Good day, and welcome to The Indian Hotels Company Limited quarter one f inancial year 2022/2023 results call being hosted by Mr. Puneet Chhatwal, Managing Director and CEO, IHCL, and Mr. Giridhar Sanjeevi, EVP and CFO, IHCL. As a reminder, all participants' lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need any assistance during the conference call, please signal an operator by pressing star, then zero on your touchtone phone. Please note that this conference is being recorded. At this time, I would like to turn the conference over to Mr. Puneet Chhatwal. Please go ahead, sir.
Good afternoon, everyone, and welcome to our Q1 earnings call. Let me start with especially those of you who would have downloaded the presentation or have gone through it. Every now and then I'll refer to one or the other slide. Let me start with sharing with you that the dual honor of World's Strongest Hotel Brand for second year in a row, coupled with India's Strongest Brand across all sectors as per Brand Finance, make it a very special year for us. Also within India, in the last three years, twice we have been rated the strongest and once the second strongest. It's almost a continuation of three years, which makes us feel very happy and pleased.
When it comes to the Q1 performance across key financial metrics, we have exceeded the pre-COVID performance on all the metrics. The revenue was up, comparing it to pre-COVID numbers by 22%. EBITDA is up by 92%, EBITDA margin by 11.4 points, profit after tax of INR 170 crores against only INR 6 crores in 2019-2020. Strong free cash flows, almost INR 200 crores, and net cash positive of INR 269 crores. This is the best ever Q1 performance.
We only went back till 2010/2011, but as you can see from the revenue figures in those years, including if you would have a possibility to see slide four, as a company or as a business, till 2019-2020, which was our best financial year, the pre-COVID one, we achieved a margin of 19.9%. We are up to 31.3%. Before 2019-2020, the best we achieved was in year 2011/2012, a margin of 13.8%. It's a very strong swing, which is the fundamental proof of our change in business model, our focus on new businesses, our investments in our iconic assets, to reposition them, and also the kind of mix of properties that we have had. We finished with a robust performance across all brands. All the parameters were up.
There is only one which shows the occupancy dip in Ginger. That is on purpose because the rate increase is significant, close to 34%. When it comes to total revenue per available room, which means it includes room revenue plus other revenues, we are looking at Taj at around 18% increase in total revenue, and in SeleQtions and Vivanta as well as Ginger, around 30% increase. One thing which we have been very careful on in the last few years is the premiumization of our portfolio. Any business that we enter in, new or the ones previously, we want that our offering is perceived at premium level in their relative positioning. If it's a Qmin QSR or Qmin home delivery, it must be perceived as the best offering.
If it's a home stay, it is not only experiential, it also has to be perceived as a premium offering. Same thing for Vivanta and other brands, because the backbone of the company was, is, and in foreseeable future, remains the Taj, and we want that all our brands which are associated directly or indirectly with Taj are perceived as premium brands in their respective segments. We have had industry-leading growth on average rates up by 31%, and occupancy up by 9% and the RevPAR up by almost 42%. These figures are on the domestic front and based on same store.
As we are a high growth company, some of the new properties definitely dilute the amount that we show as absolute amounts, but that is a consequence of high growth, and especially in some of the markets which take time to stabilize. Very good news on Mumbai, Bengaluru, and Delhi. They are back. They are the three most important metros in India. If we look at all India, I think the trend is very, very positive. On the domestic front, IHCL has outperformed the industry in almost every market except for a marginal lag in Rajasthan by 2 points. Goa is as high as 167%, compared to pre-COVID level, and all India is up 142%.
More importantly, Mumbai at 133%, followed by Bengaluru at 122%, and Delhi NCR 120%. These metros are important for us also because we have owned or licensed assets here. We account for those revenues and a change in the revenue numbers there has a significant impact on our portfolio and on our performance. Also we are continuing to build capabilities. We continue to invest in digital projects. Our new website is underway, a new mobile app is underway, and we have undertaken a very large CRM project. This CRM project became even more relevant because of what you must have heard or seen the Tata Neu integration, which has enabled us to get 1 million new members in already four months' time and 50% growth in our loyalty base.
Our marketing campaigns are very strong and have been very successful. The most successful one being the 4D campaign, the campaign on Taj being the strongest brand, the campaign on She Remains The Taj, as well as Dekho Apna Desh. Also, I think we will be launching a series of new campaigns as of tomorrow or day after, which you will see, as a marketing drive towards the Independence Day and towards propelling growth in all our businesses, especially in the months of August and September. There is a robust growth in signings, openings and pipeline. Managing the pipeline is very, very important to us, and our pipeline today of almost 8,100 rooms represents 28% of the total portfolio and almost 40% of the operational inventory.
That is the industry-leading pipeline in terms of percentage. We have had 10 signings already in Q1. We expect that we will sign another 15 for the remainder of the year. We have also announced in our press release that we have got the letter of awards for four projects, two in Lakshadweep, two in Diu, and we have opened four hotels, and the openings are more towards the second half. We'll open another hotel this month, and going forward it will increase to 1.5 to two openings for the remainder of the financial year. In line with the guidance that we have given previously, in other quarterly meetings. Very interesting for you would also be to note that we envelop India and we cover India and have presence in key strategic international destinations also.
