Indian Hotels-Losses and Dividends-VRK100-02Jan2014

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The Indian Hotels Company Limited has been consistently making losses ever since the 2008 global financial crisis hit the company very badly. The company is commonly known as Taj Group of Hotels, owned by Tata Sons.

As shown in the above table, the company made very big losses in 2009-10, 2010-11 and 2012-13. Even in 2008-09 and 2011-12, the company’s profits were very meager. The total losses between 2008-09 (after the global financial crisis) and 2012-13, on a consolidated basis, amounted to Rs 639 crore.

But these massive losses did not deter the company from paying hefty dividends to shareholders. Around 38 percent of the total stake in the company is owned by the promoters, the Tatas. While the consolidated losses were Rs 639 crore in the last five years, the total dividends paid were Rs 380 crore during the same period.

While there is nothing unlawful about this, valid questions can be raised against the prudence of the company’s management in doling out liberal dividends.

Is this how the Tatas milk their companies, even though loss-making, for their own benefit—in the form of dividends? It is a known fact in the corporate world that when business conditions are horrible, companies skip dividends altogether or cut them drastically to weather the difficult conditions.

Why can’t the company use the precious cash to retire its massive debt and bring down the large interest cost, instead of doling out dividends?

The company made huge acquisitions in the US, Australia and others. It tried to take over the US-based Orient Express Hotels when it bought 6.9 percent stake in the company in 2007. But Orient Express rejected Tatas’ overtures.

Now these investments and acquisitions turned out to be lemons (with the benefit of hindsight). And the shareholders of Indian Hotels have suffered in the last five to six years, as the company is saddled with massive debt.

Indian Hotels has disappointed the equity investors and is not making any amends to its profligate ways. Can the company do some soul searching now that its adventures have become very costly?

If the Tatas admit their costly mistakes humbly, it would do a lot of good for their corporate governance practices.    

Is anyone at Securities and Exchange Board of India (the capital market regulator) or the company’s board of directors listening?

Corporate governance is dead! And long live corporate governance!

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Disclaimer: The author is an investment analyst, equity investor and freelance writer. The author has a vested interest in the Indian stock markets. This write-up is for information purposes only and should not be taken as investment advice. Investors are advised to consult their financial advisor before taking any investment decisions. The author owns equity shares in the above mentioned company. He blogs at:

http://ramakrishnavadlamudi.blogspot.in/

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