When Puneet Chatwal took over as managing director and CEO of Indian Hotels, he also took over a debt of almost Rs 3600 crore and several legacy issues that were straining the balance sheet. Seven months later, Indian Hotels ended financial year 2018 on a stellar note, beating even the highest expectations by analysts.
The company is gearing up for a sustainable turnaround, said Puneet Chhatwal, managing director and CEO of the company, adding that he was clear and precise about his vision for growth model and value for shareholders.
According to Puneet, if the market situation remains stable, there is a lot more growth potential ahead.
Watch here: Indian Hotels ready for a sustainable turnaround, says CEO Puneet Chhatwal Edited Excerpt: Q: We are talking at a very opportunistic time, at a time when you have completed the year on a very powerful note. Ever since you have come, I am not correlating the two, but yes you have worked on a turnaround strategy. I want to start by asking you about the aspiration 2022. What specifically are the key areas that you are looking at? A: It is about expanding our margins at an EBITDA level of 8 percent. Currently the consolidated, when I joined, stood at 17 percent and we want to take the EBITDA margin to 25 percent no matter where the market is because that is one thing as a hotel management company we control is the ability to charge versus the cost to service that creates the margins. In order to get there, there is not just one thing you have to do, there is a series of things you have to do. Some will have a short term impact, some will have a medium term to long term impact, but you need to do several things to get to that 8 percent growth. Q: The like-to-like revenue growth has still been 4 percent. Where do you see that growth coming from and what rate of growth can investors be prepared for on a CAGR basis for the next two years? A: We have embarked on a journey where we said over the five years we will grow our portfolio between 30 percent and 50 percent. 50 percent is the total portfolio of which 30 percent would be hotels in operation, the rest could be in the pipeline.
I think if that growth is based on profitable measures, if that growth is based on a very strategic margin enhancing model, then that should help us to grow our margins by 8 percent.
Q: Chandra has already talked about how important Taj Mansingh is going to be for Indian Hotels. Are you going to definitely be bidding as and when New Delhi Municipal Council (NDMC) does end up auctioning this and how aggressive are you willing to go to hold on to that property? A: Definitely we would like to keep Taj Mansingh. It is not only a pride for Taj, it is the pride of the nation and everybody especially who has grown up in Delhi, like I have, has grown up with Mansingh. Q: So you do want to keep that in the portfolio, you will be bidding for this? A: Absolutely, who would not want to have Mansingh or the Taj Palace or Taj Mahal Palace and Tower in Mumbai? It is very iconic asset and the most important part of our aspiration 2022 is to reinforce and make it very clear to the entire industry that we are the most iconic and most profitable company that South Asia has ever produced; so how can we let our icons go away? Q: Let us talk about the point you made on restructuring assets for balance sheet optimization. What do you mean when you say this and have you identified some of these assets, how will that model work? A: Going forward, and as the industry has witnessed in the last five to 10 years, the models of management contracts, franchise contracts, third party managements, joint ventures, affiliations, marketing alliances, all different models have come.
We as a 115 year old company, we are more asset heavy, having more assets and ownership than anyone else has. They are also very margin enhancing for us. However, I am not sure if any secondary market or tertiary market or semi-tertiary market today needs investment from us.
If that is strategic enough for us to invest, and I think that is where we would look for management contract growth. We would also look to monetize in many places where we have the FSI and the land banks, for example in Goa. In the current properties we can build more as we have the FSI to do so.
I think that is a part of the strategy in terms of restructuring and maybe even selling it off, partnering with third party developers who would develop, build, and we would operate.
Q: Are there any assets that you would want to exit or sell out completely? A: Definitely. There are some assets which we would. Q: How many, I know you would not want to name it, but how many roughly in the next one year? A: It depends on which brand. On Taj, it is very few. On Ginger, there could be many which we would want to sell and maybe lease back or manage them back. Vivanta there is almost none because it is a relatively new brand. Q: Could we look at maybe 10-15 different portfolio for complete exits altogether? A: If we achieve 10, it would be like two per year over the next five years, I think I would be very happy. Q: Debt was a concern before you stepped in. In 2016 it was Rs 4,500 crore, when you came in it was roughly Rs 3,600 crore. It has come down to Rs 2,300 crore right now, thereabouts, what is the plan then? You have substantially reduced this, would it be in a similar pace, by how much more can debt come down say by the end of FY20 or FY19? A: I think the challenge is not anymore reduction of debt because the debt to equity ratio is much healthier than it was before. So I think some of the debt at a certain percentage levels which we can pay especially overseas, we might do that over the next few quarters. However, we do not have a big plan like we did with the rights issue last year. So we are pretty much hopeful with the restructuring part that we just discussed, it will help us to get to better ratios. Q: Can you give us specific numbers as to what the plan is for the next one year and how many more hotels across Taj, Vivanta, and Ginger would you look at upcoming? A: We said our portfolio is approximately 165 hotels and we plan to grow that to anywhere between 35 percent and 50 percent. Q: This year? A: No, over the five years period. So that would mean another 65-70 properties, of which we expect almost 45-50 to come into operation. So that will get us very close to almost 200 hotels in operation by 2022. Q: How critical will acquisitions be and I want to get your comment on one specific buzz that I heard, Cidade de Goa is something that is reportedly being wooed by Taj, is that on the anvil? A: News to me, but I do not think specific name matters, but one of the consequences of profitability, one of the consequences of driving margins, is you become a preferred partner of banks, of developers, of owners, and I do believe that over the next three to six months, we will be offered opportunities which we were not offered maybe a year or two years ago. Q: So acquisitions is definitely on the anvil. A: Definitely, why not? Organic growth has its own place, but if there is a strategic fit of acquiring a small portfolio or a mid-size portfolio, we will evaluate as and when such offers would come along. Q: You have 17,145 rooms that you own and you have roughly around 1,500 through management contracts. So how would this ratio now change since you have already said that you are looking at increasing management contracts? A: In five years from now we are looking at a portfolio with that 35 to 45 percent growth that I alluded to before, a portfolio of hotels in operation and in pipeline to be 50 percent owned or leased and 50 percent managed. Right now that balance is not there. We are more than 70 percent owned only.