Good day, ladies and gentlemen, and welcome to the Indian Hotels Company Limited third quarter for year 2022 earnings 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 listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes.
Should you need assistance during the conference call, please signal an operator by star then zero on your touchtone. Please note that this conference is recorded. At this time, I would like to turn the conference over to Mr. Puneet Chhatwal. Please go ahead, sir.
Good morning, ladies and gentlemen. Welcome to IHCL's global earnings call for Q3 and 9 months of 2021 and 2022. Let me start with some good news. We were fortunate to receive multiple recognitions on the global stage at the Worldwide Hospitality Awards 2021 in Paris.
These included award for best iconic asset for our flagship Taj Mahal Palace, best team achievement award for our newly launched homestay business, best team achievement award for the IHCL Goa team, and last but not the least, the best wellness experience award for our Jiva Energize campaign.
Now getting on to business. If we look at the macroeconomic scenario today, there is an expected slowdown in global recovery. However, India is expected to perform better. IMF in its latest economic outlook has reduced its projections for the world as well as most major economies, albeit marginally.
However, they increased the forecast for India from 8.5% to 9%, and even the latest economic survey from the Indian government pegs India's growth in the current financial year at 9.2%, and the next financial year, FY 2022-23 at 8%-8.5%. This will mean India will continue to be the fastest-growing major economy in the world. The Indian hospitality industry has also demonstrated tremendous resilience.
If we look at the Indian hospitality industry's RevPAR in the last two years, the sector has always bounced back despite being beaten down multiple times. In Q3 2021-22, the industry RevPAR recovered to 79% of pre-COVID levels. Now moving on to the performance highlights of IHCL, specifically, on some of the key metrics.
We saw a robust recovery in our rates, occupancies, and RevPARs, and outperformed the market across all three parameters. Just to take an example, IHCL's domestic Q3 RevPAR recovery stood at 89% versus pre-COVID in comparison with the 79% RevPAR recovery showcased by the industry.
It is also heartening to note that the average rates in our domestic portfolio bounced back to 95% of pre-COVID levels, and the occupancies were also around 94% recovery. We also saw RevPAR outperformance versus the industry in most major markets. However, the cities of Bengaluru, Mumbai, and Delhi NCR are yet to fully bounce back, and recovery in these locations will significantly boost the sector's recovery performance.
We think at least Mumbai already is on a good way since the order came out yesterday for certain relaxations, which have been offered due to the decrease in the COVID cases by more than 90%. IHCL's rate premium versus the industry has grown in the last two years.
This is reflective of the trust our customers have in our service philosophy, which we call Tajness, and in our brands. Our portfolio mixed together with smart product renovations, innovations have also enabled this growth. We have continued on our growth path, and today I'm happy to report that IHCL is present operationally or under development in 29 states and union territories out of the 36 in India.
The only ones missing being Chhattisgarh, a few states in the Northeast, namely Manipur, Mizoram, and Nagaland, and the union territories of Dadra and Nagar Haveli and Daman and Diu, Ladakh, and Lakshadweep. We are present across 97 locations in the country with 210+ hotels in the portfolio in India. This is far higher than any other hospitality company on the Indian subcontinent.
We continued our momentum on hotel signings with 17 new hotels signed in the 2021 calendar year. And please note, it is calendar year for the 17 new hotels, and this is across 16 cities. All were in asset-light model, with 65% of the new signings being pure management contracts and 35% being leases in our lean luxe Ginger brand.
We have always given the guidance that Ginger is going to rely mainly on lease-based model as doing management contracts for Ginger does not help in our strategy of the growth in margins. Today, we have a strong pipeline of over 60 hotels totaling approximately 8,000 keys. The pipeline is predominantly managed at 74% and mostly in India.
This pipeline positions IHCL well to deliver on our promise of opening a hotel a month. In fact, in calendar year 2022, we are optimistic of exceeding the target and opening more than one hotel a month across our hotel brands of Taj, SeleQtions, Vivanta and Ginger. Our profitable growth in new and reimagined brands of Qmin, amã and Ginger continues rapidly. Qmin has scaled to 20 cities and is expected to close this financial year at around INR 65 crores of gross merchandise value.
Our aspiration is to take the brand to at least 25 cities and keep growing exponentially the GMV over the next 3-5 years. Similarly, our amã brand has grown to 72 properties to date, and our aspiration is to grow the portfolio also exponentially like in Qmin to over 500 properties over the next five years.
Our reimagined and repositioned Ginger brand has done extremely well in terms of growth and revenue recovery during COVID. Ginger's Q3 revenue was at 93% of pre-COVID levels and the change and/or what we call the switch to lean luxe has helped Ginger achieve a 600 basis points EBITDA margin expansion over pre-COVID levels in Q3.
We continue on the growth path for Ginger, and we expect this portfolio both in operation as well as in pipeline also to grow at a rapid pace. On the cost front, we continue to be razor-sharp focused, and also on structural optimization.
There has been a reduction of 17% in total expenditure, 15% in fixed costs and 23% in our corporate overheads in the last quarter versus the same quarter at a pre-COVID level. If you look at these metrics on a year-to-date basis, the reduction in total expenditures stood at 27%. Fixed costs came down by 19%, and corporate overheads were at 20% below pre-COVID levels.
Of course, some of the fixed costs have come back and, as a matter of fact, this is mainly due to the furloughs we benefited from in countries like U.K., U.S. This helped us in subsidizing some of the labor costs and also certain rent waivers that we got in the first year of the pandemic.
We would like to reinforce the management's focus on return on capital employed, accretive operating model enabled by asset-light growth, incremental capital allocation, focus on free cash flows and continued exploration of asset monetization. I will now provide some highlights of our financial performance, post which I will hand over to my colleague, Giridhar Sanjeevi, our EVP and CFO, to speak on the details of these highlights.
