Puneet Chhatwal is in a reflective mood. Settled deep into a sofa at the Tata Suite at the Taj Palace Hotel in Delhi, nursing a peppermint tea, the CEO and MD of Indian Hotels Company begins the conversation even before I can ask him any questions. With a record profit in the recent quarter, he is optimistic about the sector, and not just his company.
A little over five years of heading IHCL, he counts the swing to profitability as his biggest achievement. “We already had an iconic brand given by our predecessors. The profitability part was missing. Today we are a company that is not only looked upon as iconic, but as a brand that is driving innovation across all segments. Be it Ginger or Vivanta or spas or F&B, we are leading the industry and are profitable. That’s our positioning today.”
‘Ginger to change landscape of hotel business in India’
When I bring up Ginger and term it a ‘budget’ brand, he is visibly distressed, and asks me if I have even been to any Ginger hotel, preferring the term ‘lean luxe’ instead. He assures me all Ginger hotels are in for an upgrade, and a new flagship property, to come up in Mumbai soon, will be exactly what he envisages in the brand—stylish, appealing to the youth, and affordable at the same time.
“Ginger will change the landscape of the hotel business in India,” he asserts. “We will scale it up to an extent no one has imagined. It is budget, but premium. We call it lean luxe.” The average room rate is Rs 4,000, but the one in Mumbai will have an ARR of Rs 7,000, and many Gingers are already north of `6,000, he tells me. With almost an equal number of Ginger hotels and the Taj brand at present, he says the strategy will continue, even if the revenue from one Taj hotel equals that of about 70 Gingers.
Plus, there are plans to open Qmin QSRs in every Ginger for in-house food and beverage. “If you go to the UK looking for what you call budget, you get over 5,000 hotels. We have nothing. For a country with 1.3 billion people and another 70 million foreign tourists, there is huge potential for such a brand. And, Ginger will help us get to the 500 hotel number quickly. But, of course, the rail yatri niwas type has to go. You can’t have a coolie going into an IHCL hotel,” he says.
‘Hotels can run standalone restaurants too’
The focus on style extends to the brand’s food and beverage options too. He is particularly proud of Loya, the north-Indian cuisine fine-dining restaurant recently introduced in Delhi, which will be replicated in Bengaluru and Mumbai to begin with. He recalls roping in experts from New York to style Loya interiors. Milan’s iconic Paper Moon finds an outpost at Taj Fort Aguada in Goa, but it is offerings like gastrobar House of Nomad and microbrewery 7Rivers that promise to be game-changers. Aimed at the younger generation, these brands are not only priced competitively, but offer modern cuisine and formats. “Hotel restaurants can do very well despite the likes of Khan Market and Kamala Mills,” he feels. However, Chhatwal rues the high tax rates. “Prohibitive taxes, especially on alcohol, hinder people from spending. So typically people have the initial rounds of drinks at home, and have the last drink at the restaurant or bar,” he points out, adding, “Hotels and restaurants are not a luxury anymore; they are a need. That needs to be realised. If people are going to spend less in hotels and restaurants, it is counter-productive.” He hopes the sector gets industry status soon, which will reduce taxes.
Also read: Why regulatory convergence is the next frontier in the Indian fintech journey
‘Revenue is married to weddings’
He says food and beverage is a huge revenue generator, especially when coupled with weddings. “We are blessed to be in a country in this sector that still thrives on F&B and not just rooms. The wedding business is a very large business and becoming larger by the day. Plus, with large convention centres like Jio in Mumbai, India International Convention and Expo Centre in Dwarka and the revamped Pragati Maidan, large-scale events will be possible, and hotels will automatically be sold out. These will give further boost to F&B,” he says.
‘Not giving anyone a run for their money’
When asked about competition, he is emphatic. “We will never do what others are doing; we don’t need to. Our predecessors have given us such an iconic platform, with properties like Rambagh, Lake Palace, Pierre in New York, Taj Mansingh and Taj Mahal Palace that are incomparable. We are not giving anyone a run for their money; we benchmark against ourselves. Somebody wants to count rooms, let them count. We are most iconic and we should be most profitable. Period.”
‘The best is yet to come’
With a record profit in the recent quarter, Chhatwal is pleased as punch. “All the past three quarters have been very good, but Q3 got talked about the most because the quarterly PAT was higher than any best year’s full-year profit. Plus the margins reached 37.4%.”
So will the growth continue or will it even out? “I personally feel the best is yet to come,” he says, adding, “Because of G20, IPL, cricket World Cup, the demand will be heavy. And because the supply is constrained, the demand will be higher than supply, which did not happen for a very long time. I actually feel 5-7% of existing hotels might disappear because people have not been able to survive. The emergency credit line scheme of the government helped tide over a certain period of the pandemic, but how do you deal with the backlog of renovations, bank loans, wear and tear?”
On his company’s growth, he reels out impressive numbers. “Five years ago we had 31 Taj properties. Today there are 75. We have had a 2.5x growth despite Covid. And 22 are in the pipeline, enabling us to score a century soon.” He says revenue contributions from Taj rose from 50% to 70% because of this scaling up.
Also read: Outlook: How 2023 will shape landscape of digital payments for retailers, small merchants
As far as new hotels go, he says increase in management fee income will increase from Rs 200 crore to over Rs 500 crore maintaining the same corporate overhead. “So our corporate overhead will decline from 8% of revenue to about 5% of revenue by end of the year.”
He says they have a guided and balanced portfolio, with owned and managed ratio to be 50:50 soon, from 56:44 now. Incidentally, this ratio was 70:30 when he took over. “Others don’t have that. In bad times, it can be painful as all the PnL is yours. In good times, you benefit from both. You have operating leverage from owned and leased, which is going up, and profitability in absolute amount is going up. Profitability from managed properties adds to it and margins expand. It also helps to expand the cyclicity, and reduces volatility.”
‘We have to play in the global arena’
On expansion abroad, he concedes that the time has come. “We recently opened our 250th hotel, which was in Saudi Arabia. Though India is a good growth story, we have been expanding abroad, with two new hotels in Dubai, upgrade in London and new restaurants for USA and Cape Town. Now we are looking at a couple of more locations in Europe and south-east Asia over the next five-seven years,” he says, adding, “We can’t be the world’s best hotel brand if we don’t play in the global arena. But we had to get our financials in place first—ensure good cash flows and then do it on our own, and not by taking on debt. Now that we are completely free of debt, expansion makes sense.”
However, he has no plans to take any brand other than Taj abroad. “Selectively, opportunistically, the only brand that travels abroad is a luxury brand and not others. As long as I am there, no. And I hope people learn from this, and not dilute the brand,” he emphasises.