DECISION MAKING AT HOTEL LEELA VENTURE LTD.

Navin Sharma was happy about the meetings in the ensuing week. Sharma had joined the
finance department of Hotel Leela Venture Ltd, three months ago and was entrusted with
the responsibility of drafting a plan for the companys development plans over the next
few years.
He had to meet a U S based private equity firm with a proposal to finance the expansion
programme of the company. The company was successful in winning a deal for a plot in
New Delhi for Rs 611 crores in April 2007.The document to be presented to the private
equity contained the following details:
Overview of the Economy
At the close of 2007, India is poised for a resurgent economic growth. The Indian
economy is at its most exciting stage of its development. The experiences of other
economies have revealed that the high growth rate can be sustained over a long time
horizon. J apan, for instance has grown at 8.5 percent for 20 years while the Chinese
economy has registered a growth of 9.5percent with the GDP growing over 10 times for
25 years post economic reforms. A closer look at the growth structure and drivers of the
Indian economy disclose that during the early part of this decade, the development was
clearly in the service sector. However the manufacturing industry has bounced back in
the recent years as a major growth driver.

This case is written as a basis for class discussion rather than to illustrate effective or ineffective handling
of an administrative situation.
The service sector has nevertheless, brought to fore the capabilities and talents of the
Indian people. The services sector in particular has grown rapidly and has noteworthy
contribution to the overall GDP of the country. Statistically, the services sector has
increased its contribution to the Indian GDP from 37 percent to 49 percent between 1980
and 2000
1
. According to a recent S&P report, Indian services sector may pose a threat to
other countries in South-Asia. The services sector in other Southeast Asian countries is
sluggish as compared to the manufacturing sector and this presents enormous opportunity
to the burgeoning Indian and Chinese service sector.
The components of the service sector namely tourism and hospitality have also registered
record growth in 2007. The Ministry of Tourism, Government of India, has reported a
total increase of 36 percent in the overall revenues as compared to the previous year.
Similarly there is also a boom in the hotels and the hospitality segment. According to
consulting major Deloitte, international tourism expenditure in India in 2006 was about
$8.7 billion and is expected to rise to over $10 billion in 2008 with a major share of this
being generated from the hotel sector. This has led to players from other sectors to enter
into the hotels and hospitality sector. Industry sources are of the opinion that there is a
tremendous demand for rooms in the five star hotel segments and therefore land owners
and developers are keen on building hotels as compared to operating any other business
venture.
As the economy and the sector are on a upward trend, hotel companies in India are also
ballistic with their growth and development. Major hotel operators are expected to invest
approximately Rs 4,500 crore in new projects and expansion by 2010. Leading operators

1
1Liberalisation: Casually unproductive in India
8 J an, 2008, 0000 hrs IST,Pothik Ghosh, TNN
Indian Hotels (Taj brand), EIH (Oberoi Group), and other players such as Hotel Leela
Venture expect the room inventory to go up by around 6,500 rooms.
Hotel Leela Venture Ltd.
Capt. C.P. Krishnan Nair established the Leela group in 1957 and today the Rs.450 crore
group is engaged in diverse business such as ready-made garments and luxury hotels
Capt. Nair began his entrepreneurial venture with Leela Scottish Lace Ltd.- the first and
the only lace manufacturing plant. Leela Lace Ltd was very famous for the fabrics such
as, Bleeding Madras, Cheese Cloth and was the large exporter of this fabric to the west,
especially to the United States. The company also manufactures readymade garments and
has an impressive list of customers including, Tommy Hilfiger, The Gap, Liz Claiborne,
Polo J eans, Tommy Hilfiger, J C Penney, Macys, Van Heusen, Walmart and others from
the American fashion industry. Capt Nairs vision and efforts has clearly made Leela
Lace the largest garment exporter from India to the USA. Today Leela Lace has 10
factories in Bangalore, 5 in Chennai and 5 in Mumbai, with an annual turnover of US$ 75
million. Leela Lace Ltd. is the promoter of Hotel Leelaventure Ltd.
The Leela Kempenski and Leela Goa have won international acclaim and are two of the
best hotels in India. It is remarkable that this was achieved in span of mere twelve years.
The Leela Kempinski, Mumbai has received many rewards for being the best 5 star
deluxe hotel in India. In 2001 the company constructed a 254 room grand property in the
garden city of Bangalore, one of the finest hotels in India. Set amidst 8 acres of
landscaped garden and waterfalls, the Leela Palace Kempinski, Bangalore is built in a
very artistic style recreating the grandeur of the Mysore Maharajas Palace. It is a perfect
blend of a traditional palace with the heart of a modern hotel.
Another achievement is the The Leela Kovalam , Keralas largest resort, built on a rock
face cradled between two wide beaches with a breathtaking view of the famous Kovalam
coastline. The words of Capt. Nair describes the business strategy that drives the
company from to extraordinary levels of excellence Fundamental to our business is the
all pervasive Indian tradition of hospitality. Secondly, we honour the cultural heritage of
India. Lastly, we operate on the basis of world class technology, backed up fully by the
commitment of the staff.
The company has ambitious plans for expansion in the near future. The growth plan
includes hotels in some of the major cities in India. The company also wants to embark
on mixed use business format in New Delhi.
New Delhi
Delhi and National Capital Region (NCR) has recorded the largest increase in the supply
of hotel rooms. The supply of rooms, including unbranded segment and unorganized
guest houses, is expected to be 4 to 5 times the rooms required. Estimates for 2007,
suggest that there are 80 hotel projects with an addition of 19400 rooms in the pipeline as
compared to 40 projects with 10800 rooms in 2006. It was forecasted in 2006 that 74
percent of the projects will be developed in time for the common wealth games in 2010,
but revised estimates say that only 56 percent of such projects would be completed in
time. The reasons for this include delay of availability or withdrawal of plots in the Noida
region that could have allowed 3000-4000 rooms in the city. Furthermore, the FSI is very
low (average 2.0) when compared to other international destination or select Indian cities
Mumbai
Mumbai has been a good market for hotels and the trend will continue till 2011. There is
huge demand and supply gap at the moment and the developments in the city such as the
international convention centre Bandra Kurla complex will induce the demand for hotel
rooms in the city. The city is conducive to all the new supply entering into the market and
enjoys a good mix of different hotel segments.
Goa
Goa is a favourite Leisure destination but hotels take a long time to develop. The state is
likely to witness a 125% increase in the supply with a chance of only half of the projects
to be completed by 2010. The MICE segment will also shows tremendous potential with
the growth of the convention centre.
Bangalore
Bangalore has recorded a spectacular performance from 2002-2006. The supply of hotel
rooms has been very slow as compared to the developmental activities in the state. The
guesthouses have cut into the share of hotel rooms resulting in weakness of occupancy.
The market is expected to correct itself one the demand and supply reaches equilibrium
around 2009/2010. This will result in the flowing back of unaccomodated demand
utilized by the unorganized sector. However, experts maintain that there is a good
opportunity for development of multiple hotels catering to specific demand in the budget
and mid-market space.