We delivered a good performance in Q3 with a revenue growth of 85% and EBITDA growth of over 800% versus the previous quarter. We are pleased to report that Q3 PAT was at INR 76 crores, which meant around INR 200 crores growth over the corresponding quarter of the last financial year.
Our nine-month performance also saw improvement over the last year, with a doubling of revenues and growth in EBITDA by close to INR 600 crores. If we look at the performance of the last dozen years, the EBITDA margin in Q3 this year has been second only to 2019-20 figure despite decline in revenues on account of COVID. This is a clear result of the efforts on spend optimization and creation of margin-enhancing revenue streams. Having said that, I will now hand over to my colleague Giridhar Sanjeevi.
Thank you. Moving on to some of the details of the performance. In Q3, we saw standalone performance at INR 771 crores. What we are very gratified to see is that the revenue recovery was 87% in standalone as compared to the pre-pandemic period, and EBITDA margin came in at 37.7% for standalone.
Similarly, on consolidated, we saw an 80% recovery as compared to the pre-pandemic period, and EBITDA margin at 13.4%. For the nine-month period, I think I will just say that this INR 2,257 crores that we achieved in the nine-month period exceeded the revenue for the last year in the month of November itself.
I think, and the margins also look consistent in terms of 19% in standalone and 14.1% in consolidated. With this Omicron kind of going away hopefully now, I think this quarter should see improved recovery. In terms of the performance, what we have seen is that on a consolidated basis, EBITDA has been positive since July 2021, and PAT was positive in Q3 after about 20 months or so.
Similarly, on standalone, the same pattern continues in terms of EBITDA positive and PAT positive. At an enterprise level, what we've seen is that the same-store recovery has been at 85% across the enterprise, which is 11% better than Q2. In the domestic businesses, we were at 89% recovery.
In international hotels, the recovery was 74%. In key cities, our recovery has been very good, driven by the leisure markets of Goa, Rajasthan and others. Bombay, Delhi and Bangalore have done well, but these are the cities which we said earlier, with its improvement, the whole industry and our performance also will improve.
In terms of the international cities, we saw a strong performance from Dubai and Maldives. U.S. came up to about 50% in Q3 as compared to 2019, and U.K. came up to 80% as compared to 2019. One very interesting statistic as we look at leisure versus non-leisure, the occupancy recovery in both leisure and non-leisure was about 66%.
In ARR, the leisure had INR 16,400 of ARR and non-leisure was about INR 7,500. Showing the power of leisure and with our network of properties, which is balanced between business hotels and the leisure hotels, we have clearly been able to benefit.
On the international geographies also, we saw some very strong recoveries in occupancy and ARR across the market section. In terms of three revenue drivers, I think basically occupancy has been strong at 51%. ADR was +41% during this period. The RevPAR more than doubled in the nine-month period actually. In terms of asset light growth, as we said, we have built a strong portfolio, and we are on track to open one hotel a month.
Management fees at INR 158 crore were more than 80% in terms of the recovery actually. The new and emerging business of Ginger, Qmin and amã continued to do well. In terms of the new businesses, I think Ginger had a Q3 revenue of 93%, occupancy of 62% and ARR of INR 2,300. Chambers did very well.
We have 2,450 members. The nine-month revenue is INR 60 crore, which means that we're doing more than INR 5 crore a month in terms of recoveries actually, and in terms of new members. In management contract fees, as I said, has been INR 158 crore for the nine months as compared to the FY 2019-20 number of INR 213 crore. Qmin and amã continued to do very well.
On cost management, I think we continue to focus on operating leverage, and what we saw in the nine months is that while the revenue went up by 127%, the cost increase was only 39%. Similarly, in standalone it was 111% on revenues and 36% on cost increases, thereby supporting the leverage. This cost through the cost management came through with profit overheads with a 23% reduction.
Overall fixed cost reduction was about 19%, and manpower rationalizations continued to be our area of focus, and we were able to redeploy about 361 people. International hotels continued their recovery path, with U.S. and U.K. doing well on the revenue side and continuing to focus strongly on cost, with overall international markets showing a positive EBITDA for this period.
Similarly, if I look at the different subsidiaries, all of them have kind of recovered well in terms of performance. On the debt position, we completed the right issue of INR 2,000 crore in the month of December. We were able to pay down debt, and as we speak, the net debt in standalone is about INR 1,000 crore and consolidated is about INR 1,900 crore.
That is the key highlights in terms of we're continuing to see strong recovery of business and with Q4 recovery is coming back in the month of February, and we hope to do well in this quarter as well. Open to questions. Hello?
Thank you.
Moderator?
Yeah, we are like more.
Yes. Thank you.
On the floor.
Sure will do. Thank you. Ladies and gentlemen, if you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment.
A voice prompt on the phone line will indicate when it's open. Please state your name and company at the tone before posing a question. Again, press star to ask a question. We'll now take our first question. As a turn, please state your name and company before posing a question. Your line is open. Go ahead.
Hello. Hi. Hi, sir. Good morning and Happy New Year. This is Vikas from Antique. I have few questions. The first one is, you know, looking at the southern markets, we are doing much better than peers. On overall portfolio also we are doing but there, you know, the difference is much higher, especially in Bangalore, where RevPAR is back at 77% versus 50% for the industry.
What led to this first performance? You know, most of your peers are struggling because of no international travel despite, you know, despite record hiring by the tech companies. Can you know, explain from where all this outperformance is coming?
Vikas, good morning. Thank you. The reason for the increase in market share, as we have said quarter-on-quarter basis, is really the power of our brands and our focus on strategic growth and strategic renovations. I think it's not just in those markets.
