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Submitted ToMs. Ridhi Bhatia Submitted ByHarneet Singh Karan Arora Nitin Bansal Vineet Gupta Yash Jain
Proposal for Acquisition of Oberoi Hotels by Reliance Industries Ltd
We are extremely thankful to our teachers Ms. Ridhi Bhatia for giving us the opportunity to undertake this project for making a ´Acquisition plan for Reliance industries ltd to acquire Oberoi hotels ltdµ and for their overall support, valuable guidance, astute judgment, constructive criticism and an eye for perfection without which this project would not have been in its present shape.
Proposal for Acquisition of Oberoi Hotels by Reliance Industries Ltd
Table of Contents
S.No 1 2 3 4 5 6 Head Overview of Reliance Industries ltd Reliance and Its interventions in service sector Reliance : Swot Analysis Industry attractiveness: Hotel Industry Environmental Analysis ² Pest Analysis External Environment: Current Competition through Porter 5 Forces Model Overview of Oberoi Hotels Internal Analysis through Value chain analysis Current situation of Oberoi hotels through SWOT Analysis Valuation model for Oberoi Hotels Mode of Payments Post Merger Financial Ratios Post Merger Issues Post Merger Solutions Post Merger Benefits Page No 4 5 6-8 9-11 12-15 16-19
7 8 9
19 19-23 23-25
10 11 12 13 14 15
26-28 28 29 30 31 32
Proposal for Acquisition of Oberoi Hotels by Reliance Industries Ltd
petrochemicals (polyester. petrochemicals. textiles. Starting with textiles in the late seventies. Ambani (1932-2002). petroleum refining and oil and gas exploration and production . Reliance Industries Limited.Overview of Reliance Industries The Reliance Group. Major Group Companies are Reliance Industries Limited (including main subsidiary Reliance Retail Limited) and Reliance Industrial Infrastructure Limited Proposal for Acquisition of Oberoi Hotels by Reliance Industries Ltd Page 4 . plastics. Backward vertical integration has been the cornerstone of the evolution and growth of Reliance. petroleum refining and marketing. retail and special economic zones. is India's largest private sector enterprise. Reliance pursued a strategy of backward vertical integration . plastics and chemicals). fibre intermediates. founded by Dhirubhai H. Reliance enjoys global leadership in its businesses.in polyester.to be fully integrated along the materials and energy value chain. The Group's activities span exploration and production of oil and gas. fibre intermediates. The flagship company. being the largest polyester yarn and fibre producer in the world and among the top five to ten producers in the world in major petrochemical products. is a Fortune Global 500 company and is the largest private sector company in India. with businesses in the energy and materials value chain. Group's annual revenues are in excess of US$ 44 billion.
Reliance and its service sector interventions: In 2010.2bn ($217m) for the 14. Proposal for Acquisition of Oberoi Hotels by Reliance Industries Ltd Page 5 . the Mumbai Indians. Plans to make Investments in Hospitals. Reliance is close to signing an agreement with DE Shaw & Co. $1. EIH Chairman PRS Oberoi' wanted strong associations for defeating ITC's possible hostile takeover. Reliance Industries Ltd paid Rs10. sports marketing in future. Speculations were there that ITC could go for an open offer once it crossed the 15 per cent mark. Government is promoting tourism through Incredible India Hospitality industry set to grow at 15 % for next 5-8 years Availability of huge reserves for investment in service sector Emotional quotient of Indian people for Reliance would help Reliance gain market confidence and consumers would have faith in Reliance services.12 % stake of Oberoi· Hotels ITC Ltd had increased its stake to 14. farmhouses and universities.98 per cent in EIH. Like cricket team.2 billion in a broadband. This would be another business for Ms Nita Ambani. to start an $800 million infrastructure fund Recent establishments in pharma and retail sector.12 per cent stake in EIH Reliance move towards Service Sector: Indian Economy is becoming more of a Service oriented economy: 56% of the total is contributed by the service sector in entire GDP. as well as its school and healthcare initiatives. Reliance buys 14.
SWOT OF RELIANCE INDUSTRIES LIMITED Strength Weakness Threats Opportunities Strengths y Technological Skills.Reliance has a very good technological team. Without having a good distribution channel it is very difficult to sustain in the manufacturing industry. Page 6 Proposal for Acquisition of Oberoi Hotels by Reliance Industries Ltd .Their strength is that its presence as a group is in many sector. This is possible because of the good technological skills they have. Distribution channels.I n the manufacturing sector distribution channel is one of the important factor. y y Production Quality. y Presence in many sectors. Since it is in a manufacturing process their cost of manufacturing should not be so high that is possible because of the good technology they have. So if there is any loss in one particular sector then it may undue that loss with any other sector.The final output comes out from the complete process is very good. So their strengths are inter-related in terms of supporting each other.
