Hotel Leela

Hotel Leela had spiked up on news that RIL is all set to buy the company’s IT park in Chennai to house its headquarters for its much-awaited 4G operations. The deal is said to have been struck at around Rs.172 crore.  Its built-up area is at 2.20 lakh square feet and this puts its valuation at around Rs. 8,000/sq.feet. Many say that the valuation earlier was around Rs.240 crore but as it had been on the sale block for some time with no buyers, this sell to RIL was more of a distress sale. This news was later refuted by RIL and it denied buying the land. But many still choose to believe that this sale, even if distress, is good news for Hotel Leela which can use this money to retire some of its gargantuan debt of over Rs.4000 crore under the CDR. The company is also selling its land parcel in Hyderabad and will be developing part of its Bangalore and Pune property for residential purposes.

The company did not have a very encouraging Q2FY13 as despite a 35% rise in net sales at Rs.132 crore, it posted a net loss at Rs.92.5 crore  and this was thanks to the higher interest outgo, higher operating costs with no corresponding hike in average room rates. For the sector, Q2 is relatively weak and business is expected to pick up in second half. But average room rates are not expected to go anywhere near the rates that it was during 2008. Most of the companies in the sector have reported a weak performance for Q2 and Leela, all the more so. With supply also going up in Delhi, demand and room rates have been impacted. The company is now concentrating on going asset light and reducing its debt. And that is better thing to do currently rather than concentrate on business, which as such will stand impacted due to supply outstripping demand and the economy continuing to remain low.