Today in India, we have crossed more than 100 destinations that are covered through our portfolio, and if we were to include amã, then the number of destinations would reach almost 125. Our pan-India footprint is stronger and is getting even further stronger as each month and each quarter goes by through our aggressive asset-light growth strategy that has been in place. The asset-light model is not only driving growth, but it is also helping us find the right balance, which is in line with our Ahvaan 2025 strategy. That is about delivering profitable growth in a responsible fashion. We call it the responsible profitable growth. Our management mix in terms of contracts from the total portfolio is 1%-46%. Our management fee growth in the quarter one was 72% versus 2019-2020.
We are not comparing it to the previous financial. We are going to the pre-COVID level, and there is a 72% increase, and that is a proof of our asset-light model. Having said that, we are still investing smartly for long-term growth. Our strategic renovation is now 75% complete at the Taj Mahal h otel, Delhi, also popularly known as the Taj Mansingh. Our second Seven Rivers microbrewery together with the House of Nomad is about to open in the next three to four weeks at the Holiday Village in Goa. We continue to pioneer destinations at the Statue of Unity. We'll be doing a combo hotel with Vivanta and Ginger, approximately 350 rooms, followed by investing in some of the bungalows. We will do wherever FSI is available to us like we have in Aguada.
We'll be adding three homestays there. We will see if we can get permission to add some in Exotica. We'll continue to invest in Chambers. We'll be launching Chambers very soon, as we have guided before in over the next two years, both in our property in New York as well as at the West End in Bengaluru. Further work has happened on the QSR, which we call the Qminization of Ginger. Each of the Gingers will have all-day dining, and that will be branded as Qmin. The first one has already happened in Goa, in the Panjim City, and 10 more projects are underway, which should be completed when we do our Q2 investor call.
Obviously, our Ahvaan 2025 strategy has a very strong element of ESG+, as I said, doing business the responsible way or delivering responsible profitable growth, and we get support from Paathyā, and Paathyā has those six pillars of excellence that guide us, and we've started work on 10 heritage sites with UNESCO. We've created eight active skilling centers, and we have nine pilot projects which have been undertaken also with IFC. Our 29% energy is coming from renewable resources. 45 hotels have already installed EV chargers. That's a project we have undertaken in collaboration with Tata Power. Even during the Assam flooding, 57,000 meals under were delivered for the people who were needy in very remote areas like Silchar, etc. Moving on to the guidance we have given under Ahvaan 2025 on performance criteria.
We said we will deliver over the business cycle 33% EBITDA margin. We will do new businesses and try to achieve 35% or more EBITDA from new brands and management fees. We'll have a balanced portfolio of 50/50 at the end of the business cycle, and we will strive to remain a zero net debt company. When it comes to the portfolio, the guidance that we have provided remains unchanged at 300+ hotels portfolio over Taj, SeleQtions, Vivanta and Ginger and 500+ homestays.
That makes us believe that Ahvaan 2025 will further our journey to reinforce our status or consolidate our status as South Asia's most iconic and profitable hospitality company built on the pillars of Taj, which is trust, awareness, joy, and the five core values of Tata Group with enablers like culture, organization, One Tata, digital excellence, sustainability, and our three key initiatives of reimagining new businesses, re-engineering traditional businesses, restructuring our portfolio. I think we are on track and our financial performance on all these three metrics that I just mentioned to you will be discussed in detail and presented to you by my colleague, Giridhar Sanjeevi, who is our Chief Financial Officer.
Thank you. I think building on Mr. Chhatwal's presentation, I think fundamentally, I think our strategy of re-engineering margins, reimagining brandscape and restructure portfolio is a very good algorithm which is enabling us to grow profitably and positions us very well in this Ahvaan journey actually. I think one of the things that we just wanted to touch upon, which keeps coming in questions, is that how has been the different segments of recovery across the post the pandemic. We very clearly saw that the domestic leisure recovery was the earliest. Weddings and social events started next. Corporate and MICE recovery has started strongly in Q1, which is where you see corporate FIT as well, which is where you see Bombay, Delhi, Bangalore coming up.
In addition, of course, the government business in Delhi has also restarted, and international travel recovery is expected to start sometime in the Q3 of the current financial year, once the visa situation and other things kind of ease up actually. In terms of the key highlights, we are deliberately touching upon Enterprise, Consolidated, and Standalone. Enterprise is nothing but all the hotels, including management contracts. We did INR 2,420 crores in terms of top line, which represented 137% growth. I think it's with this trend, I think what we are trying to do is to see whether at an Enterprise level, including management contracts, we could go to an INR 10,000 crore Enterprise top line for the IHCL, which will be the highest ever actually. That is our objective this year.
EBITDA for the Enterprise was INR 719 crore, which represents an EBITDA margin of 30%, 29.7% and a flow through of 62%. On the Consolidated, which is what we report to externally, I think we had 122% growth with INR 1,293 crore top line. As we said, this is the best ever top line in the last 10 years. Similarly on EBITDA, it is INR 405 crore of EBITDA. The most important thing is the flow through is 82%, which means for every change of INR 100 on the top line between 2019-2020 and now, INR 82 came through to EBITDA line. Free cash flow positive at INR 198 crore is also a very healthy sign.