y High resource & surplus.It is included in the Fortune 500 company which itself is a global acknowledgment for any company. y Weakness y No Direct Contact with the consumers. Since they have a huge resource and surplus but they were not being utilized properly. Though peoples have an emotional quotient with RIL but to increase that they have to do more like going into the ventures where people can connect with RIL. Because of its presence in Fortune 500 the reliability in the company increases because of which investment comes from the public in large. Fortune 500 companies.Their one of the biggest weakness is that they don·t have direct contact with the customer because they are in the manufacturing sector.They have a very strong financial performance in terms of profit as well as net worth. So if the resources and surplus can be utilized then the company can generate extra income from it. This Proposal for Acquisition of Oberoi Hotels by Reliance Industries Ltd Page 7 . y y Over reliant on manufacturing sector.They are over reliant on manufacturing sector which can cause problem for the company because if in case manufacturing sector will face any recession time then the company as a whole will have to suffer. Opportunitiesy Low per capita consumption-Currently.In India in terms of market capitalization it is the largest industry. y Strong financial performance. Un-utilized high resource & surplus. They have a huge resource and surplus kept aside which needs to be used in other areas where they can get some return out of it. domestic per capita polymer consumption is nearly 4 kgs while the global average is nearly 20 kgs. Their profits were increased from year and year which becomes one of the reasons of increase in share price. They have a huge Brand equity in the country where they have been able to form an emotional quotient with people. so to overcome that they have to diversify themselves.
which leaves enough investment opportunities in the industry. y Threatsy Customs duties.Spending on R&D activities is around 2% of sales as compared to an international average of 18%. Import duty on polymers has been steadily reduced and is currently at 20%. India has a chemicals trade deficit of about US$ 1. Only major intervention in service sector is retail. Manufacturing sector grows at 7-8 % every year as compared to service industry which reports 15-18 % every year. which could open the gates for players like Wal-Mart. y Spending on R&D. This leaves enough room for product development. of late. the domestic industry has been protected from overseas competition by high import duties imposed by the government.5 bn a year.underlines the fact that there is immense scope of capacity expansion in the country as the market to be tapped is huge. If there are any huge changes in the petrochemical sector then reliance may have to suffer huge losses because there contribution of profit from petroleum products is huge. y y Proposal for Acquisition of Oberoi Hotels by Reliance Industries Ltd Page 8 .As part of its commitment to various multilateral and bilateral trade agreements. and reports growth rate of approx 15-18 %. currently. y Growing competition. the government is likely to reduce duties going forward and this is likely to reduce the cushion enjoyed by the domestic players as against the landed cost of imported products. Also. which itself is faced by the threat of 100 % FDI. Growing Opportunities in Service Sector: Service sector contributes 56% of GDP.The domestic industry is likely to witness immense competition going forward with IOC Further. so there over reliance on manufacturing sector may back fire. However.Historically.
rich fauna.INDIAN HOTEL INDUSTRY: India's hotel industry is experiencing a boom. It is ranked the 14th best tourist destination for its natural resources and 24th for its cultural resources. Foreigners are visiting India at a frequent rate and have reached a record of 3. Hospitality Industry is closely linked with travel and tourism industries because the more tourists visit our country the more business hotels could receive from them which lead to increase in occupancy level of rooms in hotels. Indian tourism and hospitality sector is recovering again from its bad times of business slowdown.India has cultural heritage. So keeping this in mind India. and strong creative industry in the country.92 million. offers hotel facilities at par with world standards and has the capability to provide all the hotel infrastructural needs of the inbound tourist as well the business visitor. this is leading to a boost up in hospitality sector. Overall Industry Attractiveness Environmental Analysis: INDUSTRY ATTRCTIVENESS Strength Natural and cultural diversity: . both natural and cultural. today. which is determined by increasing numbers of business and tourist arrivals in India after RECESSION. The hospitality industry is one of the fastest growing industries today with more and more people travelling for business as well as vacation. Proposal for Acquisition of Oberoi Hotels by Reliance Industries Ltd Page 9 . Travellers are taking new interests in our country which leads to the improvement of the hospitality sector. with many World heritage sites.
Indians have spare money to spend. 540 crore the development of the industry. Increase in the market share: . Weakness:Poor support infrastructure: Though the government is taking necessary steps. Lack of support from the law and order for providing security to the tourist and tourist places Slow implementation: . foreign hospitality players are heading towards Indian markets. many more things need to be done to improve the infrastructure. OPPORTUNITIES:Rising income: . The priority is being given to the development of the infrastructure and of new tourist destination and circuits. Moreover. the total expenditure made in this regard was US $150 billion in china compared to US$ 21 billion in India. In 2003. With the privilege of hosting commonwealth Games 2010 there is more demand of rooms in five star hotels. Whatever steps are being taken by the government are implemented at a slower pace. Government support: . This has led to the rapid growth of the sector.Demand-Supply gap: . such as stepping up vigilance in key cities and at historically important tourist sites. The ministry promoted India as a safe tourist destination and has undertaken various measures. New budget and star hotels are being established. The Department of Tourism (DOT) has already started the ´Incredible Indiaµ and ´Athithi Devo Bhavaµ campaign for the promotion of tourism in India.India's share in international tourism and hospitality market is expected to increase over the long-term.Owing to the rise in income levels.Indian hotel industry is a facing a mismatch between the demand and supply of rooms leading to higher room rates and occupancy levels. It has also deployed increased manpower and resources for improving security checks at key airports and railway stations.the Government has realized the importance of tourism and has proposed a budget of Rs. which is expected to enhance leisure tourism Proposal for Acquisition of Oberoi Hotels by Reliance Industries Ltd Page 10 .The lack of adequate recognition for the tourism industry has been hampering its growth prospects.
