The $1.86-billion acquisition bid of Tata Group-controlled Indian Hotels for the international hotel luxury chain Orient-Express Hotels (OEH) saw the former's stock tank 5 per cent on Friday. Indian Hotels has proposed to pay $12.63 a share for the Bermudian hotelier, a 40 per cent premium to Thursday’s closing price.

This is the Tata Group’s second bid for OEH. The offer price is much lower than the original bid of $65 a share made in 2007. The market’s thumbs-down can be due to two reasons.

One, the big deal size could lead to a significant increase (around Rs 5,900 crore) in Indian Hotel’s debt, which stands at Rs 3,850 crore. This will increase the debt-to-equity ratio, now 1.3 times, and result in additional interest cost of Rs 265 crore.

Second, OEH derives more than 70 per cent of its revenues from the European and North American markets. The hotel chain has been under pressure due to the reduction in discretionary spending in these markets due to the economic slowdown. OEH reported a loss of $84 million last year.

Indian Hotels is probably betting on a recovery in these markets, a view shared by analysts tracking the OEH stock. Bloomberg estimates suggest that the hotel chain may post profit of $7 million in 2012-13.

HCL Tech registers strong growth

Significant growth across segments and large client additions helped HCL Tech register a 31 per cent growth in revenues (Rs 6,091 Cr) for the September quarter compared to the same quarter last year. Net profits surged 78 per cent to Rs 885 Cr, vis-à-vis the same period last year.

The company added four new clients in the $30 million plus category besides retaining its large-sized clients ($100 million plus). Increasing contribution from high-margin fixed price projects (51 per cent of revenues) has aided improvement in the company’s overall margins.

All the key verticals grew at a healthy pace during the quarter. BFSI, a key contributor to HCL’s bottom-line, grew 4.1 per cent sequentially while other verticals such as healthcare, retail and media grew at a much faster pace. Infrastructure services, in which HCL is a key player, continued to witness double digit growth. Interestingly, BPO segment which was a drag on the company’s margins until recently, turned profitable at the operating level.

Axis Bank buoyed by retail lending

Helped by higher fee income and healthy retail loan book growth, Axis Bank's profits rose 22 per cent to Rs 1,124 crore in the September quarter vis-à-vis the same quarter last year. Over the last two years, the bank’s retail loans as a proportion of its loan book grew by 7 percentage points to 26 per cent. During this period, bank expanded its branch network by 60 per cent.

As on September end, the retail book is higher by an impressive 51 per cent on a year-on-year basis, while the corporate loan book has grown 16 per cent. Due to fall in wholesale deposit rates, Axis Bank’s net interest margin expanded by 0.1 percentage points sequentially to 3.46 per cent.

Higher trading profits, due to rising bond prices also helped Axis’ profit growth. However, rising credit risk of the corporate loan book remains a concern. The proportion of loans rated as ‘A’ and above is down from 73 per cent in September 2011 to 62 per cent currently.

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