Indian Hotels delivers a minor loss

This story first appeared in DNA Money edition on Wednesday, Nov 7, 2012.

Indian Hotels Company Limited (IHCL), the Tata group hospitality flagship, will expand its room capacity by almost 11% next fiscal with the addition of 13 hotels. Over 1,500 guest rooms are to swell its global portfolio of 13,887 rooms in 115 hotels.

The additions will be made through a mix of management contracts and new developments (to be built by IHCL, its associated companies or its subsidiary, the Roots Corporation).

Raymond Bickson, IHCL’s MD, said, “Almost 70% investment has already been made in our upcoming hotel in Dwarka which is likely to open sometime in 2013-14. The Vivanta in Guwahati will be funded over the next two years. Roots will open six Ginger hotels, Taj GVK will open a Taj hotel at Terminal 1C in Mumbai and Benaras Hotels will open a Gateway hotel at Gondia.”

IHCL officials said its latest quarterly and half-yearly profits were impacted by factors like lean season, higher costs of power and fuel, significant increase in the new inventory.

All this led to IHCL’s net loss of `6 crore is the second quarter (Q2; July-September), a contrast to the entire group’s net loss of `2 crore in the first half (H1; April-September). But its Q2 turnover of `379 crore is higher than `358 crore in Q2 of last fiscal, while H1 turnover rose 7% to `775 crore.

“The 23% growth in new hotel rooms was higher than the demand that grew only by 20%, which has led to decline in average room rates (ARR) and revenue per available room (RevPAR) for the overall industry in general,” said Deepa Harris, senior vice-president of sales and marketing at IHCL.

IHCL is, however, very optimistic about demand growth in H2. “The second half is the main business season for the entire hospitality industry, and IHCL has seen good business. We are expecting increased occupancy levels around 75%, up from around 65% in the first half, and a marginal increase of 5-8% in room rates in the coming two quarters,” said Anil P Goel, executive director of finance, IHCL.

The company has invested significantly in greenfield developments in the last couple of years, so will pause now to stabilise the hotels, IHCL officials said. Business outside India will take more time to stabilise; the US market alone will take another 18-24 months, they said.

On the controversial move on Orient-Express Hotels, the IHCL managers said since both are listed entities, they would not like to comment until they hear from the OEH board.