#IHCL's consolidated net profit rises 29.3% in Q4 FY24, beating analysts' estimates.
MD and CEO Puneet Chhatwal discusses what has worked this quarter and what hasn't.
Read: https://bit.ly/4btaosr
MD and CEO Puneet Chhatwal discusses what has worked this quarter and what hasn't.
Read: https://bit.ly/4btaosr
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TVTranscript
00:00 Welcome back to Talking Point. Focus now on Indian hotels. Their numbers are out for Q4
00:14 and looks good in line on the face of it. Slightly lower than Bloomberg's estimates,
00:19 but revenues up 17% to 1,905 crores. EBITDA up 23%. Margins have grown at 167 basis points
00:28 and net profit looks quite healthy at 29%. Puneet Chatwal, Managing Director and CEO
00:36 of IHCL is with us now on the show. Mr. Chatwal, thank you for speaking with us here at NDTV
00:43 Profit. Let me understand what has worked this quarter and what perhaps has not, because
00:49 ARRs have grown well at 4%, but slightly below the levels that we've been seeing so far.
00:56 Not really ARRs. Firstly, thank you for having me and good morning. ARRs is a bit of a seasonal
01:04 business. So Q3 is always the best quarter and will remain in the foreseeable future.
01:10 Q4 is the second best quarter. And as the base keeps increasing, the percentage rise
01:17 will start declining because just imagine coming out of COVID, where we had almost nothing,
01:24 we started showing growth in like triple digits. And then it went to high double digits and
01:31 at some point of time, it has to come back to single digit. Important is to look at the
01:37 CAGR of last five, six years. And if you looked at that, then we are showing and demonstrating
01:43 both as a sector as well as our company, a very high and a very healthy growth.
01:50 What is the sort of outlook you see or a sustainable growth trajectory for ARRs? I know that there's
01:55 no guidance that has come in for Q1 FY25. I'm wondering why and overall what the outlook
02:03 is, any kind of perspective that you can provide?
02:05 We have kind of held back guidance just on ARR. So we have given in our press release
02:14 a guidance and also to the investor community of a double digit growth in the top line for
02:20 the next financial year. And that is very good because as I said, the base is large.
02:25 And why not just on ARR? Because only 50% of our total reported revenue comes from rooms
02:32 business. We are still enjoying very healthy growth on the food and beverage side, on the
02:40 wedding business with the Prime Minister's appeal of Wed in India and spiritual tourism.
02:47 So there is a lot of that kind of impact that is important in the top line growth. On top
02:55 of that, we have very strong not like for light growth. So last financial year, we opened
03:00 20 hotels. This year, we have guided to open 25. And all these new hotels that come in,
03:07 they start at a lower average rate of occupancy because it just takes two, three, four years
03:12 to ramp up any business. So giving a guidance on a high growth company on just ARR or occupancy
03:20 is not in our opinion, a very intelligent way of providing such inputs.
03:26 Okay. So ARR has been held off because you have a lot of new properties which need to
03:32 ramp up. Understood. Let's just talk a bit about CAPEX. And when we spoke last quarter,
03:38 Mr. Chhatwal, the focus was a lot on saving costs, cutting costs, operational costs, and
03:43 that had worked. Is that leg going to continue in conjunction? Can you give us your outlook
03:48 on the kind of CAPEX that you will see in the next financial year?
03:52 The channel is not that old, but it seems like long time ago that I said on cost optimisation,
03:57 we all did that during COVID. So maybe that was a conversation you and I had. But on this
04:04 channel, I would say that it's very good that all of us have learned to be more diligent
04:12 with the costs and that opportunity COVID gave us once in a hundred years to relook
04:18 at every cost. And it would be prudent to maintain that kind of cost base and take out
04:27 the unnecessary costs that nobody wanted, neither the customers wanted nor other stakeholders
04:34 wanted. Our focus has been definitely growing new businesses, which we have grown at 35%
04:42 loss financial. Going forward, we have given a CAGR of 30% and keep also the growth at
04:48 a very healthy level in our traditional business, especially our backbone with the Taj portfolio.
