The travel and hospitality industry in India is going through a challenging time, especially in the wake of Mumbai terror attacks and the global financial crisis. There is a sharp decline in the inflow of business travellers and international tourists to the country. Nevertheless, hospitality chain Hotel Leelaventure is going in for an expansion to establish a pan-India presence. Leelaventure's vice-chairman and MD Vivek Nair, who is also the former president of the Federation of Hotel & Restaurant Associations of India, talks to Bibhu Ranjan Mishra. Excerpts:
How severe is the impact of the slowdown?
Almost 90 per cent of our business comes from IT-related companies. The message we are getting is that there is a cut on travel costs but IT-related business travels to Bangalore have not come down. Based on our bookings and interactions with the heads of the companies, we are optimistic that business travel to India as well as Bangalore will continue. In fact, things are not as bad as it is being made out to be. The impact could be marginal, limited to less than 10-15 per cent.
Many leading global IT firms have asked their employees to stay in guest houses instead of luxury hotels in their bid to cut travel expenses...
Since we are here in the top-end of the market, top officials and decisions makers from leading IT companies stay in our hotels. This segment will hardly be affected.
What about tourists inflow, which has seen a decline, especially after the 26/11?
We are always optimistic as far as the market is concerned. India is having a shortage of about 150,000 guest rooms. Tourists inflow to India has been increasing annually by about 17 per cent. This year, the increase is expected to come down to 7-8 per cent in the wake of Mumbai terror attack. But, still there will be an increase. And, once the downturn is over in the next 12-18 months, we are optimistic that business will pick up further.
Adding rooms would be challenging in a liquidity-constrained market?
RBI, with effect from January 2, has permitted hotels to avail itself of external commercial borrowings up to $100 million every year. In 2007, the government had banned the hotels from availing ECB because they treated us at par with real estate firms. That was costing us as we had to take term-loans from banks at a higher rate of interest.
How are you going to fund these projects?
Our present capex is about Rs 1,800 crore for projects in Udaipur, Delhi and Chennai. It will be fully-funded by internal accruals, debt and FCCBs. As and when these projects go into operation, we will take up the other projects. We generate internal accruals of about Rs 180 crore every year.
But other than these, you are planning five new projects...
The investment in these projects will be relatively small because we already have got the land banks, the cost of which has already been included in our balance sheet. We only need to spend on buildings which might be about Rs 1.3 crore per room. We plan to fund these projects from internal accruals since by that time the other three projects might have become operational. We want to maintain the same equity base and expand through internal accruals. In case, we need some more fund, we can always go for a debt.
You had a poor second quarter. How do you plan to fund the expansion from internal accruals?
In the September quarter, there was primarily a reduction due to mark to market losses of close to Rs 11 crore, what we had shown as exceptional items as per the accounting standard 11, and the interest on the term-loans. However, if you look at our EBITDA, the performance was much better. Owing to the nature of our business, where the revenue comes in international currencies, we have made hedging provision.
Any change in your expansion plan due to the current environment?
Our first priority is to have a pan-India presence. So, we are not stopping any of our new projects. We already have landbank in all the places where we want to open hotels. Our Udaipur project is expected to be completed by early March this year, and this will be followed by Delhi, which we are planing to open before the Commonwealth Games. All the eight projects, which are in our hand, will keep us occupied for the next 4-5 years.
Considering that hotel industry is always prone to global market risks, any specific de-risking plans you have in mind?
In some of the properties that we are developing, we are keeping dedicated IT and commercial space, which will give us steady business in a period of slowdown like this. We have already tested this model at our Bangalore property, where we have three floors of shopping space covering about 150,000 sq ft, and six floor of IT space. And, we have selected IT companies, which can give business to the hotel through their employees, clients and guests. In Bangalore alone, 30-35 hotel rooms are booked every day by companies which are located here. We have followed the same concept in Chennai, where we are developing 5.5 acres of land. At our Chennai hotel, we have a dedicated 400,000 sq ft for IT and commercial use. At Delhi, we have space constraints since we have only 3 acres of land and we want to use every inch for the hotel. In Hyderabad, we are looking at having some shopping component in the hotel, though not IT space. But there is a possibility of having dedicated IT and commercial space in our Pune hotel.
How much do the IT and commercial space contribute to you overall revenue?
It might be contributing about 8-10 per cent to our group's total turnover right now. In Leela Palace, Bangalore, the IT space have been leased to companies on a long-term basis for at least a period of 9 years. The rentals we are getting in Bangalore is also one of the highest in the city — in the range of Rs 130-140 per sq ft.
