ITC vs Tatas: Battle for Delhi's Taj Mahal Hotel heats up

The battle for the iconic Taj Mahal Hotel in the heart of New Delhi has just gotten a bit more fierce.

After the Ministry of Urban Development played spoilsport in the extension of lease of Tata group-owned Indian Hotels’ marquee property at Mansingh Road by opting for an open bidding process, competitors, including financial investors have been pouring in to bid for the high-stake property.

Until now the property was being looked after and maintained by the Tata Group, but was funded byNew Delhi’s municipal body . The Tata Group company operated it on a 33-year lease, which expired last year but was extended till October 2012. Under the current agreement, Indian Hotels pays 10.5% of its annual gross revenues to NDMC as revenue share.

However the Municipal body has now declared an open auction for the 30-year lease on the property, which can be entered into by any business house in India. The civic body then decided to auction the property to determine its market price.

A report in the Economic Times today said Tata rival ITC, which has always wanted to overtake Indian Hotels as the country’s largest hotel chain, now wants to explore the opportunity to participate in the auction, but only if the reserve price made sense.

However, “If the Tatas are given the right-of-first-refusal, competing parties would have to submit aggressive revenue-share bids to emerge victorious. The Tatas, on their part, will have to take part in the auctions with a clear strategy and a maximum amount in mind beyond which matching the highest bid would not make sense,” the ET report said.

France’s Accor and Subrata Roy’s Sahara India Pariwar, Lucknow, India are reportedly also interested in competing for the new lease, but with the Supreme Court ruling on the latter, at least one competitor is out of the picture for sure.

There’s no doubt that the Taj Mansingh is Indian Hotels’ most prized possession after the Taj Mahal Hotel in Mumbai. The company is surely going to do whatever it can to retain it. But this may prove to be a tall task given the Indian Hotels Company reported a 49.79 percent increase in consolidated net loss at Rs 33.36 crore for the June quarter due to forex losses, lower treasury income, and an investment in a new property.

What’s worse is that another aTaj Group property in the capital is facing lease trouble.

The lease term of the Taj Palace Hotel will also expire on April 1, 2013, and it must settle a dispute with the Delhi Development Authority (DDA) over the quantum of licence fee for a smooth renewal.