04:56 And we are investing heavily in CAPEX. Our guidance is around 3,500 crore in a five year
05:03 period of which two years have gone by with already more than a thousand spent. Another
05:10 2,500 to go both in selective greenfield as well as upgradation of our iconic assets and
05:17 building some of the competitive advantages on the digital front, on our private membership
05:22 club like chambers, etc. So all the guidance we've given, we are very much in line with
05:27 it and we will continue to pursue this aggressively unless another event happens that we are not
05:37 aware of at this point of time.
05:41 Let's talk a bit about Ginger, a lot of focus there. It's been relaunched in a new avatar.
05:47 It's an upscale offering. What is the focus and outlook for Ginger and the kind of contributions
05:53 it will have to your revenues?
05:55 Well, Ginger, we are very proud of the launch of the Ginger Mumbai Airport, which is the
06:03 flagship Ginger, that's number one. Number two, 75% of the Ginger portfolio now is in
06:10 the lean luxury category. Number three, that lean luxury category is driving a margin north
06:17 of 50% to be precise, 53% in last fiscal, but we expect this to grow further and our
06:25 growth in Ginger brand will be going forward at least 10 hotels a year and we are very
06:32 pleased with that. Also, we've changed the model for Ginger. It's not really a capital
06:38 light model, but it could come under capital light because operating leases do not require
06:45 any capital investment from us on an upfront basis. So we think the operating leases that
06:52 we have started with Ginger will give us the required absolute return, but also on the
06:59 margin side, much more than a typical management contract of 6% to 7% or 6% to 8% of the top
07:06 line that is customary in the hospitality sector. So if you're doing 50% plus margin
07:12 and you give 25 or even 30 to the owner as a revenue share, you still have 20 or 23%
07:19 versus a traditional management contract that would give you a maximum of 8%.
07:25 And what will be the mix in terms of owned and leased for Ginger?
07:29 We would invest in Ginger in order to monetise some of our land banks that we have and Ginger
07:38 Santa Cruz or Mumbai Airport is a good example. We had that land for almost 30 years doing
07:43 nothing and once we got the permission, we went ahead and built the flagship and these
07:49 kind of assets, if your land is already there, it helps you in doing two things at the same
07:55 time. One is demonstrating effective asset management and utilising your assets, which
08:03 are not at all utilised. It's not a question of underutilised, but it's not utilised at
08:09 all. So that's one and land in India is very expensive. And the second is deploying your
08:15 capital in building, which is going to give you exponential returns, which has a very
08:21 positive impact on both your return on equity as well as return on capital employed.
08:28 Just to take that to the 25 new hotels that are in the pipeline for this year, Mr. Chetwal,
08:34 what is the mix there? Are these asset light largely or any kind of demarcation that you
08:39 can share with us? So 25 that will open this year, most of them,
08:46 I would say almost all of them are, we started using the terminology capital light, with
08:52 the exception of Cochin International Airport as a touch, that is a long term lease with
09:00 the airport and we are doing the building and the improvements on it, but that's a limited
09:05 investment. The other is really, you know, one or the other selective operating lease
09:14 in Jinja, the rest is all driven by management contract business.
09:17 Give us a sense of what's happening with the international business that was in a blip,
09:26 is that improving as economies seem to be turning at least in the US, Europe, etc. What
09:33 is the sense you have over there? Actually, that's a very good question. You
09:37 know, Europe, we are very pleased with, Dubai has done well. There are two areas of opportunity,
09:45 which if they start doing well again, then that will really is like a present a hidden
09:52 upside for us. One is Maldives has seen a blip because of all the news that we have
10:00 read. And our business in Maldives was a majority share was coming out of India. So there is
10:06 a short term decline in Maldives and US has not yet come back to the pre-COVID levels,
10:13 especially San Francisco as a city has seen a very bad phase in the last two, three years.