On Standalone, it mirrors the Consolidated with 130% growth in Standalone, with a flow through of around 79% and a strong free cash flow positive of INR 170 crores. If I look at the different, key entities, which is the subsidiaries, I think you will see that U.S.A have generated actually a cash profit while business was at 85% in terms of recovery. It generated a cash profit, this year, in this quarter. St. James' Court has a very strong recovery, 111% with an EBITDA margin of 37.5% with a strong free cash flow positive.
If you move to the next, which is [audio distortion], which has the iconic President and Blue Diamond in [Blackna] and others, we had 127% growth in the top line and an EBITDA margin of 28%. Roots Corporation is a very strong story in terms of the transformation. If you notice, in the year 2019-2020, the EBITDA of INR 11 on a top line of INR 50 translates to around 22%. That has now gone up to INR 27 crores on a top line of INR 70 crores, which represents an EBITDA margin of 41%. This reflects the efforts that we have taken in terms of integrating Ginger operations with Indian Hotels operations. The most important thing is it is PBT and PAT cash positive and free cash flow positive.
Benares Hotels has generated one of the highest EBITDA of 46% with 169% growth in business and has also been free cash flow positive. While we have not given the associate companies in this presentation, I can only tell you that the associate companies have also driven strong growth with free cash flow positive. Now, the important thing is with all the focus on new businesses, we have now seen that the revenue contribution from the new businesses as compared to the pre-pandemic business has gone up from 9%- 10% to 14%, and the EBITDA contribution has gone up from 18% to 22%. Very strong focus on cost continues. The fixed cost as a percentage of revenue has come down as compared to the pre-pandemic period.
While the business has come back to 122% of the pre-pandemic level. In fact, earlier conversations, if you all recollect, we were talking about business coming back to the pre-pandemic levels and we continue saving costs. Here, despite business coming back to 122% of the pre-pandemic levels, we continue to drive cost focus in terms of fixed costs. Variable costs, again, have sort of come down. Fundamentally, what the message here is that despite inflation, we have been able to take price increases on F&B and therefore make sure that the variable cost as a percentage of revenue is kind of maintained. Corporate overhead as a percentage of revenue has also been strongly maintained at 5.5% in this current quarter, down from 7.8%.
In terms of the productivity initiatives, I think if you look at payroll expenses, it is 27.8% of the revenue. It versus 35.1% in a pre-COVID level, so payroll expenses are definitely being kind of controlled. The raw material cost, as I just explained, lower as a percentage of F&B. Despite inflation, we have been able to take the price increases. Fuel, power and light, we have continued to work in terms of renewable sourcing as also energy efficiency in terms of consumption of the hotels. Both are helping us to manage the fuel, power and light. Overhead efficiencies we just saw has been significant in terms of corporate overhead as a percentage of revenue.
Marketing effectiveness, this time the marketing spends have gone up, rightly so, in terms of the growth in business, but we are smartly working on effectiveness. In terms of the Consolidated P&L movement, this is just a waterfall chart. The detailed charts are at the end, which are there in the annexures for you to look at. We are at INR 1,293 crores. I think the core message in this slide is that the EBITDA. The bottom chart shows the variance from 2019/2020. The EBITDA at INR 194 crores represents 11.4% improvement at an 80%+ flow through. The PBT at INR 203 crores is the increase as compared to the pre-pandemic level of about INR 27 crores or so.
The PAT at INR 164 crore is a significant improvement, growth as compared to the INR 6 crore in the pre-pandemic period. All in all, a very strong improvement in terms of Consolidated performance. Similarly, in terms of the EBITDA margins, you will see the improvement across same store, which has been significant. If you see the new hotels, Ginger, Cube, and amã, The Chambers, all of these are meaningfully now contributing to the growth in EBITDA action. In terms of free cash flow generation, this continues to be a very strong focus area. INR 198 crore of free cash flow generation. We began with INR 2,082 crore of cash. The cash from operations was positive at nearly INR 350 crore.
We repaid debt of INR 964 crore and a closing balance at a Consolidated level of INR 1,276 crore with a free cash flow of INR 198 crore. Similarly, in Standalone performance, it mirrors the Consolidated performance with INR 142 crore of EBITDA at 12.5% improvement in EBITDA with a 75%+ flow through and a PAT of INR 147 crore, which represents a INR 125 crore improvement over the pre-pandemic period. We come to the end of this presentation. There's a lot of data on the annexures which you can look at. If you have data questions, our suggestion is that you can look at the annexures. If there is anything else, we will see what we can answer. Otherwise, feel free to reach out to us after the call. Thank you.
We are open for questions now.
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. We will pause for just a moment to allow everyone an opportunity to signal for question. I would also request everyone to say their name and the company they belong to before asking a question. We will take our first question. Your line is open. Please go ahead.
Yes, thank you so much. This is Nihal Jham from Edelweiss, and congratulations for the strong performance. Three questions from my side. Starting off with the first one is that just wanted to get a sense that, you know, the kind of strong trends that we've seen in the first quarter, where we've even exceeded the in-season Q3 quarter in general. Are they continuing at such a strong pace?
