Almost two years ago, Bharat Hotels took on a new identity, the Lalit. The global economic meltdown that followed hit hotels real bad across the world. India was no exception. But the industry is buzzing with activity one more time. Everybody wants to grow; large companies want to buy smaller ones, and white knights have become active. Budget hotels are mushrooming all over the country. Bharat Hotels Chairperson & Managing Director Jyotsna Suri tells Bhupesh Bhandari how she plans to steer her company in the days ahead.
There’s a lot happening in hotels these days. Large companies are looking at acquisitions, and a lot of investments are coming in. It looks like the party has begun one more time.
You are dead right. This is the industry that has got its future completely secure. Not only are we looking at international travellers, today I am a firm believer in the potential of domestic tourism. The reason is that there are over a billion people in India and we are a huge country. People have to travel. So the market for the industry is within the country. The best example is the US, where the industry is surviving on domestic tourists. Of course, the international traveller has to come, but the way forward is the domestic traveller. That’s why you have stalwarts eyeing the industry.
Have you in the last few years seen a shift from foreign to domestic travellers in your hotels?
Absolutely, it is very clear in every single hotel of ours. There were 5 million international arrivals last year in the country; of these, about 2 million were returning non-resident Indians. So, you had 3 million tourists. Out of these 3 million, a million were backpackers. So you had only 2 million (luxury) tourists coming into the country. On the other hand, there were 550 million domestic travellers last year.
But most of them would be budget travellers.
They are budget as well as leisure travellers. And that’s why the budget segment is doing so well. And that’s why everyone is trying to get into the segment. Last year, we introduced the Unified Holidays of India where we offered very good rates on our luxury hotels, and we had a lot of takers. The leisure segment got hit when international travellers cancelled their plans after the 2008 Mumbai blasts and the travel advisories that followed. The business hotels have started gathering momentum again.
How did the lower tariff under the scheme impact you financially?
The Mumbai blasts happened in November 2008, a week after we became the Lalit. We were in a state of shock for two months. All hotels are very vulnerable. There are so many entry and exit points. In the hospitality industry, you cannot be rude to your guests. We did a lot of introspection and tightened our security. And we had to change our mindset. That year was bad. In 2009, we changed our strategy and started floating our domestic packages. That year was not too bad. I won’t say 2010 has been good, but it has been better than 2009 so far. The business on the book is looking better. Industry will take another year to really settle down. But we will never have those rates that were there before the Mumbai blasts. Those rates were actually quite irrational. I would consider what has happened is a balancing act. Next year, the rates will get slightly better.
Did you make a profit in 2009-10?
The value dropped. In 2008-09, we made a profit before tax of Rs 46 crore on a turnover of Rs 401 crore; in 2009-10, we did Rs 41 crore on Rs 371 crore. This year looks better. We have to wait and watch because the season starts now. Up till now, we are better than last year.
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What is your state of mind? Are you looking to consolidate and focus on profits, or are you on growth mode? Are you ready to sacrifice profits for growth?
I’d like to cut my cake and eat it too. But, at the moment, I am in growth mode. We have got seven hotels coming up. Next year, we will open Chandigarh, Jaipur and Kolkata. And 2012 will give us Amritsar, Ahmedabad and Thailand. Between these two years, I will also have my mid-segment hotels coming in. This started four years ago. All the land bank we have is what we picked up long ago. We also picked up four hotels in disinvestment: Bangalore, Khajuraho, Udaipur and Kolkata. Other than that, we are doing greenfield projects on land that was bought at very low price. The real estate value is now astronomical.
We are bringing back our profits into the development. This is our main core business. Whatever we earn we put it back in this business. So I need the internal accruals; that’s how I take less loans. I don’t think I need to sacrifice anything. We are not overleveraged; in fact, we are underleveraged.
Typically, your first rush of money happens when you buy the land and get started. Then, the last rush happens towards culmination. In the middle, it begins to get rhythmic and slower. Our first outflow at the beginning has gone. We are at present somewhere in the middle. But within three months, we are going to be in the mad outflow of culmination. We have a plan of Rs 2,369 crore. And we are moving very well within that budget. Out of this, we have spent about 40 per cent of the money.
What are you plans for budget hotels?
There are two under development in Pune and Bangalore. But we have a large number of them coming up in Gujarat, Punjab and across the country. The sites have been identified: Drass, Jallandhar, Dholavira, Jamnagar, Bhuj, Mundra, Kandla, Baroda, Ahmedabad, Gandhinagar and Rudramata.
These are mostly industrial cities.