demand is going to exceed supply by at least 100% over the next 2 years. the tourism industry has seen as increase in business. Indian hotel room·s rates are most likely to rise 25% annually and occupancy to rise by 80%.000 rooms fuelling hotel room rates across India. Threats Fluctuation in international tourist arrivals: . Domestic tourism needs to be given equal importance and measures should be taken to promote it. It has benefited both international and domestic travels.Several international majors like the Fore Season. India. This will increase the competition for the existing Indian hotel majors. India is a destination for hotels chains looking for growth. Shangri-La and Aman Resorts are entering the Indian markets. The World Travel and Tourism Council. Proposal for Acquisition of Oberoi Hotels by Reliance Industries Ltd Page 11 . ¶Hotel Industry in India· is eroding its competiveness as a cost effective destination. Sources estimate. Increasing competition: . as there are wide fluctuations in international tourism.Hotels in India has a shortage of 150. Destination for tourism: . With tremendous pull of opportunity. Overall if we look at the Industry attractiveness . Hotel Industry is one of the fastest growing sector in the Indian Economy and entering this industry although requires huge investments but the return and growth from business still makes this industry as an attractive sector.The Total dependency on foreign tourists can be risky.Open sky benefits: . data says India ranks 18th in business travel and will be among top 5 in the next decade. Two other groups.With the open sky policy. over the next two years. Increased airline activity has stimulated demand and has helped improve the infrastructure.the Carlson Group and the Marriott chain are also looking forward to join this race.
and they will introduce laws that will protect the environment. Environment is one aspect the government will always have their eye on. there are laws that prevent discrimination. but anytime you are forced to pay a wage not in plans. POLITICAL FACTORS Environment Laws: An analysis of the hotel industry has revealed that there are environmental. but must be obeyed in order to keep on going profits. ordinances and regulations relating to environmental matters. Hotels are liable for clean up of contamination and other corrective action under various laws. Such laws will need to be looked at as a player in the hotel industry. which are taking away bottom line. There was a steep fall in the tourism percentage received in the country after the Mumbai Attack Proposal for Acquisition of Oberoi Hotels by Reliance Industries Ltd Page 12 . it can lead to severe lawsuits. and food & safety regulations as well as regulations for merging. which must be looked at before entering into the industry. Analysis of the Environment has to be done from the point of view of all the macroeconomic factors. For example. Although this might not seem to be a concern. and at the same time the hotel will be slicing their revenues. Employment Legislations: Another political factor that can impose a concern for a member in the hotel industry is the laws regarding labour.PEST Analysis for hotel industry Since hotel industry is attractive enough but for entering in this sector. Such laws referring to keeping the environment in good shape can be quite costly to hotels in the industry. and sexual harassment. The labour laws are pretty strait forward. there are laws that govern minimum wage. For instance. labour. If a hotel company violates these laws. Another law that can be quite costly is treatment of employees. Level of Terrorism Level of terrorism affects the number of tourists that are attracted towards the country.
air and water transport facilities to tourists. The term Hotels include restaurants. surface. and health units for tourists and Convention/Seminar units and organization. As in previous years. this entitlement is 5per cent of previous year·s foreign exchange earnings for hotels of one-star and above (including managed hotels and heritage hotels) approved by the Department of Tourism and other service providers in the tourism sector registered with it. amusement. and other tourist complexes providing accommodation and/or catering and food facilities to tourists. tour operating agencies and tourist transport operating agencies. offered following incentives to the hospitality industry: Hotels and Restaurants are allowed to import duty free equipment and other items including liquor. adventure and wild life experience to tourists. entertainment. 2006. units providing facilities for cultural. leisure.Economic factors The Government·s major policy initiatives include: Liberalization in aviation sector Rationalization in tax rates in the hospitality sector Tourist friendly visa regime Immigration services Procedural changes in making available land for construction of hotels Allowing setting up of Guest Houses All these provisions make the setting up hotels in Delhi a favourable place for setting up a hotel. beach resorts. Proposal for Acquisition of Oberoi Hotels by Reliance Industries Ltd Page 13 . sports. against their foreign exchange earnings under the Served from India Scheme. Tourism related industry include travel agencies. FDI in Hotel and Tourism Sector 100 per cent FDI is permissible in the sector on the automatic route. Foreign Trade Policy The Foreign Trade Policy announced in April.