10:19 But we expect that to go back to normal post elections. And that's a hidden upside as well
10:24 as we are making some changes in New York, which should help us to recover also in New
10:30 York. Tell me a bit more about Maldives, Mr. Chetwal,
10:35 how much of a blip there have you seen since of course, Indian tourists have been avoiding
10:41 going since all of the geopolitical sort of crisis and feathers being ruffled there. What
10:47 is the impact that you've seen? We have seen in the last quarter, I would say
10:53 the last four to five months, a drop of 15%. I would say partially it is because of the
11:01 news you heard, partially also Maldives was the favourite destination during and a little
11:07 bit post COVID for everyone. So I think the general traffic has not declined just because
11:14 of the negative news that you've read, but it's a very normal thing. Everybody went to
11:20 destinations like Maldives, like Goa, like mountain sector, which was a bit more exclusive.
11:30 And that's what Maldives offers with all the villas that it has, that you have your kind
11:35 of privacy and you are on a small island away from everyone. So I think a part is a normal
11:41 adjustment and a part is a decline, but at some point they should go back to what it
11:46 used to be. Okay. Just one last point, Mr. Chetwal, and
11:50 I was reading a clutch of investor notes, brokerage notes this morning. And one thing
11:55 that they see, of course, a lot on the upside because of the way economy is running, domestic
12:01 tourism, etc, etc. One risk that they see, and I wanted your take on this, is that you're
12:07 already at a high base. Do you see a possibility of growth moderation coming in at this high
12:14 base? You know, there is a lot of things that will
12:19 happen in the market and all the notes written are based on possibly historical evidence.
12:27 And I think my take together with our team in the management is that India is changing.
12:37 India's fifth largest economy, next year it will be fourth, very soon it will be third
12:41 largest. When you get to that level, when you have increase in per capita income, when
12:46 you have a change in customer behavior, you know, doing drive, driving to destinations
12:52 which we call, you know, staycations or pleasure trips, a lot of that has changed. Number two,
12:59 is the investment of the government in the infrastructure. That's a permanent change
13:05 and a permanent base for new demand coming in. When the number of airports doubles, when
13:10 the number of aircrafts coming into India is more than 1200 over the next few years,
13:16 when the number of high speed trains, Vande Bharat or bullet trains comes, when the number
13:21 of four lane highways increases by another 100,000 kilometers, I think the fact that
13:29 the base for India is changing and it is already a very different country, the way it is recognized
13:35 in the world and the businesses wanting to come here is a different country. And look
13:40 at the impact it would have in two, three years from now. If we keep looking at the
13:45 traditional metrics of the average rate or occupancy and, you know, in isolation to what
13:55 is happening around us, then obviously the notes will end up saying what they are. But
14:02 many I think believe in the India story and that is somehow reflected in the performance.
14:08 If we look at our quarterly results, we tend to forget that our quarterly profits become
14:14 higher than our best ever historical annual profits. If we look at our revenue on standalone
14:23 pre-COVID for the full financial year, the standalone revenue is higher than the consolidated
14:29 revenue we reported till 18-19 FY. So I think a lot has changed. Our portfolio has doubled.
14:37 We have signed so many agreements and you said about the pipeline of 25. Our pipeline
14:42 is actually 90 plus hotels. So we expect to open at least 100 more hotels in the next
14:48 three to four years and 72% of that is coming under a capital light model. And we feel very
14:56 comfortable that our not-like-for-like growth will help us to sail through and keep delivering
15:03 on the promises and the guidance that we have given to the market.
15:06 All right. So a very positive outlook there. Thank you so much, Mr. Chetwal, for speaking
15:10 with us today. Always a pleasure to have you on NDTV Profit.
15:14 Thank you.
15:15 Thank you.
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