As we have shown in the presentation, in most of the markets or almost all important major markets, we are having a higher Revenue Generation Index versus the peers. We do attribute it really to our marketing efforts, but mainly the power of the brands.
Okay. Sure. I think the difference in brands.
See, there is, Vikas, if I may add, actually, see what happens is that, especially during COVID, the business has, you know, shifted to more and very strong domestic focus. Globally also you are seeing that it does not matter which brand is in which market, as long as it is strong on the domestic front, it is just getting premiums, whether it's a German-Germany-based brand or a U.K.-based brand or an India-based brands.
I think in the short to medium term, and if the brands position themselves well, then even in the long term they are expected to outperform the other brands if they are very strong in the domestic market. As we said in the presentation, we are present in 97 locations, and I think that helps in the pan-India footprint. It is not always the number of rooms that counts. It is how you cover the width and the depth of the market, which we also do regionally.
Sure. Also, you know, in your presentation in terms of RevPAR, you have showed we have already reached 89% of pre-COVID levels. Any rough timelines you would like to share on, you know, maybe when we can reach the pre-COVID level kind of a RevPAR number? Secondly, one question for Giri, sir.
You know, in terms of margins historically, Q4 is always, you know, shade lower than Q3. Plus, you know, Q4 is anyways more corporate heavy. Do we think we can sustain these margins, or we will see some kind of a dip in Q4, maybe because of impacts of Omicron or lack of corporate travel? Or, I mean, if anything there you could share.
Okay, before I hand over to Giri, I think your question was when do you expect to come to 100% of pre-COVID? I think if you need to adjust for inflation, we need to come to 105%-107% to have a real like for like comparison. There are three key markets for us, that is Delhi, Mumbai and Bengaluru.
They are still at a low level of performance, you know, on averaging around 70%-75%. The day they get close to 95% or 100% of pre-COVID, definitely, for us, we would have crossed the pre-COVID revenue level, even if the resort business adjusts itself a little bit at a negative growth level.
We've run that analysis, and we are very hopeful that with the bounce back in Delhi, Mumbai and Bengaluru, which should happen over the next months, this should help in getting to the pre-COVID level of revenue. If we get to that level of revenue, I think what I would say is you should do the incremental cost and incremental revenue analysis and then look at the flow through.
The margins can be sustained with or without Omicron and with or without any of these things. If the incremental revenue starts coming in because your conversion or your flow through becomes much higher after a certain cost level as we are very much present in that higher segment very strongly. With the new Ginger, we are also driving margins in our new portfolio.
I think Giri will add to it. It's a very big question mark in terms of as of when we will see business recovery in these three key metros.
Yeah. No, I think, building on that, Vikas, I think, margins for us are driven by three factors. Number one is the recovery in the traditional business. Number two is the cost reduction initiatives. Number three is the new narrative around the new businesses of The Chambers and Qmin and amã and Ginger, actually.
I think, what we are now seeing even in the nine-month period, in fact, what is happening is that if you look at the 30.4% EBITDA margin that we had, part of it is really coming from the new businesses actually. Given that is going to be a major factor which will help us sustain the margin of 30% or better actually.
Sure. I think, so what you are saying is Q4, you know, there is a good chance that we are going to be able to maintain these margins. Is that correct?
Q4 January will be impacted for sure because of the COVID.
Yeah.
February and March, the recovery is strong. Therefore, to the extent that the traditional businesses have been impacted in January, there could be an impact. What I'm trying to say is that there are three factors we need to consider, the recovery in the traditional business, the cost reduction, and the impact to the new businesses. All the three you should take into account. Therefore there are some compensating factors which are definitely kind of coming into play.
Sure, sir. I just have one last question, and others I'll take it offline. The last question is on the guidance. You know, we have shared like it's going to be more than one hotel per month. Is it going to be a similar kind of a mix which we have seen in calendar year 2021, dominated by Ginger and management contracts? Lastly, you know, once this fundraising is over, I mean, overall, are you looking for some acquisition as well or anything in the pipeline? That's about it.
Vikas, you're right, the mix would be more or less the same. As we have mentioned since the last couple of years, we are hopeful of the completion of our absolute flagship for Ginger brand at Santa Cruz, where construction has already reached the first floor.
Now, whether it will be finished in December of this calendar year or January 2023, that certainty we'll have in the next few months. That's a very big one. As you know, that's 371 rooms. It's from both a CapEx perspective, from an asset management perspective in case we were to sell it, and do a sale and leaseback.
All these are considerations which we will discuss with our board over the next 3-6 months as and when the construction has reached fourth or fifth floor, and we have a certainty of the opening date. The way we look at opening dates is always nine months prior to opening is the month of opening, six months prior to opening is the week of opening, and three months prior to opening is the date of opening.
Once we get to the week of opening, I think some of these considerations will play in, and we are really looking forward to the opening of that trophy asset. Besides many other Taj properties, our second Taj branded property opening in Kolkata in March. We have a very nice lineup of Ginger.
Vivanta are branded properties also, including in the Northeast. We are opening in Shillong. We are opening in Tawang, in Arunachal. The mix will be more or less the same as we have seen, as there is no focus on one brand only. The idea is to grow the critical mass in all the brands. Do you want to? I hope this answers your question, Vikas.
Yes, sir. The last one is on acquisition. If you have in mind anything targeted
We are always open to, you know, looking at any opportunity that comes. I think our addition to our pipeline and our current pipeline is testimony to that, in terms of our aggressive growth plans and profitable growth strategy. If anything comes up which is a compelling proposition, I think we would be very well positioned to take advantage of it.
Thanks a lot, sir. That's about it.
Thank you. We'll now move on to our next question. At the tone, please state your name and company. If you're posing a question, your line is open. Please go ahead.
Yeah. Hi. I'm an individual investor. My name is Aditya Poddar. Am I audible?