technology represents one of the strongest forces for change. changed or even completely substituted due to hospitality industry. in order for a hotel to have a competitive advantage. hotel industry can have chance to expand more. Technological factors Use of Hi-Tech Soft wares In order for a hotel to prevent obsolescence and remain technologically advanced. Indian Urban sector . Demographics India as a country is continuously growing. has potential implications for the benefits associated with the branding of hospitality products. and its trade with foreign countries is increasing. In the hospitality industry. This means that social structures. of course. Public·s attitude has changed from wastage or excessive Spending to Luxury and as a matter of pride. Consumers need to take this into consideration. as in all arenas of commerce. This. the hotel must be up to date with all the latest technological changes that are taking place that might have an impact on the industry. Proposal for Acquisition of Oberoi Hotels by Reliance Industries Ltd Page 14 . So now the People¶s attitude towards the Five star hotels has changed. Today. For the hotel industry. By satisfying each consumers or generalizing the way to hospitalize.People¶s eating out habits are changing. ethnic.Social Cultural Factors Hospitality industry has the socio-cultural impact. they need to have a very high tech information system. cultural backgrounds. Social cultural factors are a big issue to look into for hotel industry because it deals with a lot of consumers who have different demographic. the culture and traditions can be influenced. Hotel reservations systems have been shifting from voice to electronic Global Distribution Systems are now on the verge of consumer access via the Internet. the Internet is increasingly being used. while having had a significant impact on brand marketing. The increasing role played by the Internet should slowly affect booking patterns in the future as inexpensive consumer access to hotel product becomes available. So.
booking engines are empowered to great deals to customers online. in other it could be ITC. the next important factor that affects is the Competition and problems that it could face in serving Customers . Advance IT software and systems make it possible for many agents and operators to provide a bouquet of complete services. so porter analysis for the hotel chain is done individually for each and every hotel. Proposal for Acquisition of Oberoi Hotels by Reliance Industries Ltd Page 15 .e.Online Reservation system Similarly hotel room booking and various other travel-tourism related services could be booked by a customer on-line at the best available rate. Due to this integration. Broad areas remain the same but some sub heads are varied as per the location of the Hotel. Also threat of new entrant is more than the other.But on analysis it was identified that these forces of suppliers and competitors over the period have varied from destination to destination. airport pick and drop to Hotel room booking along with sightseeing at very nominal rates due to consolidation and integration of all travel and tourism related services using various software·s and booking engines interface.i. Oberoi has discovered over the years. Conclusion from Environmental Analysis (Macroeconomic events): So overall the Pest analysis shows there is as such no big major force that stops the start up or running of a five star Hotel. Now after analysis of environment factors. Like in one place Taj could be the biggest competition. from Airline ticket booking.
5 Taj Hotels 1.7 Others 0.5 2.1 Oberoi Hotels ITC Welcomgroup Hotel Leela 1.6 Proposal for Acquisition of Oberoi Hotels by Reliance Industries Ltd Page 16 .Porter 5 forces For ITC Welcome Group Market Share(Approx) 0.
every policy is framed keeping on mind the customers needs. they would prefer a Known Brand over the Indian Hotel. so threat of a new player to enter the Hotel Business in India is very difficult. Proposal for Acquisition of Oberoi Hotels by Reliance Industries Ltd Page 17 . These two players are very big players in the Indian Hotel industry. Foreign travellers. It is highly likely that when Foreigners on visit to India. CEO's . a Leisure Hotel. Like wise in Delhi. Like the Hilton's have come to Delhi. Customers of Oberoi is basically the Business Travellers . makes it other competitor for Oberoi even though it is a Luxury i. HNI's and all the Head of states.etc These Customers are very choosy and very sensitive in brand choice and Services that are offered to them. Delegates and sports persons. Threat of the new entrants: Moderate Hotel Industry requires huge sum of initial investment. So Overall Threat of new Entrants is Medium to Moderately High. Radisson and Ashok Hotel.e. apart from these big chains: other big players are Hyatt Regency.Current Competitors: High Oberoi·s Group is basically a Business Hotel group so its biggest competitor is ITC Ltd With its Presence close to the Taj Hotel. so a small mistake from Oberoi could cause huge business losses. Le Meridian. and Hiltons enjoys a very good reputation among the Foreign Travellers. Threat from Foreign Hotel chains: These chains have started to come to the Indian Market. MD's of Big Companies. desires and preferences. Bargaining power of the Customers: High Customers are of utmost importance in the hotel industry.
