Indian Hotels down 9% in two days after board approves rights issue

STOCK MARKET - Indian Hotels Company was trading 6% lower at Rs 112.50, extending its Monday’s 3% fall on BSE, after the company said its board approved the fund raising of upto Rs 1,500 crore through rights issue.

Tata Group hospitality firm said the objective of the rights issue is to meet the long-term financing needs for capital expenditure, growth plans and debt repayment.

Indian Hotels has consolidated gross debt of Rs 3,383 crore. After taking into account liquidity of Rs 161 crore, the net debt was Rs 3,221 crore as at June 30, 2017 (Q1FY18).

The company had posted consolidated operating EBITDA (earnings before interest, taxation, depreciation and amortisation) of Rs 91 crore in Q1Fy18 as compared to Rs 94 crore (excluding Taj Boston Rs 86 crore) corresponding quarter of the previous year.

Although from a long term perspective the company’s domestic segment is expected to gain traction (led by higher occupancy, limited capacity addition and rise in spending by domestic travellers), analysts at ICICI Securities believe the subdued performance of international subsidiaries continues to remain an overhang.

“Further, the recent announcement of right issue is expected to lead to dilution of equity and return ratios in the medium term. The financials are expected to improve only after the benefits of capex kick in. Hence, we downgrade the stock from BUY to HOLD,” the brokerage firm said in event update.

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