Yes, Aditya ji, you're audible.
Okay. I wanted to know with the, you know, the takeover of Air India by the Tata Group, what kind of business can be expected, you know, from Air India? Because currently Air India is being served on the flight kitchen by various other companies, and also the staff stays at various hotels, maybe including Taj Group, IHCL group. I just wanted to know, what are the synergies? What kind of businesses you guys can expect? That's all.
I think it's a very good question, Aditya, actually. I think we are quite excited at the acquisition, and I think the impact on TajSATS is immediate actually in terms of better consolidation. You're right that the crew stays also would some of the crew stays also we will get an opportunity to participate.
Hence, and also our ability to do multiple things vis-à-vis our own customers actually. You know, we have tried different things with AirAsia as example. As you know, fully, you know, fully packages with AirAsia and all we have done in the past. Our ability to do this goes up for sure actually. I think overall it's very, very positive for both Indian Hotels as well as TajSATS actually. We will hopefully get the benefit of both the stays as well as the catering business actually.
Thank you. Thanks a lot. That's all from my side.
Thank you. We move on to our next question. At the tone, please state your name and company. If you're posing a question, your line is open. Please go ahead.
Yeah. Good morning. This is Adhidev Chattopadhyay here from ICICI Securities. I had a few questions. The first question is on the industry, supply side. In context of the successive waves of COVID, where do you see the industry supply growth trending now, especially in the four-star and five-star category? And considering that, when do you see any significant growth or any pricing power coming back into our room rates? And at around what occupancy levels? If you could just give us your views on that. Thank you.
The supply has been very constrained. In fact, it even shrunk in some of the markets. That has helped the rates. As we had mentioned, we ourselves got to a very high recovery percentage on the rate front. The rates in resorts are definitely outperforming the rates of pre-COVID level.
As mentioned in an answer earlier, the day we start seeing 90%-95% recovery of rooms revenue and total revenue in the key metros of Delhi, Bangalore and Mumbai, I think the rates should bounce back. Definitely supply will remain a constraint for a few more years because a lot of you know, the industry has struggled in the last few years.
Getting loans to build new hotels is very highly unlikely unless there is such a big boom coming in the business. That we will know over the next three, four quarters. As things stand today, demand will definitely outpace supply after a very long time.
That's helpful. The second question is on our new brands and businesses, if you just help us understand for the nine months for this year, what would be the EBITDA margin flow through for all the businesses combined, Ginger, Chambers, management contracts and Qmin amã? If you could just share a broad number.
I would say that about 50%+. I think The Chambers will be much higher because I think The Chambers, the flow-through is about 80%. Qmin and amã will be about 50%, and Ginger as well. That is the way it is kind of planned.
Okay.
Ginger for the new portfolio, I would just like to add to it. Ginger for the new portfolio, yes, you know, getting close to 40%-50%.
Yeah.
We are still carrying some of the old portfolio which still has to be renovated, et cetera, and repositioned, where the margins are lower because also of old contracts. A lot of improvement is driven by Ginger, but the aspiration is to get to that 50+, and hopefully we'll keep seeing that recovery. This segment is also more resilient. That's why it achieved 93% of the pre-COVID revenue in the quarter.
Okay, okay. Just my final question is a follow-up to an earlier question asked you. If we have to understand this correctly, you're saying that when our revenues get back in the RevPAR terms to pre-COVID levels, the EBITDA margin this time should be sustainable at around 30% at an entity level. Is that a correct understanding?
The nine-month numbers were 30%+. Q4 may be impacted because of the way the January Omicron has impacted. I think overall, if you ask me sustainable at 30% next year, absolutely.
Okay. Just any further delta beyond this 30% will be driven largely by the ARR growth and occupancy? That is the understanding, right, over and above this?
It could be anything. If the restrictions are lifted on food and beverage, like, you know, just now it was lifted that, yes, weddings will be allowed, but 25%, but no more than 200 persons, right? If you start doing weddings again of 700, 1,000, 1,500 people, then there is a lot of margin in that kind of business.
It's a very important part of the business in on the Indian subcontinent. Some of these areas we are beginning to get optimistic with the continuous decrease from the peak of this third wave, and a rapid decrease. As and when that comes back, yes, it will be accretive.
A lot of these margins will be driven by our aggressive focus on profitable growth, whether it is new businesses or new contracts or the repositioning of the old. Like for example, two years ago, we repositioned 19 of the properties back into the Taj brand, like the Aguada in Goa, the Holiday Village, the Fisherman's Cove, the Hari Mahal in Jodhpur, the Taj Mahal in Lucknow.
It's a combination of all this. That's why when we started on our journey of Aspiration 2022, we were at 17% margin, and then we gave a formal guidance of 800 basis point increase. We have not stopped there. We'll continue to focus on this journey of profitable growth. I think when we are able to host the next capital market day, we'll give exact guidance on what kind of margin we are targeting.
Okay. Yeah. Thank you. That's all from my side. All the best.
Thank you. We'll now take our next question. At the tone, please state your name and company. If posing a question, your line is open. Please go ahead.
Yeah, Sumant Kumar from Motilal Oswal. My question is regarding our leisure business, ARR sustainability, and we have seen a significant improvement in ARR of our leisure destination, particularly Goa and other destination also. With assuming, there will be outbound starting maybe in 6 months. Do you think the ARR is going to sustain at this level in next year of the leisure business?
Sumant, thank you. Not only it will sustain, we expect ARRs to grow. See the occupancies grow and, of course, in leisure destinations, is where people wanted to go to. We are seeing a permanent shift in a certain percentage of the business where we had the term of leisure, you know, business plus leisure before.
It is actually going to be permanently there, going forward because, that's a segment which people have now got used to. I'm not saying it will be a very big, percentage of total business, but that will help, drive ARR. That portion of the business is not really leisure. It's driven by business. The leisure destinations would get that percentage level which they were not getting previously.
