Tata's IHCL plays catch up with Marriott, plans to open 1 hotel each month

Tata-owned hotel chain Indian Hotels Company (IHCL) is on track to open at least one hotel a month that will add an inventory of about 2,500 rooms for the year ahead, pushing it into an unprecedented growth phase. Market leader, the Marriott Group, has also charted its own aggressive plans for growth. 

Last year, Marriott opened 13 hotels in India across multiple brands that include Marriott, Courtyard by Marriott, Fairfield by Marriott and the Ritz Carlton. They also include The Four Points, the Le Meridien and the Sheraton. 

This year, the multinational has another dozen openings planned and the room count of 25,000 rooms is expected to reach around 28,000 by 2020-end, said Marriott officials.

Puneet Chhatwal, managing director (MD) and chief executive officer (CEO) at IHCL, said, “We opened nine hotels in the last nine months of the financial year.” The move is part of a strategic target to reach an inventory of 25,000 rooms by 2022, of which 7,000 are under development, he added. Currently, Taj has 18,500 rooms. 

The new destinations that will be opened include the Taj Fateh Prakash Palace in Udaipur, the Devi Ratn in Jaipur and the Taj Convention Center Goa, in central Goa. The opening in Goa will take IHCL’s hotel count up to 11 in the resort city, making it one of the largest operators there. Other IHCL openings slotted for this year include Darjeeling, Shillong, Gangtok, Wayanad, Haridwar, Navi Mumbai, Bharuch, Karad and Kalinganagar. 

Notedly, Ginger accounts for at least a fourth of the company’s number of new hotels for the immediate future.  

In the last two years, IHCL has signed on as many as 46 hotels  across its four different brands that include Taj, Vivanta, Ginger, and SeleQtions. Those, as well as contracts signed earlier, are now opening. The expansion is about more than just new hotels in existing hotspots. 

One analyst, who did not wish to be identified, said there are newer tourism hubs emerging that are getting the attention of larger operators. The key to future traction hinges on how fast “hospitality circles” are built around those spots. 

For example, IHCL is also looking at previously untapped markets in India. It has inked pacts for two hotels in Gangtok, Sikkim, and one in Tawang, Arunachal Pradesh. 

Marriott has also been opening in strategic pockets that include locations such as Siliguri, Surat and Kolkata with future plans for Thiruvananthapuram, Navi Mumbai, and Mahabaleshwar. 

Beyond just size and volume, analysts said the key to the tourism industry for any player is staying profitable. On that metric for now, IHCL is on track. “While there is a slowdown, we have looked at various ways of reengineering, restructuring and reimagining our businesses and brands. This is to unlock potential, optimise market share, rationalise costs and monetise non-core assets to ensure we deliver seven consecutive quarters of margin expansion,” Chhatwal said. 

IHCL’s profit after tax (PAT) in the third quarter of FY19 was Rs 203 crore, up 26 per year-on-year. Earnings before interest, taxes, depreciation and amortisation (EBITDA) margin was at 32.7 per cent, the highest in a decade.  

Even so, the hotel chain does have around Rs 1,800 crore debt on its books and will have to resolve the matter of the Taj Lands End-Sea Rock Hotel. This was a property that was acquired over a decade ago and is yet to break ground because of permissions that have been long pending. 

On that score, while Marriott’s overall profitability isn’t available because they operate through a franchise of licensed management contracts, their debt is also restricted to individual properties. 

It’s something that IHCL is well aware of. “Our management contract base has moved from 32 per cent to 42 per cent in the last two years. Barring The Connaught and Taj Fateh Prakash Palace, all other signings are without any investment, thus not having any impact on the balance sheet,” said Chhatwal.