the company’s currently owned and managed 1,619 rooms across the country came into operation after 2008. But the timing was bad. The slowdown after the 2008 crisis meant that occupancy levels and room rentals dropped. Profits started declining and for the last two years, the company posted big losses. Occupancy rates and room rents remained stagnant or declined in 2013-14 too. The situation has not improved much this year too.

To pare debt, Hotel Leelaventure sold its Kovalam property in 2011 for ₹500 crore and its IT park in Chennai in 2013 for ₹170 crore. As part of the corporate debt restructuring (CDR) in 2012, the promoters also infused ₹200 crore; the company is currently out of the CDR mechanism with the major lenders assigning their debt to asset reconstruction companies. Recently, the promoters have brought in ₹35 crore. But this is not sufficient.

Slow progress on fund-raising

Along with an asset-light strategy involving management contracts, Hotel Leelaventure has been intending to monetise its non-core assets to pare debt. These include sale of office space next to its Chennai property, joint development of real estate on its Pune and Bengaluru lands, and sale of land in Hyderabad.

The company is also reportedly looking to sell majority stake in its Delhi and Chennai hotel properties. But progress on fund raising has been slow.

Plans to raise about ₹1,000 crore through a qualified institutional placement have not materialised so far. Also, talks earlier this year for a bridge loan from private equity firm KKR fell through. Losses of ₹175 crore and ₹160 crore in the recent June and September quarters, among the company’s highest, have aggravated the situation.

At the current price, the Hotel Leelaventure stock’s enterprise value discounts its 2014-15 annualised profit by a steep 87 times, far higher than that of better placed Indian Hotels.