HOTEL LEELA VENTURE LTD LTD.
Profit & Loss account ------------------- in Rs. Cr. -------------------
Mar '03 Mar '04 Mar '05 Mar '06 Mar '07
12 mths 12 mths 12 mths 12 mths 12 mths
Income
Sales Turnover 134.42 195.41 256.69 326.95 380.86
Excise Duty 0.00 0.00 0.00 0.00 0.00
Net Sales 134.42 195.41 256.69 326.95 380.86
Other Income 51.30 12.20 15.32 18.04 71.55
Stock Adjustments 0.00 0.00 0.00 0.00 0.00
Total Income 185.72 207.61 272.01 344.99 452.41
Expenditure
Raw Materials 7.51 7.95 13.02 13.92 17.87
Power & Fuel Cost 18.29 21.75 21.98 25.65 26.97
Employee Cost 37.96 36.29 40.57 46.81 57.02
Other Manufacturing
Expenses
15.15 19.65 25.37 27.99 33.09
Selling and Admin Expenses 15.89 19.25 30.91 39.60 45.00
Miscellaneous Expenses 8.10 9.00 4.67 10.08 10.75
Preoperative Exp Capitalised 0.00 0.00 0.00 0.00 0.00
Total Expenses 102.90 113.89 136.52 164.05 190.70
Mar '03 Mar '04 Mar '05 Mar '06 Mar '07

12 mths 12 mths 12 mths 12 mths 12 mths
Operating Profit 31.52 81.52 120.17 162.90 190.16
PBDIT 82.82 93.72 135.49 180.94 261.71
Interest 61.66 59.10 56.44 36.97 38.25
PBDT 21.16 34.62 79.05 143.97 223.46
Depreciation 26.26 27.17 29.83 32.45 33.75
Other Written Off 0.26 0.26 0.00 0.00 0.00
Profit Before Tax -5.36 7.19 49.22 111.52 189.71
Extra-ordinary items 10.07 0.27 1.28 -0.06 -0.19
PBT (Post Extra-ord Items) 4.71 7.46 50.50 111.46 189.52
Tax -11.06 -0.42 4.46 38.37 63.27
Reported Net Profit 15.77 7.88 44.76 73.17 126.43
Total Value Addition 95.39 105.95 123.50 150.12 172.83
Preference Dividend 0.83 0.00 3.84 1.94 0.00
Equity Dividend 0.00 0.00 4.47 14.81 16.66
Corporate Dividend Tax 0.11 0.00 1.15 2.35 2.50
Questions for Discussion
Decide on any two locations from New Delhi, Mumbai, Goa and Bangalore for
expanding hotel business operations in the near future.
References:-
Ghosh P (2008) , India's services sector a threat to East Asia: S&P, Economic Times
Kamath, K V (2007) T:India growth party has just only started, Economic Times.
Philip L (2007), Hotel chains to pump in Rs 4,500 crore in 2 years, Economic Times
Rochan M & Sabharwal S (2008), Hidesign and Khoday check in hospitality sector,
Economic Times.
Thadani M (2007), Hotels in India- Trends & Opportunities, HVS International.