If they had previously 10, then that grows to maybe 18 or 20. I think that is one reason the rate will be driven. The second is obviously the change in the supply and demand pattern as less and less supply will come in the market and demand will start coming back.
Also, all these leisure destinations, look at our portfolio of palaces, you know, Lake Palace, Umaid Bhawan, they've been missing all these international travelers. Once they start coming back, all of our palaces should benefit, all of our safaris should benefit, all of our leisure destinations like Goa should benefit further because we have been totally reliant on domestic only.
I don't see that as a hindrance. On the contrary, if COVID gave us an opportunity to rationalize costs, it also gave us an opportunity to capture a larger portion of domestic travelers and our reach to them, which was maybe not as focused at pre-COVID level.
Okay. My next question is on the cost structure side. We have seen around still when we compare with the pre-pandemic level Q3 2020 overall employee cost, we are still 20% lower. If assuming normal case scenario, the business is going to recover at the pre-pandemic level, how much cost, particularly in fixed cost side, is going to increase? Whatever the cost structure we have, we have reported in Q3, what cost is going to increase from here? We are going to do maybe a 10%-15% or more business from here without changing any cost structure?
I think if I go back in the pre-pandemic period, we had a 28% saving in fixed costs in the year 2021. I think this year, nine months, we have seen a 19% reduction in fixed costs as compared to the pre-pandemic period. There were two reasons why the 28 came down to 19.
Number one was the end of lease waivers and the employee subsidies that we got in countries like U.K. and other places. That was one part of the reason. The other part of the reason is also that with activity going up, some level of costs have gone up, actually.
I think even with full occupancy, I mean, with full business recovery, I think this continues to be an area of focus, especially the area of manpower deployment. Productivity, to your second part of the question, is definitely going up actually.
Our belief is that we will not be less than 15% in terms of fixed cost reduction as compared to the pre-pandemic level, which will be driven by redeployments, overall productivity improvements, corporate cost savings. I think all of those will come to us.
Okay. Thank you so much.
Thank you. We'll take our next question. At the tone, please state your name and company. If you're posing a question, the line is open. Please go ahead.
Yes, good morning. This is Nihal Jham from Edelweiss. First of all, congratulations on the good performance to the team. Three questions from my side. First, you know, you've given the bifurcation of the ARR for leisure and non-leisure. Just for better understanding, could you give the recovery for both these segments versus pre-COVID levels?
Yeah. Recovery. Okay. I think
Till we find the exact figures, let's put it this way, that recovery in leisure is, let's say, more than 120%.
Yeah.
Definitely, we'll find the exact number for it. On the corporate and business side is around 80% of pre-COVID.
Yeah.
That is helpful, Mr. Chhatwal. The second question I'll continue forward is that if I look at the city-wide performance, for your hotels, as we discussed versus industry, but just comparing Q2 to Q3 for some of the business destinations like Mumbai, Delhi, Bangalore and Chennai, there is a bit of divergence in terms of how they've recovered. Then Rajasthan has seen a bit of a fall in the recovery. Anything specifically to highlight in terms of the performance in these cities which happened in Q3?
No, it's just the opening up versus lockdown. See, the restrictions when they are lifted, the markets keep bouncing back. When the restrictions are imposed, the markets, you know, behave accordingly. Especially it's true for these Delhi, Mumbai and Bengaluru.
As I said during my introduction speech, the latest order that has come in Maharashtra and for Mumbai, it is very encouraging, although it is not giving us everything we wanted and some clarity is sought, but it's a step in the positive direction. If you will recall versus Q2, where restaurants were open in Mumbai only till 4:00 P.M., then it was relaxed till 10:00 P.M. or 11:00 P.M., and then till 1:00 A.M., then it went back to again at 10:00 P.M. In Delhi, there was a curfew over the weekends.
All this has an impact on revenue, especially in these two big cities where we have large inventory and our flagship hotels, and also in Bengaluru. I mean, these three cities, we have a lot of IHCL properties. And the restrictions are different in each city, and they're different in different periods of time.
You know, because there's also the peaking of the virus does not take place at the same time in each of these places. We are now hopeful that with the trend that we are seeing, that this will subside pretty rapidly. That is what makes the difference between quarter to quarter. It becomes very difficult except for the Q1, where we say because of the second wave, April, May, June was a washout.
The rest of the quarters is like a different kind of an impact. I think more important, Nihal, is that it took the industry six to nine months to recover post first wave. We were almost shut for six to nine months, depending again on red state. In the second wave, after April, May, June, it took us Q2 to start on the recovery mode. Omicron, I would say, is like six weeks at the moment. As we speak today, it seems like six weeks. The recovery period is becoming, you know, faster and the down period is becoming shorter.
Absolutely. I had my last question just related to that. You mentioned that January obviously would have had the impact of Omicron. I just wanted to understand when you say look at the business on books and generally how the bookings have currently been coming in also from the corporate traffic.
Do you see that the recovery both for leisure as well as business is faster and this is just a delay of one month and things are, say, back instead where you would have expected in January had Omicron not happened? Or do you expect that maybe it just takes slightly more time for things to come back to trend?
I would say the last one week or so, we have seen strong pickup in the business, but we can discuss this offline in another week from now, as there are two schools of thought. One school of thought says it will take another three to four weeks for recovery, and the other school of thought says at the speed the cancellations came, at even a higher speed, the new bookings will come in.
Let's have that with Giri or myself, in a week from now, then we will have the data because, you know, there were some holiday period in between because of the Republic Day. We don't even have the full week, you know, which was, I was going to call it operational. I mean, a full working week. This is the first full working week, and at the end of this week or early next week, we will have a better idea.