and they switches over to the other Brand i. So they can easily switch over to the other supplier very easily. so they have in general a very High Bargaining Power. Bargaining Power of the Suppliers: Low Oberoi purchases are: FMCG and Consumer durables Fruits and Vegetables . Regular requirements of the Housekeeping Departments.all the requirements of Food and Beverages Departments . Proposal for Acquisition of Oberoi Hotels by Reliance Industries Ltd Page 18 . so most often suppliers go to any extent and provide with various discounts and Low prices and schemes to win a client like EIH Group who has a well off financial position in the market. room requirements in the form of blankets . Threat of the Substitutes is very Low. mattresses. If one of the Suppliers fails to provide the inventory in time they usually keeps a backup by having 2-3 supplies for the same goods. The Customers who stays at the five stars would not like to shift over to any other Hotel which doesn't provide the kind of ambience they enjoy in the Hotel like Taj and Oberoi. Most of these Purchases are done as an Institutional Buyers. So Bargaining power of the Suppliers is Low. Threat of the Substitutes: Low The type of its Customers and their high Profile would not allow them to shift to any Leisure Hotel or to any resorts or to any of the Budget Hotel. So as Customers are of very High Profile.A small mistake from the Hotel staff can make them angry. The above porter analysis of Oberoi group shows two major areas where it needs to concentrate on is to do better than the competitors and still keeping the customers happy. and many more.e. the other Hotel.
EIH Ltd posted revenue of Rs. Oberoi·s is the largest Hotel chain in India. The Group is also engaged in flight catering. equipment and operational processes. Internationally acclaimed for all-round excellence and unparalleled levels of service. and people Proposal for Acquisition of Oberoi Hotels by Reliance Industries Ltd Page 19 . luxury and quiet efficiency. founded in 1934. New York. It is looking at locations like London. From the above. mostly for management control of existing and upcoming properties. Overview of Oberoi Group The Oberoi Group. EIH is planning to invest Rs. airport restaurants.In order to do that Oberoi should have a Competitive edge over its competitors in terms of providing better service to its customers. Oberoi hotels and resorts have received innumerable awards and accolades. The Oberoi Group is committed to employing the best environmental and ecological practices in technology.57.150 crore over the next two years on new projects. Beijing and Bangkok. personalized and warm service. A distinctive feature of The Group·s hotels is their highly motivated and well trained staff that provides exceptionally attentive. it is visible After Taj and ITC WelcomGroup. The Group is also a keen contributor to the conservation of nature and of cultural heritage. operates 28 hotels and three cruisers in five countries under the luxury ¶Oberoi· and five-star ¶Trident· brands. intellectual property. In order to achieve that its value chain should be built on the parameters that can outplay its competitors and provide the best facility to its employees and customers. car rentals. project management and corporate air charters.23 crore. 907. travel and tour services.27 crore for FY09-10 wit a PAT of Rs. Paris.assets. which makes it a lucrative offer for Acquisition. The Group also supports philanthropic activities that range from education to assistance for the mentally and physically challenged. Shanghai. The Group·s new luxury hotels have established a reputation for redefining the paradigm of luxury and excellence in service amongst leisure hotels around the world. Oberoi Hotels & Resorts is synonymous the world over with providing the right blend of service. Internal Analysis of OBEROI·S Welcome Group: Value chain Analysis at OBEROI·S Welcome Group: Carried out to find or take stock of: ± OBEROI·S·s resources .
Analysis would also help us in gaining the insight of OBEROI·S group and can help in achievement of the Strategic fit with corporate strategies built at OBEROI·S. Housekeeping trolley. OBEROI·S over the years have maintained world class infrastructure that has always offered Contemporary Facilities to provide the unrivalled Luxury experience. furniture and other ambience.± What OBEROI·S can do best ² its competitive strength This analysis will help us discover that OBEROI·S can gain advantage in which areas and improve on others so as to gain the Competitive advantage in the market. It includes the Management Information System (MIS) and other mechanisms for planning and control such as the accounting department. Proposal for Acquisition of Oberoi Hotels by Reliance Industries Ltd Support Activitie s Marketin g & Sales Servic e Relationship with Suppliers Relationship with Buyers Page 20 . Maintenance of hotel. Value Chain Analysis: Understanding Client·s Business Firm Infrastructure Human Resource Management Technological Development Procureme nt Inbound Logistics Operations Outbound Logistics Primary Activities Support Activities Infrastructure This activity includes and is driven by corporate or strategic planning.
Goods are moved around the Proposal for Acquisition of Oberoi Hotels by Reliance Industries Ltd Page 21 . Primary Activities Inbound Logistics. Human Resource Management (HRM) Employees are an expensive and vital resource. OBEROI·S used Opera softwares. Procurement This function is responsible for all purchasing of goods. It helps them in making Databases of Customers that helps them in providing better services to their customers. job rotation. People in hospitality industry plays a huge role in providing services to their customers. Customer Relationship Management (CRM) and GFS guest feedback system that helps OBEROI·S in doing its work more efficiently than it would have been able to do without them. Here goods are received from OBEROI·S suppliers. The aim is to secure the lowest possible price for purchases of the highest possible quality. Security is managed by an outsourced agency as it is a specialized function and is always done by specialized agencies. guest Lectures. Attrition rate at OBEROI·S is lowest among its competitors and according to the last report employees were highly satisfied with the job. OBEROI·S believes in doing most of its work on its own as a little mistake at ant step can affect the satisfaction of the Guests. Apart from the Security Department everything is managed by OBEROI·S·s own teams. services and materials. Central Lock in System (CLS) & Central Registration System (CRS) for customers. Point of Sale (POS) for inventory control & store. workshops.. They are stored until they are needed on the production/consumption department. On-Job-Training. Companies need to innovate to reduce costs and to protect and sustain competitive advantage. OBEROI·S gives training to their all employees irrespective of their designation and work span through Welcome Management Institute.Technology Development Technology is an important source of competitive advantage.
