Post-rights, the equity would bloat by Rs 24.54 crore from the current level to Rs 57.27 crore. The proposed rights will be the third rights issue in less than ten years. The earlier two issues in 1991 and 1994 was a non convertible debenture issue (NCD) issue and an equity issue at par respectively.

It may be argued that the company's equity post-rights may rise disproportionately. But with at least three new projects likely to go on stream over the next year and a half, the company's earnings may just be enough to service thehuge equity of over Rs 57 crore. Hotel Leela's rights issue is meant to part-finance its expansion-cum-modernisation plans. The rights proceeds would help company part-finance its existing projects in Udaipur, Bangalore and two projects in Mumbai. New capacities at Leela Palace in Udaipur and Leela Palace, Bangalore are expected to be completed in December this year. The Bangalore property would have a room capacity of 400 rooms and the Udaipur hotel would boast 200 luxurious rooms. The company is also adding another wing with over 120 suites and villas at Leela Kempinski, Mumbai, which currently offers more than 400 rooms. Also on the anvil is a plan to set up a hotel in the scenic backwaters of Kerala.

Although the company is planning to raise funds at a time when the hotel industry is reeling because of a slowdown in tourist inflow, consolidation of hotel capacity and modernisation at this stage could prove to be handy once business picks up.

Although the business of hotel companies has been badlyhampered by poor tourist inflow, a stable government could pave the way for an improved tourist inflow. Slack business over the past couple of years coupled with high interest cost and depreciation have been responsible for a slide in the company's profitability. The interest cost peaked at over Rs 30 crore for the year ended March 1999. Although the company has been maintaining one of the highest occupancy rates in the industry, the impact is not visible on its bottomline. The company has reported a consistent slide in its net profit from Rs 45.15 crore in 1996-97 to Rs 13.5 crore in 1998-99. Worse, Hotel Leela reported a loss of Rs 2.93 crore for the quarter ended June 1999. Although the second half is supposed to be a better half for the hotel industry, the company reported a loss of Rs 5.8 crore for the quarter ended March 1999.