Thursday, June 20, 2024

‘We can’t have brands in portfolio that aren’t perceived as premium’

How is the overall health of the hotels industry, and are you worried about the rising covid cases?

The industry’s health is very strong. Last year was the beginning of an upcycle after two years of devastation. For us, the three quarters were the best ever quarters, and the highlight was that Q3 profits surpassed previous best full year’s profit. In terms of the top line, the way we have given guidance, we are absolutely on track. If covid comes back, it’s a problem. But I think that the worst hopefully is behind us. If there is a black swan event, we can’t change it, but the fundamentals are better this year. So, if there is any headwind, we’ll be able to navigate through it easily as a sector.

With the speed that you are signing new properties, many in the industry are saying that you seem to be in a hurry to add numbers. What’s your comment?

Not only signings, but everything we do is governed by our philosophy of, “stragility”, which is strategy executed with agility. This term was coined two- and-a-half years ago, when covid was beginning to peak. All the strategies are executed with agility because I firmly believe it’s not big, who will beat the smallest, but the fast, who will beat the slowest. And, if you know your job, you do not need to think as much, because the answer is a very clear yes or no. If you don’t know what you’re doing, you keep discussing and trying to build a lot of consensus so that the blame doesn’t fall on you, is a defensive strategy. If you keep saving the goal till you get a penalty, or one of those chances to score, you are not playing an attacking game.

And, you have decided to play an attacking game?

Absolutely. It’s not that we announce plans for 10 or seven years. Even if you see Ahvaan 2025, its a guidance over three years. The first time we gave guidance (February 2018), it was for a five-year business cycle called Aspiration 2022. The second time, it was only for the covid period, R.E.S.E.T. 2020 and now there is Ahvaan 2025. It’s not just new signing or openings. We were very close to achieving our five-year target of a 25% margin in three years. In FY20, we were at 23.5%, after starting at 17% when we first announced the guidance. So it’s not just new properties but the overall financial performance is also on track. This year also, for the first nine months, our margins are at 32.1%, and in Ahvaan, we have given a guidance of 33% by 2025. So, speed is not just in one aspect, but in everything we are doing.

Are you on track with your other goals under Ahvaan 2025?

Yes, we are on track to an EBITDA (earnings before interest, taxes, depreciation, and amortization) margin of 33%, net zero in terms of debt, and a balanced portfolio of 50% owned or leased, and 50% on management contract and a portfolio of 300 hotels by 2025. We are already in 125 locations, and we have an industry-leading pipeline with 9,000 rooms. We are number one in market cap, enterprise revenue, number of hotels, and number of destinations in India. We are also number one in the highest revenue hotel possibly in India with the Taj Mahal Palace. We are number one in lean luxe. There are some tech platforms in the sector, but not a single brand has a portfolio of 85 hotels in the segment, and we will make a century soon. Even with the Taj brand, we are just shy of 100 hotels. We have 97 signed properties, out of which 85 are operational.

We had a change in our strategy. We said, in any brand, at any level we operate, we must be perceived as the most premium because that’s what Taj is. And we cannot have any brand in our portfolio that is not perceived as premium as it will ultimately damage the Taj brand. Not many people call us IHCL or Indian Hotels, it’s still the Taj Group.

How many new properties have you signed recently?

Earlier, it was two per month, but last financial year, we did three per month, which is 36 new hotels in 12 months, and have opened 16.

You have to keep a healthy pipeline so that the openings keep happening, but you will always sign more than you open unless the majority of your signings or more than half is coming through conversions of existing hotels, where you just have a quick turnaround of three to six months, or like in some case a few days, where they change the signage and collateral. We are not into that game. We are also not into flag planting, which basically means running a franchise. We are in the business of value creation for all stakeholders, while also protecting the iconic brand of India. Taj is the icon for India and not just us or the Tata Group. Many called the 26/11 attack on the Taj.

There is a huge difference in the expectations also when it comes to Taj. Especially for any national events, they are significant and monumental. I don’t think anybody else comes even halfway close to that. From G20 events to World Cup Hockey to ICC World Cup, we are seen as the custodians of India’s culture, so we are able to bring it alive as well.

But aren’t you facing quality issues due to a shortage of staff?

It is a problem across the industry, especially for those who didn’t treat their employees well, furloughed them or sent them home during covid. We didn’t do any of that, we looked after the people. Some amount of attrition will always be there, as people tend to move. But now as a growing company, people see a brighter future here. We treated them and their family very well. There is a big difference when you’re also owning your assets, versus when you are purely an asset-light company, as then you’re dependent on so many owners.

Now, you have to understand that travel has come back with a vengeance. And as everybody is wanting to fly or travel or stay in hotels, you are starting to feel a shortage of people. But I always maintained during the entire pandemic, and I still feel that this too shall pass. If the sector is attractive, if there are chances of growth in your profession, the environment that you work in and the perks that you get by being in the sector that is positive, then there is no reason for talent scarcity. And the majority of the staff that you need, you can skill them in six months to one year time. We have opened 16 skilling centres.

As part of our ESG+ initiative, Paathya, we are going to skill 100,000 people in the hospitality industry by 2030. Today we have a need of 28,000, it may go up to 35,000 in near future. So of those 100,000, we will need at least 25%. We are doing this as a service to the nation.

Your room rates have gone up significantly. Do you see any signs of them going down?

I think there is still room for growth there. Room rate increase depends from location to location. For instance, rate hikes in Goa and Rajasthan were much more than in Delhi or Mumbai. But the base is very high in Mumbai. So if Mumbai goes up by 20-30%, it is extremely good for the sector. We have reported for the nine months almost a 27% increase in RevPAR.

Don’t you think people will start complaining about high room rates?

When it was cheap, nobody was saying it was cheap. What is expensive? Let’s say the rate is 12,000, which is roughly $150. The same people who are complaining are happy to pay $1,000 for half the quality and 20% of the service overseas. Even we charge close to $800 per night for our New York property, The Pierre, and GBP400 in London.

We cannot expect to become the fifth largest economy but all your ability to charge stays as number 20. You are the fifth largest, you will have to do certain things to stay competitive, you have to attract the best people, and have to have the most professional people. It’s a remarkably simple thing that rates were very low for a very long time because supply was outpacing demand.

So it’s a supply and demand mismatch?

Post the 26/11 attack and global financial crisis, a lot of supply came into the market, but demand did not flow at the same pace. What covid has done is that it has really slowed down the rate of supply growth, so when the demand came back, it outpaced the supply. Now demand was also growing in the past, but the additional supply was more than absorbing it.

How are new businesses like Qmin and Ama doing?

Some of these initiatives are a consequence of the pandemic. We created new businesses to keep people busy. These will probably become big businesses in three-four years, but today they are small. Qmin, for example, started with home delivery and in the end, it will be a quick service restaurant and also a little bit of home delivery. We already see that shift. There are Qmin shops at the Bangalore airport, in malls, and a few hotels like President and The Connaught in Delhi. It is evolving very strongly and now we’re planning to put in Qmin at every Ginger hotel.

Ama Homestays is also one we are quite pleased with. Both of them are profitable businesses. Maybe we are the only ones in this segment who don’t talk about GMV and actually talk about profit, even if it’s small. In Ama, we still have some work to do. As part of Ahvaan 2025, what we have communicated is 500 Ama Homestays. Today we have around 110. Once it reaches 500, it will become a meaningful business. It’s an asset-light model, where we take a share of the topline — 15% as the management fee and 3% for marketing. After recovering the cost, whatever is left, goes to the owners. And the costs are very much in control because we run it as a hub and spoke model, so any hotel in the vicinity of one of our brands also manages these.

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