IHCL, the owner of the Taj brand, proclaimed a “stellar performance” as it acted on its Aspiration 2022 strategy, which will see it favour management contracts and leases to drive growth.
The company has seen expansion on the back of its budget Ginger hotels brand, which accounted for nine of the group’s 10 openings for the full year.
Puneet Chhatwal, MD & CEO, told Hotel Analyst: “Ginger is a great opportunity for the India subcontinent, we have no ambitions to go global yet. The opportunity is much larger than Premier Inn or Travelodge, but it has never been executed. We own or lease 40 of the 45 Ginger hotels, possibly going forwards we would consider franchises in the future.”
Commenting on the failure of economy brands to gain traction in the past, the CEO said that India’s consumers were “more aspirational, they don’t want to be identified with anything cheap”.
At the group’s capital markets day, held in February, it said that its balance sheet and P&L issues, which had seen it stymied by debt “are behind us” and that it was “at an inflection point for transformational growth”. The group reported debt to Ebitda of 2.97 for the year to date 2017/18 in February, against 6.47 in 2015/16.
Looking ahead to 2022, the group said that it was planning to be the market leader in India in its relevant segments. Looking to the wider market in India, the company described a sector expected to be dominated by the midscale and upscale, with 175,000 branded rooms anticipated by 2021.
The CEO added: “The most important thing for us was to be profitable. Then sustainably profitable, then you have cash. If you were to grow in Europe then Manchester, Birmingham, where the Indian diaspora is strong. For other destinations, like Germany, you would need a cluster of properties. Initially it would be the Taj brand. We’re the only company [in India] which can boast a presence in London and Nw York and we can leverage that.”
According to STR and Horwath HLT’s India market review, published in February, around 10,000 chain-affiliated rooms were added to the country’s inventory in 2017, taking the total to 133,000. The study said: “Supply slowdown has enabled some operating consolidation, with beneficial results. But a thinner pipeline is a longer-term concern. On the other hand, increasing supply through newer markets is increasing opportunity.”
IHCL put its market share at 11% last year and described it as being “under pressure”, with 10% share forecast in 2021, against the 20% it estimated in 2008.
The 2022 strategy aims to strengthen market leadership and achieve transformative growth leading to greater profitability. Key tenets of the plan included unlocking value from efficiencies in scale and simplifying the holding structure for greater profitability.
As part of its strategy for growth, IHCL said that it would scale up its inventory, sell non-core assets and manage its “brandscape”, aligning its brands towards the high growth segments, where it could achieve profitability and scale. It expected to see an increase in sale and leaseback deals and was looking for partners to work on the growth of the Ginger brand.
The company’s current portfolio saw 16% of its rooms overseas, with the remainder in India, while 38% of its hotels were under its luxury brands, 26% Vivanta, 22% Ginger and 14% Gateway. The company said that it would focus on growth through management contracts for the Taj and Vivanta brands, with operating leases for Ginger. The exception to this would be for prime locations, where ownership – including sliver investment – and operating leases would be considered. Of the current portfolio, 75% was under freehold or leasehold.
IHCL said that it would look overseas, targeting outbound tourists already familiar with the brands, in locations including Middle East and North Africa as well as south-east Asia. The company added that certain markets, such as Myanmar and Africa were “poised to grow and are a potential opportunity before they get saturated”.
The group was looking to an 8% Ebitda margin improvement by 2022.
For the year to 31 March the company opened 10 hotels, including a Taj in Andamans and nine Ginger hotels in some of India’s key cities, including Mumbai, Gurgaon, Lucknow, Ahmedabad, Vadodara, Aurangabad and Goa. IHCL signed five new hotels across its brands in the financial year – a Taj hotel in Vikhroli in Mumbai, Vivanta in Bhopal and three Ginger hotels in Lucknow, Vadodara and Goa.
For the first quarter the company reported 9% sales growth and 38% operating Ebitda growth.
Puneet Chhatwal, MD & CEO, said: “We delivered a stellar performance on improved profitability and growth in FY18. With a sharpened brandscape and continuous focus on growth, we are confident of consolidating our position of being the most iconic and profitable hospitality company in South Asia. I am very proud of the exceptional efforts made by my colleagues in increasing our Ebitda margins in the quarter by 4.6%.”
Giridhar Sanjeevi, CFO, added: “The strong performance is a result of our focus on margin enhancement through optimisation measures within an environment of growing demand. The rights issue coupled with better balance sheet management helped us to reduce the debt to equity ratio to 0.45.”
HA Perspective [by Katherine Doggrell]: The hotel market in India has historically been labelled ‘opportunity knocks, but here be dragons’. Many have tried and some, like Premier Inn, have fled. The chorus has always been that a local partner is mandatory for overseas players, but, when the domestic players such as IHCL found themselves bogged down in debt, that wasn’t too convincing either.
But the market is maturing nonetheless and platforms such as Oyo and Treebo have unified independent hotels and introduced the concept of branding. Under Chhatwal IHCL is now looking for simplicity of structure and clarity of brand, in time to ride the expected wave of growth.
The short-term picture mixed. According to STR/Horwath HTL, relying on the domestic market, as many do, will no longer be sufficient, particularly for the upper tiers. At the same time, attention will not be so closely focused on the major markets, there will be diversification in location and segment.
The global operators, eager to put down roots in this land of promise, will be watching closely to see how IHCL fares. If Chhatwal can replicate his success at Rezidor, finding partners for Ginger should not be a challenge.