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The Hotel Corporation of India Story

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Case Details:

Case Code : BSTR015
Case Length : 7 Pages
Period : 1975-2001
Organization : Hotel Corporation of India
Pub Date : 2002
Teaching Note : Available
Countries : India
Industry : Hospitality

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"We are in no hurry to push through the process." 1

- A Civil Aviation Ministry Official, commenting on the sale of HCI, in May 2001.

A Company in Distress

In July 2001, the government of India decided to separate the sale of Hotel Corporation of India (HCI) from the privatization of Air-India (AI), posing the latest roadblock in the much-delayed sale of HCI.

HCI, a wholly owned subsidiary of the state owned international airline AI, operated the Centaur range of hotels and the Chefair flight kitchens in India. The government's decision to separate HCI's sale from AI's disinvestment was primarily due the fact that HCI's sale was taking much longer than anticipated. If HCI were considered a part of AI, then disinvestment of the airline would be delayed further.

Since AI's disinvestment was reportedly proceeding at a much faster pace at this point in time, the government did not want to delay it. According to the original plans for AI's disinvestment, the revenue realized from the sale of HCI was to be given back to the airline.

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However, the separation of HCI and AI changed the situation. Earlier, the prospective buyers of AI would have had to pay for HCI as well, but now they could leave HCI out of the deal. The absence of bidders for HCI's property in Srinagar was another hurdle in its sale.

Though many hospitality majors had shown interest in acquiring the other Centaur properties, the Srinagar hotel had no takers. The Jammu & Kashmir state government was willing to buy the hotel, but the terms and conditions laid down by the government were not acceptable to HCI. The disinvestment hurdles were only indications of major problems. The company was mired in a host of internal and external problems. HCI was in deep financial trouble, with its paid up capital of Rs 406 million completely eroded by accumulated losses of Rs 790 million by March 1995. For the financial year 2000-01, HCI posted losses of Rs 15 million on total revenues of Rs 888 million. Media reports attributed HCI's dismal performance over the years largely to the way the company was mismanaged by the government, and, more importantly, by its parent company, AI.

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