Yes, Nihal, they are continuing. You see, this is for you and anybody else listening here. Q3 has been traditionally the strongest quarter, and we see no change in that going forward. Q4 is the second strongest quarter, and Q1 has always been the third. July, August, September quarter, which is the Q2, is always ranked number four for us in terms of revenue. I think even if we look at it should come very close to the Q1 performance. There will not be a very big variance for what we know today from the month that has gone by, that is the month of July, and the performance till 8th of August versus and also the pickup and the business on the books.
Definitely, the trend continues despite the fact that some of these months are very strong holiday periods, and also that there is less business activity versus in Q1 we had the IPL, we had many other things happening, opening up of the air traffic, after the end of March. There was a certain momentum, but we are not seeing any change or drop in momentum.
That's wonderful to know, sir. The second question was, you know, related to the, that if we bifurcate the business as you've also given between business and leisure, and there has been a strong improvement in rate versus pre-COVID. How has the absorption been and how do you see this continuing? Because that in a way becomes critical for our occupancies also to sustain. Specifically, if I say look at the leisure segment, I think our rates are 60% higher than pre-COVID. Does, say, comparison with other international destinations as things are opening up, maybe put a stop to this rate sustaining? Similarly for the business segment, how do you see this absorption being taken by the corporates and the transient in general?
We have a different opinion here. I think very important and critical, as I mentioned in my comments in the presentation was that for us, Delhi, Mumbai, Bengaluru is very important and we said it in the last investor call for Q4 of the full year results, was the day these three metros come back you will see a significant swing in business. I think yes, there is a strong occupancy improvement in the business segment. Up till now, the business segment has been much more or less very strongly driven by occupancy versus rate. When I say this, I'm comparing it to the pre-COVID. It's maybe for us it's a difference of 12% or 13% over a two-year period. That's not a big increase.
It's a very nominal and normal increase. I think critical is the leisure segment. In leisure the rates have gone up. Now, having an analogy saying that when other destinations and international things open up, then leisure will go down, I don't think that is correct. I think, there is a change that happens whenever the world goes through any kind of significant event. I think, the demand for leisure that whatever you want to do it now and don't leave it for like, you know, I'll go on a holiday two years from now, three years from now. Extended vacations, they have not happened. Further, I mentioned to some of your colleagues, and I'll mention here also, all these results that you are seeing is also without much international traffic.
That segment in terms of inbound tourism is still more or less missing. That for us has been a very important segment, especially for our leisure and palaces and safaris. Those properties are not yet benefiting from the inbound tourism coming from other countries. As well as towards the end of this calendar year, December onwards, there will be the G20 which will start, and I think that should further give a boost to the room nights and also to the rates going forward.
That's very helpful, sir. Just one last question that on Ginger, would you say, could you highlight that other than the rate improvement, any other initiative which has led to this significant improvement in profitability? If it's possible for you to give the Ahvaan target even for Ginger separately.
Well, we have not yet done that, giving separate targets for different brands in hotels. We have given only for the portfolio. We have said Ginger will have 125 hotels, and homestays, for example, will have 500, and Taj will cross the 100-hotel portfolio. That is what we have given, but not a target broken down by brand. It would be fair to assume that in key metro cities, Ginger would definitely perform EBITDA margins of 55%+, and in others it would be around 40%-45%.
As we continue to enhance that portfolio, that reimagined Ginger, as we continue to add Qmin QSR restaurants, I think the total revenue per available room in Gingers should improve, and also in the positioning of the brand, it will get a lot of help with the combination and the combined power of Ginger and Qmin.
Understood, sir. Wish you all the best. Thank you so much.
Thank you.
We will take our next question. Your line is open. Please go ahead. Your line is open. Please go ahead.
Hi. Sorry, the confusion. Hi, this is Achal from HSBC. I had a couple of questions actually. First of all, just wanted to understand this impact from high-priced air tickets. Air tickets have become very expensive, and that has actually halted the air traffic growth. Do you think that could be a kind of a potential challenge for you? Or do you think that could be a boon for your earnings, assuming people would start spending less in the planes and then more in the hotels, and that would actually push earnings for you? What do you think?
It's a very interesting question, Achal. It makes me smile, and it makes me also think. It's a different kind of a analogy. We never thought like that. I think what we have seen because of our diverse portfolio and the needs and demands of the job, we end up traveling a lot. Despite the increase in air travels on a domestic front, all flights have been full. We are seeing the same thing on international routes, even though there are challenges in getting the baggage and the baggage delivery, and every day you read something new from Australia till Heathrow to Amsterdam to Frankfurt on what all is happening. I think travel remains a fundamental need, and whether people spend on travel or staying in hotels or it's also a fundamental business need.
You cannot do all business virtually because at some point you have to build the relationship capital. I personally feel I don't think increase in costs of airline tickets is going to reduce the spending in hotels or because of that, people will not travel and the additional disposable income will be consumed in hotels. Some of it, in a very small fraction, might even be true. That's why it made me smile.