check in arrangements. spas. OBEROI·S has always used a software POS that takes care of the stock of stores and updates the Purchase department about the store requirement. advance reservation through CLS & CRS. wake up call. security checks at various places. Process begins with Guest making a call or walking in to the Hotel. swimming pools. All these processes involve many moments of truth and providing excellent service at every step includes well defined operational steps that include pre written dialogue points. tissue in a hotel. producing cash memos. Fresh fruits and vegetables are received and prepared every day. Operation includes bringing the guest from the airport. but they consider the Satisfaction that guest carries with them while checking out from the hotel is very much important for the Hotel as future business depends on the satisfaction he Proposal for Acquisition of Oberoi Hotels by Reliance Industries Ltd Page 22 . OBEROI·S has realized the importance of people in the process so it holds regular Area effective teams. It purchases its each requirement from more than one supplier so as to keep the inflow of stores running even in the case of Default from any one supplier. providing room service for food. regular feedback sessions and is currently working on Six Sigma training to make the whole process Fault proof. discovering Fail and problem points. cleaning & decoration of rooms. making proper arrangements for the checking out of the guests. managing Health club. and wake up calls to customer. They have their permanent supplier who supply on the request of Store Department Manager within 24hrs. cleaning of pool & lawn. room service. making the arrangements in the room as per the specifications. placing soap. Operations Individual operations could include making of dishes.Hotel. Business Centre etc. Outbound Logistics As such there is no tangible outbound logistic involved in hotel service. This policy also helps them in maintaining stiff competition between the competitors and helps it getting the most discounted prices.
Strength Weakness Threats Opportunities Strengths Strong MIS system. Page 23 Proposal for Acquisition of Oberoi Hotels by Reliance Industries Ltd .They have a strong Management Information System in which they were maintaining the database of their customers because of which they got to know about the tastes and preference of their customers due to which the brand value of Oberoi increases. Marketing and Sales This area focuses strongly upon marketing communications and the promotions. Since it has a second largest market share in the hospitality sector so it has to always market themselves as one of the premier hotels in the country. SWOT ANALYSIS OF OBEROI HOTELS. They have their own sales team for bulk booking of rooms for corporate and institutional clients. Oberoi target premium class of customer and for that they prepare the offering to meet the needs of targeted customers.They have a strong marketing team due to which the awareness of Oberoi Hotel is widely spread.has got during the stay in the Hotel. Strong Marketing Teams. They have the best marketing and sales team.
In the service oriented sector customer don·t often change their service provider unless until they saw any major changes in the service. Security system. There was so much fluctuation in the economy because of which the hotel industry affected so much. They are using same old technology which they have installed initially. so they are not diversified in terms of different business because of which they suffered huge losses when recession hits the hotel industry. Although it·s not easy to increase the room size but they can provide some extra service to their customers so that they will not think of switching. y y Not diversified. So Oberoi·s also has their set of loyal customer which is increasing year on year. Asset leverage.Although the group in which Oberoi·s hotel come (East India Hotel) is itself a very large group but they all are in the hotel business. they had taken on the lease due to which they got certain tax benefits and they were able to use that money in some other activity. Weakness y Recent Diseconomies of scale.The security system of Oberoi·s is not up to the mark. So there was no up gradation in the security system because of which customers does not feel a sense of security especially after the Mumbai attacks.Another important factor for Oberoi·s is that they have no blocked their money in purchasing the hotels.In the recent times because of the recession hospitality sector has been hurt majorly. Loyal Customers. Proposal for Acquisition of Oberoi Hotels by Reliance Industries Ltd Page 24 . Strong brand equity.Since the awareness of Oberoi·s is worldwide and brand equity is something which is an outcome of marketing efforts done by the company. y Room size ² As compares to their competitors the room size of Oberoi·s is comparatively small because of which customer may feel of switching. So the brand equity of Oberoi·s is quite high in terms of sales.
