The Taj hotels’ latest acquisition gives it a toehold in the fast growing north Mumbai market

Is this the beginning of a new battle for north Mumbai? After two years of tough negotiations, Indian Hotels — more commonly known as the Taj Group — has made its move northwards by snapping up the majestic Regent Hotel which overlooks the Arabian Sea.

For the Indian Hotels Company Ltd. (IHCL), this is a move that couldn’t have been made quickly enough. The north Mumbai market is swiftly becoming the favoured destination for both business and leisure travelers.

This market accounts for over 50 per cent of the total 4,000 rooms in the city. In recent years four big hotels have opened their plate-glass doors in the stretch from Juhu and Sahar to Powai in east Mumbai.

The new purchase has come at a time when the Taj’s moves in other parts of the world have come a cropper. A few months ago the group tried to buy the prestigious Carlyle Hotel in New York but was pipped to the post. It made a similarly unsuccessful bid for the Radisson in Chennai.

It is hardly surprising that a beaming R K Krishna Kumar, managing director, IHCL, says: "We have been targeting an acquisition in north Mumbai for sometime to complete our segment presence in India’s commercial capital."

Certainly, the new hotel gives the Taj Group an edge in the city. The Regent is now the group’s third property in the city and tenth luxury property in the country. It has the flagship luxury Taj Mahal hotel overlooking the harbour. The nearby Taj President is a business hotel. And work is in progress on Wellington Mews, a service apartment in the vicinity. But all three are situated in south Mumbai. This makes the Regent a prize catch.

The Regent has plenty going for it. The hotel, built on 9.25 acres, has 300 rooms, six restaurants and five banquet halls. But the Taj Group has even grander plans for the property. "It will not be a stand-alone hotel. It will be a luxury complex combining hotel, service apartments, retail and offices," says Subir Bhowmick, IHCL’s chief operating officer, luxury.

IHCL will be spending Rs 30 crore for these new additions. The new general manager of Regent is Taj veteran Farhat Jamal, who was earlier the deputy general manager at St James Court in London.

IHCL teamed up with ICICI Trustee Services (I-Ventures) to acquire the Regent Hotel from the Lokhandwala Group, which has interests in real estate and construction, for Rs 452 crore.

Zubin Dubash, executive director, finance, IHCL says: "The total acquisition cost is 40 per cent less than the replacement cost of an equivalent property."

According to him, the cost to Indian Hotels is Rs 80 lakh per room (including Floor Space Index Value). That compares favourably with luxury projects where each room costs more than Rs 1.30 crore. The Lokhandwalas are said to have built the property for around Rs 500 crore in 1995.

The cumulative losses of the erstwhile Regent stands at Rs 50 crore. This is mainly due to interest and depreciation costs. Under the terms of the agreement, IHCL can make a partial acquisition up to 49 per cent at any time.

Besides, IHCL has the option to acquire the entire stake within the next four years. After four years, I-Ventures can offer its stake for sale, giving IHCL the first right of refusal.

Indian Hotels will operate the hotel under a license agreement for 15 years. "The move enables IHCL to dispose of the land in north Mumbai, which was acquired in the past to build a hotel," adds Krishna Kumar.The Taj group had acquired around 20 acres almost two decades ago near Mumbai’s Sahar international airport. The plan has since been abandoned.

Now that the Taj Group has made its way to north Mumbai, there are plans underway to team up with other hotels to develop a convention-cum-exhibition centre near Sahar. IHCL will be part of a joint venture consortium to be formed by Hotel Leelaventure, ITC Hotels, Bharat Hotels (Inter-Continental) and Asian Hotels (Hyatt Regency).

Taj’s plans and its latest acquisition doesn’t appear to have impressed competitors. Says John Toomey, director, sales and marketing (India) of Marriott International: "Since it is not a new hotel but a re-branded Regent, the market situation remains unchanged."

Unlike other new hotels in the city, such as the Le Royal Meridien and the JW Marriott which are managed by international chains, the Regent was owned and managed by the Lokhandwalas. It paid a royalty fee of 3 per cent of gross revenue to the US-based Carlson Companies, which owns the Regent brand. It is the only Regent property in the country.

The Carlson group owns the Regent, Radisson and Country Inn hotel brands. The fact is that the Taj couldn’t afford to stay out of north Mumbai. The group’s calculations are that the number of rooms in north Mumbai are expected to increase to 3,575 from 2,150 over the next three years. This is an 18 per cent compounded annual growth rate.

"This is the only market to grow this year of all the metro markets in India. The high growth trend is expected to continue," says Dubash. He says that this property will cater to three zones — Bandra Kurla Complex, Andheri Kurla and Worli, once the Bandra-Worli sealink comes up by 2005. At the moment, occupancy at the hotel is 50 per cent. With the tourist and festival season coming, it is expected to go up to 75 per cent.

The Regent has already been re-named once before. It started out in 1995 as the Radisson. Later it became the Regent. Now the hotel has been re-christened the Taj Land’s End.