Yeah. No, I mean you're right, Puneet. I mean, it's an interesting question. I mean, you know, from the corporate side, of course, I don't see any impact because the corporate people are least price sensitive or they don't care that ticket is INR 10,000, INR 20,000. It is more to do with the leisure demand because if I'm a leisure traveler, of course, you know, and I have a budget in hand, so if I used to spend like INR 50,000 on the flight and INR 50,000 on the hotel, now if I need to spend same, I need to choose the same destination, probably I end up spending INR 75,000 on flight and then left out with very less for the hotel. So that was my question on the leisure side.
See, I understand. If you're a family of four and you've gone through COVID, you get used to sitting in the car and driving because that way that 75 x 4 becomes INR 3 lakhs. When you save on that INR 3 lakhs and you spend it on accommodation and dining, et cetera, and you know, other kind of leisure options. But that is going to be a permanent trend. It's not going to replace the air travel, rather complement it for additional extended weekends and breaks, which we are also witnessing. What happened to be, let's say in Mumbai, somebody driving off to Nashik or Lonavala or Mahabaleshwar, on an extended weekend when everything was shut, is now become a normal trend.
As people doing it and with the improvement and the spending the government is incurring on building a better quality infrastructure is only going to increase the demand for this kind of vacations.
Perfect. That's interesting. Second question, I wanted to understand about your relation with Tata Group in terms of Tata Neu as well as in terms of Tata's increasing airlines, you know, aviation business. What kind of relation are you building there? What kind of benefits do you expect from your synergies within with Tata Group?
Well, one of the big advantages of being part of such a conglomerate is to have synergies within the group companies. Tata Neu, as we have shared, we were the first member to join this Tata Neu platform much before any other company decided to, and we are very happy with it. Of course, it's very new, and it was launched only on 7th of April, so it has to reach that maturity phase. It's in the infancy startup phase, and I think at a mature level the potential is significant. We have a very good relationship. At the moment already our source of revenue through the app platform of Tata Neu has almost doubled. We have reached 18% of our revenues are coming from that source. All in all, we are very pleased.
The same is collaboration with airlines. Of course, we already had a collaboration with AirAsia or Vistara, or we do meals for them, you know, the flight kitchen business. Only thing is it's going to get stronger and stronger as time goes by.
Right. My next question is, I wanted to understand about the inbound international tourism, which has been a significant, which used to generate significant amount of revenue for IHCL. Now, of course, you are expecting the recovery by Q3. So with that, what kind of jump or improvement you are expecting to your occupancy levels and ARR? And which cities do you expect there is a potential for further growth from that?
See, pre-COVID, let's say 15% of our total business for the year was coming from inbound tourisms. In the second half, a lot of that on some of our palaces, et cetera, were getting more than 50% of the revenue was coming from international sources. We expect that to come back, and we'll have a change. It's more like a channel shift from a domestic and from an OTA, you might have more through travel agents and through other sources of international business. That's a channel shift that happens. It only helps you become more, you know, let's put it this way, more solid, stable, less volatile in terms of the sources of business because you have so many more sources. At the moment, we are missing that. It's not. You know, it's very marginal.
It's a very small amount that is there. It's not zero because it has started. However, we have a long way to go, and as my colleague, Mr. Sanjeevi was mentioning, we are expecting towards middle of Q3, around November for this business to pick up. That's what we feel is the most likely outcome today. This activity will pick up, and it will actually help drive demand in a very solid way in places like the state of Rajasthan, Delhi NCR, Mumbai, you know, Goa, and some of the other, you know, spiritual and other destinations. Because international, you know, is also having a significant share of people of Indian origin living abroad who come back to visit families who have not had a chance to see families for two years.
Because their nationality has changed or their passport is different, they're also counted as international arrivals. I think we should start seeing a lot of that happening. I think Diwali is around end of October, 24th of October or so. From Diwali onwards, it should start.
Okay. My last question and a very small question. Do you have any update on Sea Rock you want to share, please?
Sea Rock, I think we are working on designs at this point of time so that you know we are ready with the design. In parallel, of course, conversations are going on in terms of accelerating the approvals. I think we'll have to. You know, we will update as and when there is better advice on this.
Okay. Perfect. Thank you so much, and wish you good luck.
Thank you.
Thank you, Achal.
We will take our next question. Your line is open. Please go ahead.
Hi. Thanks for the opportunity and congrats on strong Q1. This is Vikas from Antique. So my first question is on margin improvement of 11 percentage points-12 percentage points, compared to pre-COVID, which is largely explained by a reduction in payroll and other expenses. Possible to highlight what contributed to this sharp decline in other expenses? Maybe if you can, you know, talk about two, three major items here. Also, you know, looking at historically, the average margins of second half is normally double of margin in first half. I do understand there is a strong pent-up demand in first half, this time. Directionally, do we expect margins in second half to be much better, this time as well?
Do you think that rising rates, faster inflation could challenge second half?
Vikas, apologies. You know, your call was very, I mean, the line was very unclear. The only question which I have understood, I think maybe we can take it offline with you, is around margins in first half versus margins in second half. Of course, margins in second half should be theoretically higher than the first half. Why? Because the rates are higher, the activity is higher, and it happens like that in Q3 and Q4. Save for any geopolitical tensions, any kind of new waves of COVID or anything like this, that is the likely outcome. We think at this point of time, we don't see anything coming in that way.