This is helpful. I'll surely check that. Thank you so much and wish you all the best.
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Hi, this is Anup Kumar from Mirabaud. A couple of questions from my side. My first question is that when I look at leisure or non-leisure, your occupancy on a quarter-on-quarter basis is going up probably about roughly 8%-12%, but the growth in ARR is a lot more.
Can I assume that, you know, you get a pricing power back around about early 60? Or what is driving a higher growth in ARR relative to a low growth in occupancy? That's my first question. Secondly, is there a change in mix of clientele which you have and has corporate and MICE traffic coming back? Once that change in mix happens, will that lead to a further rise in the rates?
I mean, what I'm referring to is probably because of staycation, you know, right now the rates still would be discounted, but they have gone up on a quarter-on-quarter basis on a year-on-year basis also. Thirdly, I just want to know your current operational rooms, divided into owned, leased and management contract. These are three questions. Thank you.
Yeah. We'll take the last question offline, Anup, in terms of the operational rooms, separately. I think you're right that the ARRs have been going up, and I think that is very conscious. You know, I think number one, as Puneet said in the beginning, the trust in the brand and people coming and staying with us.
Number two is the revenue management that we do. Like for instance, there was an earlier question in terms of what happens if Air India comes in. Fundamentally, some of those things help also in terms of base occupancies, and then you kind of have the ability to charge better rates actually.
Third, in terms of our strategy, in terms of market share, as well as RevPAR leadership that we want, I think that continues to be a very strong at every hotel strategy actually. All these continue to ensure that we maintain our better market shares, maintain rates, and therefore have been able to focus. I mean, ARR recovery has been a very strong focus from our side, because that is what gives you the flow through actually.
Sure. The second question regarding the mix of clientele, is it still vacation location primarily or any, you know, business as a business, you know, a MICE, challenges increasing?
We did see for instance weddings in Q3. Business travel, as we have said in the beginning of the presentation, I think Bombay, Delhi and Bangalore, we still need to see the business travel recovery come back. Actually, we still need to see that coming back. In terms of mix of business, the transient business, the way we look at business of course is that the transient business is the non-negotiated business is the key.
That has definitely gone up actually in terms of, you know. That is very important because the transient business helps us to improve ARRs actually. Corporate business has been down of course. It has been about 7%, I mean, 7%. Historically also, it's not been a big percentage for us. It's been about 15% or not.
MICE did come back because of the weddings which came back actually. Long stay with places like Wellington Mews and other places continues to do well. Leisure also has been a big driver in terms of things. Therefore from a mix perspective, I would say that the increasing transient business and the recovery in MICE and leisure would be the reason for better ARR actually.
Sure. One last question from my side. What is the CapEx spend divided into maintenance or let's say you know FY 2022, which includes the fourth quarter and FY 2023 possibly if you can give? Maintenance and other you know for buildings and such things.
No, I think total CapEx and renovations I would say would be around INR 400 crore this year for consolidated and about INR 200 crore or so for standalone. I think that's a combination of all the numbers actually. I mean, we can give you further breakup if you want separate actually.
Sure. For FY 2023 plan, is it possible to give the number?
FY 2023 plan, we are in the process of doing our budgets, and I think the focused renovations plans that we have. I think as we said, the key renovations were really this time on Taj in Delhi and The Ginger Bombay, The Chambers London and the U.S. banquet actually. These were the four. Now we are finalizing our thinking for next year. I think we should be able to better answer this question in the next quarter actually, in terms of what the CapEx spend next year is going to be.
Sure. Thanks. That's all from my side. Thank you.
Yes.
Thank you. We'll now move on to our next question at the tone. Please state your name and company before posing your question. The line is open. Please go ahead.
Yeah. Hello Mr. Puneet, hello Mr. Giri . This is Achal from HSBC. So I had a couple of questions. First of all, I wanted to understand about your plan on asset monetization. I mean, do you really think that the asset prices have come up and that gives you an opportunity to monetize some of the properties?
However, if that is not the case and you see the property prices still remain under pressure, and that means property owners which are not able to run their properties probably agree to hand over their properties at a favorable terms for you guys, for hotel operators.
Do you see in that case an opportunity for you to grab the asset at much attractive prices? Linked to that, if the property prices are low, do you think you'd be in a position to utilize some of the GIC platform, like INR 40 billion which is lying there? If you could please help on this. Thanks.
Mr. Achal, the GIC platform we have renewed it as our initial contract was badly hit by the COVID for two years. The platform is there to take you know benefit of any opportunities that might come up. On the asset monetization, we are not in this thing to just sell assets.
What we have said is what we will sell is non-core, non-strategic, whether they are with us or in our subsidiaries or associates. Non-core is like in the seventies, we bought a lot of flats. Now people like to buy their own flats. We've been you know getting into the flat sales.
We had a piece of land which we monetized and communicated to the market in Pune, which was in the, you know, the cantonment area, which we could not do much with because the area evolved differently. Similarly, we have a piece of maybe laundry land with us for 20 years in one of the cities.
Now we are not going to build laundries anymore. It does not make sense. Things, activities like this will go on. On the non-strategic sales, we were able to monetize non-strategic assets, for example in our subsidiary Oriental Hotels in Visakhapatnam or in Trivandrum.
Where there was hardly any return and we were able to sell and bring down the debt and either secure a management contract for a new property or enter into a term with the buyer to renovate the asset and give it back to us on a management contract.
Those efforts will continue in non-strategic locations where it does not make sense to either stay as an owner or stay invested in, which was the case maybe 30 years ago, because we are coming from that background of owner-operator. Today, we are still owner-operator, but owner and operator of, let's say, Taj Lands End, which we own, we will keep, and we will operate for as far as I can think.
