Indian Hotels remains confident about achieving its ‘Aspiration 2022’ goal of being an iconic and profitable hospitality company.
Indian Hotels remains confident about achieving its ‘Aspiration 2022’ goal of being an iconic and profitable hospitality company. As part of this pivotal programme, the company targets Ebitda margin expansion of 800bp to 25%, which will be supported by (a) industry tailwinds (IH’s ARR increased 8% in the free individual traveller segment; took an ARR hike of 8.5% in the corporate segment in Jan’19) and (b) cost reduction (by 3-5%).
IH re-branded and relaunched the Ginger Goa hotel in Dec’18, post which the ARR has increased by 30-40%; Ebitda margin is also likely to improve as costs have not increased proportionally. In FY20, the company plans to rebrand 14 Ginger hotels. IH intends to centralise its laundry and other common facilities. It has hired Siemens to reduce power cost at its 20 key properties.
The company plans to open a 400-room Ginger hotel on its existing land in Mumbai with a capex of `2 bn. At the Connaught Hotel, it plans to increase rooms to 104 from 85 now and put one floor for commercial leasing.
In the last year’s Capital Market Day Meet, IH had shared its ‘Aspiration 2022’ vision to achieve Ebitda margin expansion of 8% by improving revenue by 3-4% and reducing cost by 3-5%. This will be supported by favourable industry dynamics.
According to a STR Horwath report, occupancy of domestic hotels stood at 65.3% (+0.2pp) with ARR growth of 1.8% to `5,846 in 2018. IH recorded ARR growth of 8% in the FIT segment; it took an ARR hike of 8.5% in the corporate segment (40% of customer mix) in Jan’19. We note that Ginger hotels are operated by the company’s subsidiary, which contributes 4%/2% of overall revenue/Ebitda (as of FY18). The flow through to Ebitda will be higher as incremental cost involved in operating rooms has not increased in proportion to ARR growth. In FY20, IH intends to rebrand 14 Ginger hotels and open 4-5 Ginger hotels in key micro-markets. This strategy augurs well for long-term profitability.
The company aims to achieve Ebitda margin expansion of 8% by 2022, of which 3-5% would come from cost measures.