I think your first question was more on costs, if I'm not mistaken, as to how they have been coming. That, as we have explained, I think we continue to focus, you know, you've seen the focus on fixed costs. I think variable costs is more a function of inflation and how we are able to pass on the price increases. Payroll expenses continues to be a strong focus area. I mean, it's an ongoing efforts in terms of making sure that we don't kind of relax the focus on this. I think nothing more than that, Vikas.
Sure, sir. I hope my line is clear now. I've taken out the headsets.
Yeah, yeah. Now it's much clearer.
Yeah. Just coming back to, you know, margins in second half. What I was trying to say that pre-COVID, and if you look at five to seven years history, second half margins are normally double of first half margins because, you know, second half DMT is very, very strong. Now, you know, if directionally, you know, we, you know, continue to think that margins in second half is going to be better than first half, so we might end up achieving 33% one target this year only. Is it fair to assume that this year margin has lot of better factor and we may see some challenge in FY 2024 and then we will come back achieving our margin target in FY 2025. Is it a fair assumption?
Not really. I don't think that is accurate because I think we can take it up in detail when you have time. You see, we have a lot of increase, as we have shown in the management fee income with the corporate overhead having gone down from 7.8% of total revenue to 5.5%, although the number of hotels in operation and the total portfolio has gone up. That's one example of with so many management contracts, that when you add, they add to the management fees. Our management fees compared to 2019-2020 went up by 72%. The flow-through on that incremental thing is very high. Same as on our new businesses that there is a strong impact because of those additions. Double is not the right way to calculate.
I think the way the industry worked was always, it's okay if you don't do well in first half, the second half will make up for it. We have given up that, and we say every day we have to work and stay focused, optimize the costs and increase the revenue and market share as much as possible. That, you know, those kind of assumptions that, margin in first half is half of the margin in second half, that's gone. That will not be the case. There will be an improvement. Of course, there will be an increase, but it will not be, the way it used to be because even for us, on an average, if we take out, pre-COVID year, the 2019-2020, and we took the 10 preceding years, our average margin was not even 13%. Of course you are right.
In Q3, Q4 it was 26%. That's a change in the business model. That's the change in the way we invest. That's the change in the way we upgrade assets. That's a change in the way we have launched and introduced new brands. That's a change in thinking of doing food & beverage in Ginger, which we never did, which was outsourced. I hope that answers and gives you.
No, sir, it did. It was very helpful. My second question, sir, I'm sorry, it's actually the last question, is on, you highlighted in the presentation that, you know, except for Rajasthan we did much better compared to the industry. Can you explain the stark difference in southern cities like Hyderabad and Bangalore, where we have performed much better, you know, compared to the flat-ish kind of a RevPAR growth for the industry? Hyderabad we are up 40%. Was there any, you know, one-off kind of a event there, or it's just the sheer outperformance because of such a brand we have? Thank you.
Vikas, you might have forgotten, but you asked the same question last call also. I'm sure you are following up these cities for one or the other reason, quite strongly. It is good. You have a good point there. We have certain initiatives in place, and it's a very good example. You know, the Fisherman's Cove in Chennai, the Taj Connemara in Chennai were upgraded and relaunched, but then came COVID. The way they are driving business, during COVID and now is very different than what the performance was before. Hyderabad is the same thing. A lot of Taj Krishna has been renovated, so it has also gone up. Having said that, we did have certain movements, which was a good collaboration effort with Vistara in providing quarantine accommodation to workers which were going to Singapore.
We had some of those movements and that will always keep happening as a one-off. Today, in south of India, tomorrow in east or north, that's the power of collaboration and having strong partners.
Sure, sir. This is very helpful, sir. Best of luck for rest of the year. Thank you.
Thank you.
We will take our next question. Your line is open. Please go ahead.
Thanks for the opportunity. This is Amandeep Singh from Ambit Capital. Firstly, on the management contracts, you have already reached 46% management mix in terms of overall portfolio, versus again our guidance of 50%. In that context, can you help us just understand how many fee sign-ups would you need to achieve that, and by when do you expect the same? Consequently, do you also plan asset-heavy expansion or there could be upgrades to be guided? We're just trying to understand the mix.
See, we said we will continue to invest smartly. For every investment that we make, we will need seven to eight management contracts to find that balance. If we did five or six company-owned or leased hotels, or if we did, let's say 10, we need another 40 management contracts at a minimum, but maybe up to even 60, so you find that balance in the portfolio. I think that is an important messaging. We should not stop investing completely because some of the destinations which we have built as a company in the past have worked very well for us. You know, Goa being one of the best examples, Kerala being the other one. Again, we did a great job in Andamans, in Havelock, and then came COVID when we opened.
Hopefully once all this is over, that will take off. Now, as we showed in the presentation or in our comments, management commentary, we are looking at the Statue of Unity, we are looking at Lakshadweep, which could be the most important leisure destination in the world with its pristine beaches, and the kind of experience one can have there. These things take time. It will be like a development over three to four years. That's why our guidance also on our Ahvaan 2025 is also three to four years period. In the end, all these parameters have to balance themselves.
Our guidance is also being largely 50/50 finally actually.
