In India, just asset-light model doesn't work: IHCL's Puneet Chhatwal

A combination of asset-light and asset-heavy is the right formula, driving absolute returns in its owned portfolio where the operating leverage is currently higher, he said

Puneet Chhatwal, managing director (MD) and chief executive officer (CEO) of Tata Group’s hospitality arm Indian Hotels Company (IHCL), said that just an asset-light strategy does not work in India, and asserted the company will continue to build and invest in properties across the country ‘selectively’. 

Chhatwal said it's been more than five years since the company has been focusing on the asset-light model. 

He explained that in India, just adopting an asset-light strategy doesn’t work.

“You can grow faster if you are asset-light because scaling up is faster. But capital efficiency cannot be the only business model.”

A combination of asset-light and asset-heavy is the right formula, driving absolute returns in its owned portfolio where the operating leverage was currently higher, he said, adding that management contracts were driving margins.

Chhatwal said asset-light works when the partners are strong. “The Tata group attracts strong partners,” he explained.

One of the first hospitality companies in the country to go asset-light, IHCL has soft-launched the flagship Ginger Hotel at Santacruz, Mumbai. The 371-key property is 100 per cent company-owned.

IHCL has a portfolio of more than 280 properties, including those under development and about 50 per cent are managed properties.

“If you look at only operational hotels, then owned and leased is at 58 per cent,” Chhatwal said.

IHCL would be building five properties including at Lakshadweep.

On Saturday, IHCL announced the opening of Taj Taal Kutir in Kolkata under the management contract. The Ambuja Neotia group has invested Rs 160 crore in the hotel and convention center, which blends colonial design in a contemporary setting.

Harshvardhan Neotia, chairman of Ambuja Neotia group, said: “We have taken yet another step forward in our partnership with IHCL. Taj Taal Kutir is the fifth in the series after Guras Kutir, Ganga Kutir, Raajkutir, and Chia Kutir.”

The 'Kutirs' are boutique offerings.

 

Industry status

The West Bengal government recently approved a proposal to grant ‘industry’ status to the hospitality sector.

Chhatwal said this would help grow the sector and make it more competitive.

“Now that this announcement has been made, we will work together for seamless execution so that all stakeholders can benefit,” he explained.

IHCL has 12 properties in West Bengal, of which 7 are operational. Including the North East, the portfolio is 35.

Chhatwal said that IHCL was eyeing 50 properties in the eastern region and in the northeast over the next few years, and Kolkata would be the hub of operations in the short and medium term.

Demand-supply gap

By 2025-26, IHCL is eyeing a portfolio of 325 properties. In the short term, Chhatwal expects demand to continue to outpace supply.

That is also driving revenues and profitability for hospitality companies.

In the July-September quarter of 2023-24 (Q2FY24), IHCL delivered its sixth consecutive quarter of consolidated record performance.

Consolidated revenue stood at Rs 1,481 crore was higher by 18 per cent year-on-year (Y-o-Y); profit after tax at Rs 167 crore was higher by 37 per cent.

The consolidated H1FY24 PAT at Rs 389 crore surpassed the highest pre-Covid PAT in the full year of 2006-07 at Rs 370 crore, the company’s investor presentation for the quarter/half-year mentioned.

Chhatwal mentioned that hardly anything was built during the Covid-19 period. The unfinished properties were getting finished, he said. “So obviously demand has come back strongly but there is a lag in supply. It will follow.”

He added that foreign tourist arrivals were yet to go back to pre-Covid level. “If we take the impact of G-20 away, then it’s still a long way to go.”