In May 2022, the Tata Group-backed Indian Hotels Company (IHCL) rolled out a strategy – ‘Ahvaan 2025’ – to restructure its entire portfolio of hotels. The strategy included becoming a zero net debt firm and clocking 33% Ebitda margin by FY26. The operator of Taj brand of hotels also intended to restructure its portfolio to achieve a 50:50 mix between its owned-leased and managed hotels.
IHCL has already achieved almost all the initiatives under the plan and is in a much-advanced stage to complete the rest.
For instance, IHCL became a zero net-debt company in March 2022 itself (from Rs 1,905 crore as of December 2021 and Rs 3,110 crore at the start of the year 2021).
“Our guidance is to maintain a nil net debt position,” IHCL MD & CEO Puneet Chhatwal told FE, adding the hospitality chain would continue to fund renovations and select investments from its internal accruals.
As of the first half of FY24, IHCL had cash reserves of about Rs 1,400 crore. Some of the recent investments undertaken include the renovation of Taj Mahal New Delhi at a cost of Rs 250 crore, construction of the flagship 371-room Ginger hotel at Mumbai at a spend of Rs 250 crore. It also undertook restoration of certain properties, including the Usha Kiran Palace in Gwalior.
IHCL also achieved its portfolio mix of 50:50 (between owned/leased and managed), giving it an operating leverage. “It creates healthy and absolute amounts of profitability, while the managed portfolio is enabling margin expansion,” Chhatwal added.
Its Ebitda margin is already at 32.7%, a tad lower from the target of 33% under ‘Ahvaan 2025’. IHCL is closing in to achieve this.
“With the continued buoyancy in rates and occupancy, demand exceeding supply complemented by our change in business model has led to the Ebitda margin performance. The key levers of this expansion have been an increase in hotels under management fuelling management fee by two times which has a high flow through, growth of new businesses and effective asset management initiatives for our existing hotels driving operating leverage,” he added.
IHCL has one remaining target – crossing the 300-mark in the number of hotels, from 280 now. “We are well positioned to achieve our guidance under Ahvaan 2025 ahead of time,” Chhatwal added.
Expansion plans are continuing for the firm. Earlier in November, IHCL executive vice president (New Businesses and Hotel Openings) Deepika Rao told FE that the company was planning to open another 24 hotels under its affordable Ginger brand in the next 2-2.5 years, taking the total number to 86. The move will all help the Tata Group company extend the brand to another 20 cities.
Following the additions, Ginger would have a total key strength of 8,500 keys across 86 hotels.