Yeah.
Like I said.
Sir, this is really helpful. Just one on the international business. If you look at like U.S.A still largely recovery in terms of RevPAR, but EBITDA contribution has been definitely better, sir. Can you help us understand some initiatives done here and if this can be extended to say your overall international portfolio? Lastly, your view specifically on recovering occupancy for the U.S.A part?
Recovering occupancy in?
For U.S.A.
Hello. U.S., you know, I think we have mentioned in the last few quarterly presentations, we used the COVID time to renegotiate our lease in New York. And also we invested in a new hall. We reduced the size of the large banqueting space in the U.S., and we have built a new hall out there. We'll be adding also a Chambers private membership club in Pierre. By doing so, we were able to give a part of the area that we had leased separately from another landlord that was the adjoining building of Barneys. That brought down our lease obligation, our number of employees, the cost of utilities, heating, lighting, you know, all that stuff. That is definitely something we did, which got us around $3 million.
Now, because the hall was not available as it was undergoing renovation, we lost some market share. We hope to recoup that, and that's one thing in New York. In San Francisco, we will be introducing the Bombay Brasserie instead of the current restaurant which is there. It's a small property. It was profitable pre-COVID. That will take our Bombay Brasserie presence to San Francisco, Cape Town, Dubai and London. I think that's our plan on the U.S., but we also expect positive news in Cape Town. This part of the year is off-season for Cape Town. The summer in Cape Town starts as of October. October to March is the stronger period. You'll recall also during COVID we acquired 100% shareholding in Cape Town.
Now those revenues, et cetera, should start reflecting in our top line strongly as of Q3 of this year.
No, really helpful. Thanks a lot, sir.
We can take next question.
Yes, we will take our next question. Your line is open. Please go ahead.
Hello. Am I audible, sir?
Yes. Yes, sure.
Yes, sir. Thank you for the opportunity. I have only one question. Sir, we have an associate company called Oriental Hotels. Is it not wise to merge that company into the Indian Hotels? It will be win-win for all the stakeholders. What is the management team view on this subject?
I think it's an associated company. I think we are partners in that company. I think we are not the only shareholders. I think we have in general stated that simplification of structure remains our key objective. We'll see what happens, I think.
Okay. One small question on the Qmin. We have achieved INR 100 crore of revenue. What is the potential of this business over the next three to five years, sir? That's it. Thank you.
We expect if every Ginger hotel gets Qmin, and Ginger goes to a portfolio of 125, and let's say almost 90 hotels in operation, plus already 10, 11 QSRs we have in Qmin. The Qmin QSR itself would be almost 100 restaurants. There is a revenue at an Enterprise level and at a Consolidated level. The Consolidated level will only get the fees from those restaurants and also the home delivery. We are looking at Enterprise revenue of Qmin going to INR 100 crore+ on an annual basis in two to three years from now.
Okay. All the very best for the coming quarter, sir. Thank you.
Thank you. Thank you.
We will take our next question. Your line is open. Please go ahead.
Hi, sir. Sumant here from Motilal Oswal. Going by the data you have given in the PPT, the U.S. and U.K. market, we have seen a significant improvement in ARR, but occupancy is lower. Are we going towards higher ARR and lower occupancy, and our positioning for the higher ARR and lower occupancy?
Sumant, as we said, we missed out on some opportunities in the U.S. because of the renovation of the banquet hall. Some of those events we could not host as it was before COVID. Also the trade-off on the rate side is important because some of the cost structures have changed, so we have to go for higher rate, higher margin business. In the U.K., it depends. Some of the events had shifted, you know. Pre-COVID-19, there were some very big events happening in London, which also happened this year with the Queen's centenary . You know, July, I can tell you, in U.K. has been the strongest month ever in the history of that hotel. We never reached the revenue level that we have reached in. This is like a three-month, only one quarter. Sometimes things shift between June and July.
All in all, we can say that if we add July, then it looks very different. If we add even July to our current first quarter results, it's the trajectory is in the same direction as was for what we have presented to you. For the overall as well as for U.K.
Okay. Now, going by the EBITDA of Piem and Benares h otel is 3x-4x. When we see the Standalone is 2x. Any other changes apart from cost side for Benares and Piem Hotels?
I think see Benares fundamentally, as you know, that the palace has been doing very well, and I think even the Taj Ganges has been doing excellently well. I mean, it's a small company, and so the cost management is very, very efficient in a small company. As far as Piem is concerned, once again, I think again, it's a well-managed small company and I think if you see the key properties there are all kicking in. One is Lucknow. Performance improvement significantly at the President. Nashik has done very well for pre-COVID as well as post-COVID. MG Road in Bangalore, in particular, has improved significantly after the Seven Rivers has opened up, actually. Amritsar is now doing very well.
I think these are very property specific and these will continue.
Okay, thank you so much.
We will take our next question. Your line is open. Please go ahead.
Hi, sir. Thanks for the opportunity and congratulations on good set of numbers. This is Bharat Sheth from Quest. Sorry. Sir, we say in presentation we have shown 8,000 rooms in the pipeline. Can we have some kind of, you know, breakdown between owned, leased and the brand-wise also?