We will not monetize on those kinds of assets because they are strategic, they are value enhancing, and they help you in building your brand and helps you to control the brand. Otherwise, for whatever reason you tend to lose the asset when you also lose the contract. That was our strategy, and we stayed true to it, and we'll continue to do that, going forward.
Sorry, linked to this. What about the acquisition opportunities at the right price, whether it's on a management contract or whether it's a leasing property? Do you see the property prices are really very attractive, and that gives you the opportunity to grab the properties at the right price?
Yeah. We are continuously on the lookout, whether we buy it or somebody else buys and gives it to us or somebody else finishes it. That question depends on the right dot on the map or the right strategic fit. We have to be aware of that. Yes, what your question actually answers is something else, that activity in this area has just recently started as the gap between a seller's expectation and a buyer's willingness to pay has narrowed significantly.
This gap was huge in the last two years, and that's why it was difficult to see any activity because it did not make sense. It's also assisted by some of the incentives, which were good for the industry, like Emergency Credit Line Guarantee Scheme and moratoriums, helping people survive.
I think as and when these schemes come to an end, you will see more and more activity coming in, and also the demand and supply situation begins to settle down and mature in the new normal or in a post-COVID world. There's, yes, there is more activity, more discussions, more, you know, offers on the market happening now.
Right. Moving away from this, the other thing I wanted to understand about the supply versus demand, I think you've touched upon on this already, but you know, according to the latest report from HVS, the supply is expected to grow in the range of like 4%-6% and then not more than that, while the demand could actually grow significantly.
I mean, of course, on the surface levels. Then of course, given that you're already at peak COVID levels, if the demand grows significantly, do you think or does that mean the demand could actually outpace the supply by a huge margin? How do you see the supply versus demand situation developing over the next one year or two years?
We answered it before also someone else had asked the question. The supply will remain constrained, and it might even in certain markets shrink, over the next few years, whereas the demand will continue to grow. That is the best guess that Hotelivate, HVS, Horwath, everyone has been telling all the feasibility specialists or the consulting groups are guiding. We are seeing a similar trend in different markets. It gives us the belief that demand will be stronger and supply will be very constrained.
Okay. The other thing I want to understand about your plan, about your plans around Sea Rock Hotel, where it is lying now. Have you found any JV partner? Or what is—I mean, given that there's a tightness in the liquidity front, what are your thoughts in case you're unable to find any JV partner? What are you planning? Do you have any plan B in that?
Yeah. No, actually, I think as we have said earlier, I think now we have completed the acquisition of the 100% shareholding by December. That is the first step done. Second, we are progressing quite well in terms of some of the clearances that we have, whether it is environmental clearances or the court case.
There is still that arbitration that we need to resolve actually. The regulatory aspect and the arbitration is still work in progress. We continue to stay what we have said earlier, which is to say that we don't want to put incremental money in. Our belief is that the day the approvals all come in, this piece of land will be very valuable actually. Right now, there is no active work which is happening in terms of scouting for JV partners for that property, but it will come when the approvals happen. Just give us some time on this please.
Okay. Perfect. Thank you, Mr. Giri. My last question—I mean, I'll ask that later offline. My last question is a bit of clarity. Basically, if I'm not wrong, you just said that the RevPAR recovery in the leisure market was about 120%, while in the non-leisure it was about 80% of the pre-COVID levels. Then that non-leisure means the corporate deals.
Then if it is at 80%, and yet your key markets Bangalore, Delhi, Mumbai, the recovery remains at 60%-70%. Where is the gap? Is it like? Leisure is recovered more than pre-COVID levels. Corporates are at 80%, non-leisure at 80%, and yet your key markets, like three key markets are at 60%-70%. Is it international travel which you are expecting? Why the recovery in these three markets is not looking as good as in the other cities?
See, I'll let Giri answer a bit more, but let me just say it depends on the portfolio mix that you have. Now we are not looking at a 50/50 mix. We have a large share of resort, but it is not more than 50% of our portfolio. Number two is we tend to forget there is also international in it.
When we answered that for domestic, around 80 and north of 120 for leisure, that is domestic. But we do have a significant asset in London or in Cape Town or in U.S., two of them in San Francisco and New York. They are all owned assets, and they also have, you know, they have suffered far more.
You know, we know that the Omicron was first discovered in South Africa, so with all the restrictions in there. There is an opportunity that they also recover fast. When we talk domestic, we talk about Delhi, Mumbai, and Bengaluru. The numbers that we have given you, the guidance, is in the right direction.
Some of the resorts have done even 180%. We just said 120, 130 is because of the restrictions. We cannot take out. If you look at this, you can't take out April, May, June impact, where there was almost a complete lockdown again. That is the average for the nine months.
I think it's a good way to recovery now if this wave goes away the way we have seen the figures in the last three, four, five days.
Yeah. We can maybe talk offline actually on this actually. Let's do it offline.
Sure. Thank you so much, Mr. Giri , and thank you so much, Mr. Puneet . Have a wonderful day.
Thank you.
Thank you. Once again, ladies and gentlemen, if you find that your question has been answered, you may remove yourself from the queue by pressing star two. We'll now move on to our next question. At the tone, please state your name and company before posing your question. Your line is open. Please go ahead.
Good morning, sir. This is Nikhil Agarwal from UTI Capital, Kolkata. I want Hello?
Sorry, I didn't get your name. Sorry, apologies.
Nikhil Agarwal from UTI Capital, Kolkata.
Okay.
Hello?
Yes, yes, please carry on.
Yeah. Yeah.
Carry on.
Sir, I wanted to know the consolidated ARR occupancy across all your brands. I mean, of course, excluding management contracts. Any figure you can give?
Sorry. Consolidated?
Average room rate and occupancy across all your brands?
Yeah, yeah. Across all the brands that we see, the ARR on the same store India has been about INR 9,800, and occupancy has been 62.7%.
