How do Indian Hotels and Orient Express stack up fundamentally? CNBC-TV18's Rahul Arora finds out that profitability being the key, Orient Express' profit was just about $39 million compared to $82 million for Indian Hotels.

He says that Orient Express has revenues of about $490 million in FY07 and Indian Hotels has revenues of about $390 million, with the difference in revenues being only about a $100 million.

He explains, "But profitability is the key over here. The FY07 profitability of Orient Express was just about $39 million compared to $82 million for Indian Hotels. So, for a company that has double the amount of profitability and not asked for any kind of merger at this point in time, even if you take a look at the performance of the company, the EBITDA levels are a lot higher, in fact the EBITDA margin is about 15 per cent higher - 72 per cent for Indian Hotels versus about 62 per cent for Orient Express."

Though, interestingly, there is a common element in the way both these companies function. They are very aggressive and a lot of acquisitions have been made by Indian Hotels recently.

But in terms of complete acquisition, they bought out Campton Place in San Francisco last year. They also bought out the Ritz from the Millennium Partners for over a $100 million, and a Sydney-based hotel as well. All of these acquisitions were made last year.

Even Orient Express has been very active in acquiring properties. In September, it announced an acquisition of a 200 room facility in Brazil. It has also accelerated its acquisition of a 50 per cent stake of the Royal Scotsman's luxury tourist train. It has about 40 hotels all over, with a lot of new properties coming up in Brazil. However, it has some gaps in the US where Indian Hotels is expanding.

In terms of revenues, Indian Hotels had about 22 per cent lower revenues than Orient Express. But its EBITDA is about 22 per cent higher. On a valuation basis, despite the fact that Indian Hotels balance sheet shows better numbers except on the top line, its valuations quoting for FY09 is 15.5 times on a price to earnings multiple, versus about 31 times for Orient Express.

It makes some sense for these two companies to get together to leverage on the Tata brand contrary to what Orient Express has been saying, because the only thing Orient Express has going for itself is that they it has a higher topline.

Profitability, expansion and key markets unexplored - all are there with Indian Hotels at this point of time. It would be surprising if the Tatas give up so early, because they have a presence specifically in South Africa, a market that should be relatively good for both hotel companies.

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