Can we take that question offline? We have the data. If you reach out to my colleague, Ashok or Rupesh, we should be able to give you that data.
Okay, sure.
No problem.
Sure. Next question, sir. In this new business which are driving our margin expansion, we have the top line has contributed 9%-14% and EBITDA contribution is moved up from 18%-22%. How do we see over the next three years this scenario in view of the whatever business we are driving, and how much additional margin can it really contribute to the company?
I think we will be reporting on quarter-by-quarter progress. I think we should keep seeing improvement like you're seeing here from 9%-14% or 18%-22%. You can add similar numbers should be possible going forward, if not more.
Over three years' time?
Yes.
How much overall it can help us to improve our EBITDA for the company?
See, we have guided that the new business should have an EBITDA of more than 35%, and that is inbuilt into our EBITDA ambition of 33% that we have guided. We do expect new businesses to do better than 33%.
Okay. Thank you and all the best, sir.
We will take our next question. Your line is open. Please go ahead.
Yeah. Good afternoon, sir. Thanks for giving me the opportunity. Congrats for good set of numbers and again, thanks for the elaborated presentation. My question is again on the international properties. You just mentioned in one of your previous answers that in domestic market you are not seeing any impact of, you know, increase in the airfare prices or the general inflationary environment. You are seeing good demand in the domestic market. On international front, what is your view? Because of this inflationary pressure in some of your global markets like U.S. and U.K., do you expect it will have any impact on the demand, room demand? Or you expect that, you know, the travel will continue and the occupancies will remain firm in the coming quarters?
No, I think, see, as far as the international market is concerned, I think the factors which are now becoming important is not inflation. I think it's things like the airport difficulties in Heathrow as an example. I think those are the factors which kind of can impact in the short term places like in Europe, actually. In the U.S., I think New York remains a very strong leisure market. There is, you know, now this month, for instance, you have this September we have this United Nations General Assembly happening. So therefore there will be. New York has always been a very resilient market and hence I think, I don't see inflation in particular to be a factor which will impact any of the international businesses actually.
In fact, this is one of those businesses.
Okay.
which has some element of recession-proof, I mean, inflation-proofing in it because of the ability to drive prices purely based on demand supply.
This is Kaustubh from Sharekhan. My second question is on the supply front. We are seeing opportunities in the domestic market, and we have seen that for last two years the demand has been strong, especially after the COVID risk has receded. In terms of supply, what is your view? Like, should we expect the room supply considering the opportunities what have opened in the domestic market should improve in the coming years, and we should expect some of the brands you know to enter in collaboration with some of the domestic hotels in India, and this should lead to you know even supply of rooms to increase in the coming years?
I think if you've seen our earlier presentations, I think what we have seen is that the growth in demand is gonna be much better than growth in supply over the next two, three years. In fact, industry estimate, if I remember the numbers right, has been about demand at around 6.5% and supply at around 5% or so. Therefore I think that position is likely to continue over the next tow, three years. I think fundamentally, financing of individual standalone hotel projects still remain a challenge. When you talk of 5% supply constraint, this is at an overall industry level. But if you take properties like the Taj category, then I think it could even be you know, it could even be tighter actually.
I think over the next two, three years, we do expect the supply situation to continue to be constrained, and that should help the industry.
Right. Thank you. Thanks for the opportunity and all the best for your future quarters.
Yes. I think we'll take one more question, and thereafter if others if you have missed out or any other questions to be asked, I think could reach out to Ashok, Rupesh or myself, Giridhar here, and then we can take your questions separately. One last question, please.
Okay. We will take our next question. Your line is open. Please go ahead.
Hi, this is Nimish from RSPN Ventures . Thanks for the opportunity. I just want to ask how you are looking for the amã Stays going forward, and what is the profitability or what is the EBITDA levels at present?
I think as we have always guided, I think the amã business is an asset-light model, where we charge 15% in terms of fees and 3% in terms of pass-through marketing. It's an 18% cost. Of that 18%, if you take 3% off, which is your marketing cost, rest of it amã are also our model of amã are also close proximity to existing properties. I mean, existing properties. Our operating costs of management are very low actually. Hence on amã business, on the 18% cost, I would say that about 60%, 65% should be the flow through that we should get. That's the kind of margin that we're expecting on amã on the 18% fees that we charge.
One more thing is, like, the offices are now opening up and the things are opening up. Whether we are adding like, I think 40 amã Stays now. Whether there is a demand of this or how you are looking for it?
No, amãs continue to be in demand because I think fundamentally, as we have always stated, I think the pattern of holiday travel has changed. You know, people are driving to destinations. The pandemic and domestic travel has gone up. The Indians have discovered India in terms of travel. Hence I think the demand on amãs will not go down. We expect, in fact, our ambition is to go to 500 amãs on the assumption that these are viable places in terms of travel. Hence we expect the demand for amãs to continue to be robust. Of course, these amã businesses are not 365-day businesses, but I think we do expect demand for amãs to be robust.
Okay. Thank you. Thank you so much for the call.
Thank you. Thank you all for participating in the call today. Please don't hesitate to reach out to us for any further questions. Thank you very much for all your support.
This concludes today's call. Thank you for your participation. You may now disconnect.