Not all. Drass and Dholavira are leisure. The investments here are smaller because the room inventory is smaller. The biggest of this is Jallandhar. All others range between 25 and 75 rooms.
You own, develop and manage your hotels. Why have you chosen this business model? The management contract model cuts down the capital cost…
Seven managed hotels give you the revenue of one owned hotel.
How do the profits compare?
When you take a contract, there is a profit but it is too little, and there is too much you give to get that. Some companies want to do that because they want to have an inventory of rooms. For us, the number of rooms is not important; it is the quality that matters. There are lots of managed hotels around, but they do not have the same service standard and look & feel. That is why we decided we won’t get into it. The owner of the hotel may not want to invest the money that you want him to. That is when the service levels drop, the upkeep of the property drops and the whole experience drops.
There’s a huge upside in capital appreciation too when you own the hotel.
For us, that’s a tangible benefit.
There was a lot of confusion about your properties because they changed management contracts and names so frequently.
We became the Lalit about two years ago and killed the entire confusion. Everybody knows where the Lalit is.
What’s your cost per room in both the segments, apart from real estate?
It is anything from Rs 80 lakh to Rs 1 crore in luxury, and between Rs 15 lakh and Rs 20 lakh in the mid-segment.
What about the running cost? One big component is manpower…
There was a time when the ratio was two people per room. We are now sitting at 1.25. It can change from city to city. Goa, for instance, is a 100-acre property. It has just two floors; so there are no lifts. But it has a nine-hole golf course. We have 200 people for gardening alone. In the mid segment, it should be 0.75. No room service, no bellboy. There will be one restaurant; that too on fixed times, not round the clock. There will be minimal service; no shopping arcade, swimming pool or banquet. There could be some variation between cities. It depends on where you are and what is the demand. We are using intelligent lighting. When you walk down the corridor, the lights behind you shut down. Power is the biggest cost. We will do multi-tasking. One person will do everything because everything is online. You can check out from your room itself. Because of technology, you don’t need face-to face interaction.
There’s an experience associated with every hotel. What’s the Lalit experience?
The Lalit experience is getting established. The experience we are trying to create is something we feel is going to be endearing to our guests. There are two levels at which we are approaching this, and I think we are almost there. One, we offer limitless hospitality. So we are more than just a hotel. We are always there to give you more than what you need. We will not say no to you for something you may require. One guest wanted a particular variety of soya milk for her child; it wasn’t there in the hotel, but we procured it and gave it for her. We encourage our staff to go beyond themselves and do it.
We want to create a uniquely Indian experience. Which Indian, for instance, ever has a bath in a tub? We always said luxurious hotels must have a bathtub. We need to get over it. The Indian does not bathe in a bathtub. The Indian wants a shower and in some places a bucket. So provide it to him. I have taken off all the bathtubs from all my luxury hotels, because I am not associated with any international chain which would have demanded a bathtub. As a result, the bathroom looks roomier. There is no clutter. I have had to pass this message down that luxury is not about a bathtub. Luxury is not about having five towels in the bathroom. You can use the towel twice if you are staying for two days. So luxury has got redefined.
The other is that we develop a destination, not just in hotel. In our hotel in Kerala we will do the Lalit Utsav. It’s a fair for the local people. We have done polo at Drass, soccer at Goa. We do this so that local people can become a part of the hotel. The visitor to our Khajuraho hotel, for instance, can go across to the school which we have adopted and teach there, spend some time with the children. People get an experience of the destination, not just the hotel.
A lot of hotels do it through restaurants and other hangout zones.
We are working on two brands: Baluchi, the Indian restaurant, and 24X7 which is our all-day dining. Both the brands are being built strongly. People have begun to relate the Lalit with these restaurants. We have them in almost all our luxury hotels. Baluchi will be there in our Thailand hotel as well.
Aren’t your hotels taking too long to build? Work on the Great Eastern in Kolkata has been going on for a while.
The Great Eastern is not a hotel; it is national heritage. It’s a jewel. I don’t allow it to be referred to as a hotel. You can’t play around when you are restoring something like it. We took 500 truckloads of dirt from the hotel in three months. After that, we had to build a three-level car park. For that, we had to go underground. Then two main heritage blocks started shaking. We had to stop work for one year. We then got the right structure so that the blocks are not damaged. Yes, it has taken much longer than it should have. But it was worth it. It will be opened next year. I am extremely pleased with the progress. Otherwise, we complete most of our hotels within three years. Sometimes you get involved in a technicality which you just can’t help.