What do you think will the ARR increase going ahead? What is the timeframe there?
We answered that question in the beginning, I think in terms of ARR recoveries. I think what we were really saying was that, as the business travel comes back, I think we should be able to see the ARRs come back. I think I don't know. I mean, I don't know.
Okay, sir. My next question is, like, you said you paid down like INR 950 crore of debt. Your finance costs are increased quarter-over-quarter. Any reason for that?
Finance costs have increased quarter-over-quarter. That's because the borrowings were there, no? I think with the rights issue, we have paid down some of the debt and all.
It happened only in the last week of December.
Yeah, it happened only in the last week of December actually, so.
Oh. Okay. Okay, sir. Just one last question. The Sea Rock hotel that you purchased, like the full stake you purchased and all. That Sea Rock will be on an owned model, right?
Sea Rock, the property is on lease till 2069. I think we will have to eventually build, and then we are saying that we will not put any more capital to that property, and we will get partners to help us with the cost of construction.
Okay. That's it from me. Thank you, sir.
If I may save the last 3-4 minutes for questions, we maybe will take a couple of questions. Last few questions maybe.
Sure will do. Thank you. We've got just a couple of questions actually. We'll now move on to our next question. At the tone please state your name and company before posing a question. Your line is open. Please go ahead.
Hi, this is Satyam Thakur from Credit Suisse. Hi, Puneet. Hi, Giri. Thanks for taking my question. Am I audible?
Yeah. Yes, of course, Satyam.
Yeah.
Welcome back.
Yeah. Thank you. You know, I have a question on the management contract side. Of course, you know, you have had some, you know, very commendable increase in the size of the management contract portfolio we have in the last few years. The number of properties and rooms have grown quite well, but the fees revenue from that has not seen a commensurate increase.
Does this only set us up for a much larger increase in fees revenue going ahead, as, you know, occupancies rise and operating margins also as those properties rise, and we start meeting the threshold requirements in the contracts for the incentive fees portion of the fees also? Or is there, has there been some kind of a renegotiation downward on the fees during the last two years of COVID period?
Satyam, you answered, firstly, nice to have you back. You answered the question yourself. As and when the markets improve, the revenues go back up. If you are trading on an average, if you look at last year at 40% of the revenue of pre-COVID level, and this year cumulative at, you know, around maybe 70 till the end of the year, then also those level of fees go down, especially when you open hotels in kind of a lockdown situation. We expect the fees or our fee business to rise exponentially over the next few years. It's just we need some kind of a normalized situation without lockdowns.
It will have an impact on all kinds of sources of business, not only management fee business, rather the own business, the leased business, the margins. Everything is dependent on, you know, when you have a lockdown, things become. In the first lockdown, we were confronted in many places with zero revenue.
Mm-hmm.
When the revenue becomes zero, the fees of zero is also zero, right? If there is a partial lockdown, then you're only getting a partial fee on the existing as well as on the new contracts that open up. I think it would be fair to say that I think it will become very interesting as of next financial year to look at this fee business that we have created.
Great. That's, you know, very encouraging to hear. The second question, I know you have touched upon this in the rest of the call as well, but because one thing which still remains open is basically how well business travel will recover.
Anything you have seen from, you know, in any green shoots or any signs, say for example, in the fourth quarter of FY 2021, which was far away from wave one, or just now in October, November before wave three hit, you know, which kind of gives us an indication that even business travel can recover quite well on both business travel related stays and as well as on the side of business driven MICE events and bookings. On both, have you seen anything which gives us confidence that this can also recover back to close to earlier normal?
For sure, Satyam, we saw that. As we speak also, we have events booked. You must have watched on the television also, some of the conclaves of various channels were kind of a hybrid event, but had more than a few hundred people attending those, whether it was at Taj Palace, New Delhi or in London or even now this coming Saturday there is a big event in Delhi that we are hosting.
Monday there is another one which a competitor hotel is hosting in Delhi. These are kind of things and activities that are happening or beginning to happen. Of course, what happens is between, let's say, twentieth of December till twentieth of January, it was only cancellations. It starts to pick up again, and people are beginning to go out and attend these meetings.
One of the very good way to follow this is follow the statistics of the domestic air travel. I think that recovered quite well till the third wave came. I think it will have some correlation with the air travel that we have both on domestic front as well as and when they open international.
Great. Thank you and all the best.
Thanks, Satyam.
Thank you. We'll now take our last question. At the tone please state your name and company. If you're posing a question, your line is open. Please go ahead.
Hi, Puneet. Hi, Giri. Shalin Desai from UBS. Many congrats. I need to pick your brain on how should we see and project growth beyond FY 2023? All right. Is there any thought process or any broader guidance you can offer us, you know, over the medium to long term, what is in your mind with all the levers you have, say for next year, FY 2023, for the next three years or two years?
You know, earlier, we were looking at margins of around 25%. Given the cost and all, is there aspiration to, at a consolidated level, to go to a margin in the range of, let's say, 28%-30%? That's one question. Or two in one.
I don't know if you were just speaking on our mind beyond FY 2023 or you were reading our minds because we just had a discussion that maybe in March we should host our capital market day again and start providing this form of guidance. Please allow us a few days, Shaleen.
You know, you're most welcome anytime. We will make that announcement preferably in a physical event in March, as we think by February end things should be back to normal. We are very happy to provide that guidance.
Sure. Please look forward to that then. Thank you so much.
Thank you. Thank you everyone for joining the call. Thank you for your questions. Also, the ones with whom we have discussed offline meetings going forward in the next weeks. Thank you for your continuous support and trust, and have a very good day. Thank you.
Thank you. Ladies and gentlemen, this concludes today's call. Thank you for your participation. Stay safe and have a good year ahead. You may now disconnect.