Oberoi·s is in the premier class of hotels but since the market is huge for budgeted hotels as well so they can extend their product line to budgeted hotel too. So there is a huge opportunity for them to invest not only in India but all over the world.Opportunities y Low debt to equity ratio financial markets (raise money through debt. Product and services expansion-Here product and services expansion means adding a product line into your existing one. External changes (government.)They have a very low debt to equity ratio of . in excess of declared tariff of `1.000 per day with an abatement of 50 per cent so that the effective burden is only 5 per cent of the amount charged. y y Innovation. Page 25 Proposal for Acquisition of Oberoi Hotels by Reliance Industries Ltd . etc. taxes)-There may be changes in the tax structure like in recent budget there was a tax imposed with certain conditions like hotel accommodation. y y Threats Competition. High growth rate in hospitality sector. It is estimated about 14% growth till 2018 which itself is a huge growth rate in any sector. politics.Nowadays customers want something new and to give that new company has to come up with innovative strategy like eco-friendly room because it attracts attention of the customer and it creates a need of trying that particular thing. Emerging markets and expansion abroad-There is a huge potential not only in India but all over the world.5 so if needed they can easily raise the money from the market and invest into the business.There is so much competition among the hotels because most of the premier class hotels are in the prime location and these hotels are close to each other.According to the government data there is a huge growth in the hospitality sector.82 as compared to the industry average of 1.
After 2018. Oberoi·s reported negative growth rate in 2009 and 2010.12 % to Reliance. Threat of acquisition by ITC-The major threat for Oberoi·s is that there may be an open offer for their hotel because ITC has purchased 14. currently its 18% for Oberoi. As mentioned earlier these are located nearby so they can·t afford a big price difference and also there are some regulating authorities (Indian Hotel Association) according to whom they have to set the tariffs. Sales grew in double digits for Hotel industry. For Oberoi·s Sales grew in double digits till 208. which made Oberoi to enter into a deal of sale of stake of 14. but in 2009 Sales growth rate came down to 5 %. Price wars-Price wars between the hotels are another threat for the Oberoi·s.8% till perpetuity and Reliance expects Oberoi to grow by 9 % Cost of Revenue to fall to 40 % from 46% by means of 1% loss every year till 2016 and then to stabilize at 40%. Reliance expects to grow by 8% in first year and aims for 15 % growth by year 2014 and aims at a growth of 15 % till 2018 as industry expects to grow at 14 % till late part of this decade. Proposal for Acquisition of Oberoi Hotels by Reliance Industries Ltd Page 26 . After Acquisition. Valuation for Oberoi Hotels Sales Revenue: Till 2008. industry expects to grow at 8.12% stake in Oberoi·s and if it crossed 15% then it will be the end for the Oberoi·s. but unlike other hotels. industry average being 42% Selling and Admin expenses to fall to 15 % as compared to industry average of 16%. and in 2010 it went up to 7%. Two major reasons being: Recession caused the fall for every Hotel and the further impact was caused by turmoil in management caused by threat of hostile takeover by ITC ltd in 2010.
11.155 Values 5. Working capital is fixed at 12 % of Sales and Capital expenditure incurred remains 20 %till 2019 and to come down to 15 % after 2019 and to remain the same forever.27 80 20% 80% 11.368 Crores Rs 199.34494 Crores 10.28 20.7% 10.Depreciation rate is fixed at 5%.5% Rs.5% Proposal for Acquisition of Oberoi Hotels by Reliance Industries Ltd Page 27 .03 Re 1.2 11.8% 1260 crores 101 Crores 56. Tax rate to be fixed at 36% Calculations of Cost of Capital Particulars Cost of debt after tax Debt Component Interest Retention Ratio Return on Equity Dividends Paid Growth Rate Current Market Price Weight of Debt Weight of Equity Cost of Equity Cost of Capital Calculation of Enterprise value Particulars Terminal Value Discounting Rate Enterprise Value Free Cash flow to Equity Intrinsic Value of 1 share Current Value of Share Negotiation Price per share Values Rs.27 Rs 80 Rs.12617 Crores Rs.
102 Crores 14.75 billion Rs 45/US dollar US $ 1.Total Payments to be made: Particulars Negotiated Price for equity Debt on books of Oberoi Total deal price Current Stake in EIH Total Price to be made for 85.5 So debt that can be raised through debts on Oberoi·s books of accounts being Rs 962 Crores So rest amount of Rs 6453 Crores to be made out as cash from Reserves of Reliance industries ltd So the deal amount stands at Rs 7416 crores as equity and Rs 1260 crores of debt on books of Oberoi books of accounts to be borne by Reliance industries.5 on account of industry average of 1. where as it can be raised to 1.12% Rs 8675 crores Rs 7416 crores Current Debt to equity ratio of Oberoi is 0.85.93 billion So Reliance would go for a cash buyout of Oberoi Hotels.88 % stake Price to be paid to shareholders is Values Rs 8842 crores RS 1260 crores Rs 10. Particulars Deal amount : Equity amount Debt Total amount In billions Exchange Rate Deal amount Values Rs 7416 Crores Rs 1260 Crores Rs 8675 Crores Rs 86. Proposal for Acquisition of Oberoi Hotels by Reliance Industries Ltd Page 28 . This amount stands equals to 41% of RIL Profits in year 2010 or equivalent to 5% of the entire Reliance reserves and surplus.
