The Indian Hotels Company Ltd (IHCL), which runs the Taj group of hotels, recently declared its results for the fourth quarter of 2006, clocking the highest-ever operating profit margin in its history (over 41% of sales). Anil P. Goel, the chief financial officer of the company, spoke to Mint on the company’s growth plans. Excerpts:
At a time when the Indian market is seeing an influx of several major and smaller international hotel brands and a large-scale expansion by existing and new hotel owners in India, do you think you can retain your position as number one player in India (the group is nearly thrice as big as its nearest competitor the Oberoi Group)?
Our strategy is to expand and consolidate our presence in the high-end luxury category and the four-star segment. We believe the best way we can continue to dominate the category is by enhancing supply, as this will not only protect our market share but also and expand it.
We are currently building five-star hotels in various cities and expanding our high-end luxury offerings wherever we can. For instance we are developing another 50,000 square feet available at the Taj Lands End in Mumbai. We are also renovating our Palace hotels to reenergize them.
We have looked at hitherto-unaddressed price points. We have addressed the bottom of the market through our Ginger brand, which is positioned as a unique travel experience in secondary and tertiary cities where it is difficult to find a clean bed. We have shown that it is possible to redesign a hotel by cutting away the frills to bring down the cost without compromising in cleanliness and hygiene. We already have eight such hotels.
In between the four-star category and Ginger, we have positioned our Gateway sub-brand. We will use that as a vehicle to expand at the $80-90 (Rs3,280-3,690) price point. We are using management contracts for a rapid expansion here. We have signed up 8-10 such new properties. We are also doing new things in our food and beverage business, which is a huge profit driver. In 2007-08, we will open eight new restaurants, compared with two last year. We will open four new hotels in the current fiscal, of which one at the International Technology Park is owned by IHCL, one by our associate company Taj GVK Hotels & Resorts Ltd while the other two are management contracts.
Is IHCL looking at taking its business global to achieve size and scale?
Having a global presence is important, considering that 50-60% of our customers are foreign nationals or residents. We’ve got to offer products on par with international standards and ensure they are more visible in order to enhance the Taj brand in the global market, as it is a feeder to our operations in India. Our strategy is to go to where the market is. We will use our presence in New York, San Francisco and Boston to cater to existing Taj customers and new ones in the US.
In the past two decades, Taj properties (we acquired) across the international markets were a mixed bag. We then took a pause and have now decided that we will do only high-end luxury properties in the international markets. We will therefore exit and re-enter important markets with appropriate assets. We did that in the US.
In the international markets, we have also grown through management contracts. But we need to demonstrate efficient and profitable operation in the West. We have, therefore, invested in owning assets and making a success of them for real estate owners to come and entrust us with their assets.
You have plans to double your room inventory over the next five years. Considering that you have exhausted all the resources raised from your issuance of foreign currency convertible bonds, how do you expect to fund growth?
A fair amount of this (money required) is committed and already under implementation. We also expect stronger cash flows from our international investments. After our acquisitions, our consolidated debt to equity ratio is around 1:1, so we have the capability to finance growth. We are also using cash generated from operations. A fair amount of our growth will come through management contracts; around 1,500 rooms over the next three years. It’s not necessary that growth should be fully funded by IHCL. For instance we hold only 25% in a luxury resort we are building in South Africa and a similar stake in another luxury resort in Phuket in Thailand. While we will use all options to finance growth, we may not need all the money that you may think. We’re keeping our options open and may lease, manage, own a stake or fully own properties. We also have eight joint venture companies through which we will put up a part of the hotels using their relatively debt free balance sheets.