ITC will manage third-party premium and luxury hotels

Nakul Anand

One of India's largest hospitality companies, ITC Hotels operates with four brands, namely, ITC Hotels, WelcomHotels, Fortune Hotels and WelcomHeritage Hotels. Together these represent 100-odd properties in over 80 locations spread across the country. An alumni of the group's Welcomgroup Management Institute in Gurgaon Nakul Anand, divisional chief executive, ITC Ltd - hotels division and additional whole time director in ITC Board, speaks about the company's decision on managing third-party luxury hotels, their overall business performance and future plans. Excerpts...

How challenging has been the business environment for ITC Hotels vis-a-vis the others in the last 12-16 months?

It has been a challenging phase for the Indian hospitality industry and we obviously had our own. For a complete revival, our source markets have to pick up which is happening gradually. I think collectively all of us have shown at least 20% increase in the topline while the growth was just a little more on the bottomline. The numbers however are in comparison to a lower base in the previous year.

With the industry already in the busy season, how do you see the numbers shaping up?    

One must remember that in our business the lead time is very small and most bookings generally come a week in advance. In such a scenario, it will be very difficult to forecast how the business will look like next month or the next quarter. And any forecast, if at all done, will only be hypothetical. The industry tends to have a derived demand and very much depends on what is happening around the world. So if things are looking good the demand would more than double immediately else will remain constant or maybe even decline in case of adversities. Having said that, the prospects so far are looking very good and if I was to reflect the industry sentiments it certainly looks optimistic.

Could you give us an overview of the corporate to leisure and the domestic vs. international business scenario?

I think recovery in the Indian hospitality market has been faster largely because of the revival in business travel. Leisure business will however take time see the 2007 levels because our source markets are still under pressure. The domestic travel and tourism scenario has been positive always. In fact a significant percentage of the numbers reported by most hotel companies has come from domestic business. The international component is likely to show its impact on the business in the coming months I'd say.

How is the corporate sector responding to the rate increase? Are they willing to absorb it?

The rate increase has largely been exercised on specific days and time frame depending on the demand and supply scenario which is part of our revenue management strategy. So it would be wrong to say that hotels in India have increase prices by 20-30% because meetings / conferences and business events are generally on negotiated rates.

Concerns are expressed about demand and supply imbalance in the Delhi hospitality market post Common Wealth Games (CWG). What is your take on it?

I see it as a normal development catering to the potential demand and beefing up of the available supply. One should remember that supply in our business comes in large numbers. While demand over the years has traditionally grown by 4-5%, for an event like CWG the supply was envisaged to increase by 20%. But my personal opinion is that not too many hotels have come up for the games as such. So the supply - demand imbalance will continue to exist depending on the market scenario which is part of the hospitality business cycle.

Do you foresee a bloodbath situation post the games keeping in mind the additional supply that has come in already and those that will come within this fiscal?           

That would have happened only if there were 30 hotels opening for the games and the sporting event were to bring in additional 30,000 room nights, which is not apparent as of now.

What does the ITC Hotels' portfolio look like at present? Could you also tell us about the hotel development pipeline?

We operate, own and manage about 110 hotels spread across four brands namely, ITC Hotels, WelcomHotels, Fortune Hotels and WelcomHeritage Hotels. There are as many as 40 hotels under various stages of development which will be either owned or managed by us under one of the four brands. In the years to come, we will have a portfolio of 150 hotels. In the premium segment we have 3-4 hotels under construction and another 6-7 hotels on drawing board. Earlier at the group's annual general meeting (AGM) our chairman Y C Deveshwar has already spoken about a $2 billion mandate for expansion which is anything between Rs 9,000 to Rs 10,000 crore. All the funding will be done through internal sources.

Tell us about the new hospitality markets that ITC is in the process of establishing presence in the coming years. More so in the premium category.

Goa is one market for instance where we do not have a presence and would like to have a hotel there. There is certainly room for expansion in Hyderabad and we have already added a hotel in Bangalore. Through one of our subsidiaries we are building a resort near Manesar. In addition the group has land parcels available for hotel developments in markets like Amritsar, Bhubaneswar, Ahmedabad etc which are all new markets for our premium hotels under the ITC brand.

Given the kind of hotels ITC builds in the premium segment, will it be safe to assume the overall project cost to be in the Rs 500 to Rs 600 crore range per hotel? What is your breakeven period like?

In the premium end, a safe benchmark without the land cost will be in the region of Rs 1 to Rs 1.3 crore a room. If you were to build a 300 keys property the project cost would be anything between Rs 300 to Rs 400 crore excluding land cost. While Some people hold land at historical value depending on the time of purchase, the cost newly acquired sites would certainly run into several hundred crores depending on the location. The breakeven again would depend on the basis of funding i.e. internal, external or a combination of debt and equity. Considering the high interest rates for debt funding, the breakeven for internally funding projects would be much faster.         

Your subsidiary Fortune Hotels has largely been expanding through management contracts and franchise agreements so far. I believe the group has started investing money in building new hotels in this segment. Could you throw some light on the plans?

Yes, you are absolutely right. So far we have been managing hotels under the Fortune brand and now we are building our own hotels as well. One hotel is already under construction in Bangalore and we should start work on another hotel in Coimbatore. We also own a Fortune Hotel in Port Blair in the Andaman island. As of now, close to Rs 150 crore has been committed for investments in the Fortune hotel development though the number would increase going forward. The incremental percentage will largely depend on opportunities, availability of land etc.

Do you foresee getting into management contracts for your premium hotel brand ITC?

As far as possible we would like to own all our premium hotels. Having said that, we are not averse to the idea of getting into a management contract for an ITC branded hotel as long as the property meets up our norms in terms of quality and stature that we believe fits the premium segment brand positioning. In fact, we have already signed a couple of management agreements for ITC branded hotels as we speak. They are all on the drawing board and construction has just begun. We have involved ourselves with these developments from the inception stage and will make them public at an appropriate time.

How's ITC's association with Starwood getting along? Are we going to see more hotels joining the foreign chain's portfolio?

ITC's association with Starwood is for upper upscale and premium brands and we currently have a good number of landmark hotels under the international chains' Sheraton and The Luxury Collection offerings. In fact, the newly launched Bangalore hotel The ITC Royal Gardenia is part if Starwood's The Luxury Collection network. As we expand in the country, it is very much possible that more hotels will join the fray. I don't rule it out at all.      

Is inorganic expansion anywhere in the ITC Hotels' radar at all?     

Right now, as you very well know, a significant part of our entire hospitality portfolio has been organic. We have our drawing boards full and construction work is currently happening at quite a few sites across the country. We already have quite a lot on our plate right now.

Industry experts spoke of distress during the downturn particularly with hospitality assets. Did ITC look at those assets as well for possible acquisition?

         

Not really. While I agree that some of the people decided not to go ahead with their hospitality development plans. My understanding is that barring a few, most of them were able to hold on to their respective assets. Except a handful of them, I don't think too many distress sales really took place in the market.