475 This increase in DE ratio comes on account of increase of debt raised on Oberoi books.11 EPS for Reliance is Rs 49. Change in Price Earnings Ratio Small changes in PE ratio from 20.015 DE Ratio post merger would be 0.4 to 20.28.7 Post merger EPS shows synergy as Reliance would be able to bring growth in Oberoi·s Post merger ratio stands at Rs 49.Post Merger Financial Ratios: Debt to equity ratio for Reliance stood at 0. Pre Merger: Earnings per share: EPS for Oberoi·s is Rs 4.29 given the assumption that Reliance does not increase the number of shares Proposal for Acquisition of Oberoi Hotels by Reliance Industries Ltd Page 29 . Assumption being the number of shares of Reliance remains the same till 2019.46 and post merger it would show a partial increase of 0.46 before the deal Post merger DE ratio For Reliance Industries Ltd: DE ratio for Reliance pre merger is 0.23and would go on to increase to Rs 70* till 2019 The value for 2019 is calculated on accounts that Reliance industries grow by 5% every year and Hotel business would increase at the rate as taken in discount cash flow method.
So once RIL took over rest of the stake their share price may fall down by much. 947.21% to Rs 947. Proposal for Acquisition of Oberoi Hotels by Reliance Industries Ltd Page 30 .75 a share.28 POST MERGER ISSUES y Reliance has no knowledge of hospitality sector as their major presence is in the manufacturing sector.29 PE 20.75. y y Competition with the competitor like Tata group that controls the bigger but less suave Taj hotel group.475 49.12% stake the share price of RIL fall down by .-In any merger adaption of management is very critical because the ego problem between the employees arises and creates conflict.7 Post Merger 0. Since service sector is so sensitive so they have to deal it with very prudently.PRE MERGER AND POST MERGER RATIO SHEDULE Ratios D/E EPS Pre Merger 0.-Although the Oberoi·s has second largest market share after Tata group but still Tata as a group has a large potential to invest into the sector. So there is a huge competition between the Tata and the Reliance &Oberoi·s.46 49.3 in 2011 To Rs 70 in 2019 20..The day when Reliance acquires Oberoi·s 14.Reliance has a major presence in the manufacturing sector so if they come into the service sector they may have to face problem of direct dealing with the customers. The top management people feel like they were on such top positions and after the merger they may not get that positions.21 percent to Rs. May affect the other business of Reliance Industries because RIL share price went down by 0. y Adaptation of management may become problem.
Ensure that goals are clearly defined and progress is tracked A special term should be prepared to ensure that first the goals to be prepared well and than these goals are to be clearly defined and communicated by proper planning and coordination so that each individual should know what is his/ her job. Concentrate on key employee retention Some people may not have the same roles as before. The "cultural migration" to the desired organizational behaviour is best achieved by visible example along with continuous reinforcement And check that the right person fit the right position (e.Since the service sector is so sensitive they need a professional expertise which they don·t have so this is another post merger issues which company sees as whole.g. a person from Bengal should be transfer to Oberoi Kolkata branch if the person is not willing to work in other branch). Other than this they should hire some experienced people from this industry so that they can bring this new organization to some other level by implementing good practices by talking it into consideration that the right person fit the right position. but their value should be recognized and their egos nurtured. Ensure that the culture of new organisation matches with the culture of both organizations Reliance should ensure that the culture of new organisation is such that the employs of both organisations can easily adapt the change in the culture and easily cope up with the change. Cultural events should be conducted so that the employees retain from Oberoi group got the chance to know the other employees in the new organization. Post ² Merger solution Provide visible leadership from top management As Reliance is going to enter into Hospitality industry.y RIL has no in-house professional expertise in the service sector. They should also ensure that the each process or work is integrated and can be easily tracked so check the authenticity of the process at different level. they should retain some top level management people and some important people from the Oberoi group so that it will be beneficial for the new organization as a whole. Proposal for Acquisition of Oberoi Hotels by Reliance Industries Ltd Page 31 .
better staff. It will give Reliance another way of entering into hospitality sector. Proposal for Acquisition of Oberoi Hotels by Reliance Industries Ltd Page 32 . and Reliance as a brand name in its self will overall increase the efficiency of the merged organization as a whole. Reliance as a group is almost in every sector but not in hospitality sector. Better management. It is a way of diversification for Reliance. After 2611 security becomes the main concern for the visitors. After merger Reliance industries market value will definitely increase as it can be seen that from the valuation analysis.Upgrade your self with the best IT practises As Reliance have lot of cash surplus available with them. Reliance Industries market value will increase. so they should upgrade its processes with best IT practices so to integrate its also processes along the world which can be beneficial to both internal users as well as external users. As Oberoi security system is not up to date as compare to other 5 star hotels under this category. y Reliance will get a high level entry by acquiring a well settled group. so Reliance should bring the best security system available with them. Post merger benefits After the merger the company·s overall efficiency will increase which add value to the firm. and new recruitment from this industry. better security.
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