BackTough times ahead for hospitality industry: Ajay Bakaya
Tough times ahead for hospitality industry: Ajay Bakaya
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One-third of the Rs600 crore revenues at Sarovar Hotels Pvt. Ltd, a leading budget and mid-market hotel management company, for fiscal 2008, came from an exclusive franchise agreement for the Park Inn and Park Plaza brands of the Minneapolis, US-based Carlson Hotels Worldwide. With the exclusivity of that deal coming to an end from 1 January, Ajay Bakaya, executive director of Sarovar Hotels in an interview tells Mint where the Carlson partnership is heading, expansion plans in the wake of an economic slowdown and what 2009 will hold for the company and the Indian hospitality industry. Edited excerpts.
You have been the exclusive master franchiser for Carlson’s two brands in India for over 10 years now. There have been some reports of this partnership coming to an end. What is the current status?
We had a exclusive arrangement with Carlson till 2008 to manage their brands Park Plaza and Park Inn, under which even Carlson could not either directly or through any one else sign on a third party for these brands. That arrangement has now changed to a non-exclusive agreement and as of 1 January, we cease to be the master franchiser for the Park Inn and Park Plaza brands in India. I would not like to divulge any more details as of now.
What has brought about this change?
In the light of what has happened in the last three years or so on in the world economy, they (Carlson) probably felt that they could sign on many more hotels in India. Also, since they had access to substantial funds, they might like to bring in their own Park Plazas and Park Inns and set new benchmarks. We have a very good relationship with them and will continue to manage their brands in India (non-exclusively).
What are your revenue targets for this fiscal and how will the change in this partnership impact your topline?
Our revenues for 2007-08 were around Rs600 crore and Carlson’s contribution was about one-third. The majority of the balance comes from India with maybe Rs50 crore from our international properties. Over a period of time, the Sarovar branding will become more predominant, so that equation would change, and our brands (Sarovar Premiere, Portico and Hometel) will fetch us more revenues. When we started this year, we were looking at an increase in revenues of as much as 50% over last fiscal but we now believe that will be in the vicinity of about 30%. In corporate (markets) like Bangalore, Hyderabad and Mumbai, revenues in some cases have gone down by 10% annually.
How many new hotels are you looking at in India and abroad this year? You have spoken of a target of 100 hotels by 2012.
In India we have 11 hotels scheduled to open in 2009 but conservatively we should add about eight hotels. (Sarovar’s investment for the development of eight hotels this year is about Rs250 crore, excluding cost of land). We are sitting at 35 hotels today (and I) am looking at 50 hotels by 2011. Outside of India, our focus would be either the Middle East or East Africa.
2009 is going to be a very bad year generally for the hospitality industry in terms of fee recovery and revenues of hotels. Our room rates currently vary from ₹ 2,000 to ₹ 12,000, and room rates this year would probably be 10% lower than last year.
In late 2005, you divested a 30% stake for about $10 million to two US private equity firms. Will you look at another round of funding if need be?
We have dropped all these plans because of the current meltdown and are being very conservative right now. We want to hold tight and get over this dip and wait for valuations to be strong again. We are not in a hurry. We will open our own property in Chandigarh this year with a development cost of about Rs30 crore and then start construction on our Chennai hotel this year. We are totally debt free so far. We don’t need funding for another year or so.
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