Tata Group's hotel unit to retain Delhi's Taj Mansingh Hotel

Tata Group's hospitality firm The Indian Hotels Company Ltd (IHCL) will retain the prominent five-star luxury hospitality address in Lutyen's Delhi. Located on the Mansingh Road, the 292-rooms property featuring a combination of elegant old-word luxury and modern comforts has been operating under the banner The Taj Mahal Hotel, New Delhi – popularly known as Hotel Taj Mansingh – for over three decades.

Puneet Chhatwal, managing director and chief executive officer, IHCL, said, the iconic Taj Mahal, New Delhi has been an important part of the cultural and historic fabric of the national capital. "It will continue to remain a part of the IHCL family. We look forward to investing in the hotel and taking it to new heights of Indian hospitality," he said adding that the Taj legend will continue to serve Delhi with elegance and charm.

The auction for this hotel, pending since the lease expired in 2011, was finally concluded by the New Delhi Municipal Council (NDMC) on Friday evening. Only two business entities viz. ITC Hotels and IHCL had qualified to bid in the e-auction and Tata Group outbid ITC to retain the jewel in its portfolio of prized possesions.

IHCL will be granted the lease for the Taj Mansingh hotel for a period of 33 years. However, reports said that the hotel bid win has come at a significantly higher price, at double the license fees. "Tata group's IHCL has retained the property at a license fees of Rs 7.03 crore per month including goods and services tax. Earlier, they were paying Rs 3.94 crore per month as license fees," said a PTI report quoting a senior NDMC official.

The new commercial terms between IHCL and NDMC, according to industry experts, will be very challenging to sustain for the Tata group's hospitality vertical. "Retaining the hotel was more of a prestige issue for the Taj group. That's possibly the reason for adopting an aggressive bidding strategy," said the expert.

Sources told DNA Money that there was a minimum threshold for bidding that started from 17.5% in terms of revenue share. "When the bidding started either party could increase their offer only by 0.5% each time. ITC Hotels is understood to have taken the bidding up to 32.4% which was followed by an increased bid of 32.5% by IHCL thus taking home the property. This basically means out of every Rs 100 income from the Mansingh hotel IHCL will have to pay NDMC Rs 32.5 i.e 32.5% of the hotel's gross turnover," said the source adding that it's not a very sustainable rate.

The Taj Mansingh was given to the Tata group in 1978 on a 33-year lease, which ended in 2011. The company had since been given nine temporary extensions. The civic body could not auction the property then as it was tied up in a legal battle with IHCL.

AUCTION PUT OFF

The auction had to be put off twice as it got less than the required number of bids for the five-star property to go under the hammer. Earlier, the civic body had issued an annulment notice for the e-auction in June when it had to be cancelled as only IHCL -- the existing operator -- had submitted its bid for retaining the property

COSTLY DEAL

• Rs 7.03 crore per month - IHCL will pay as license fees
   
• Rs 3.94 crore per month - NDMC was receiving earlier from IHCL
   
• 32.5% of the hotel's gross turnover - NDMC's share as per new commercial terms