Indian hotel group IHCL is planning a rights issue to improve its firepower, as the pandemic wanes in the region.
The board has approved a rights issue of up to INR3,000 crore – just over USD400m – to prepare for recovery from the downturn, and support further growth. “The objective of the rights issue is to meet the company’s financing needs for capital expenditure, growth plans and debt repayment,” said the company in a statement.
Other companies active in the Indian market are also preparing to make moves. Conglomerate ITC is considering a split that would hive off its hotels and technology businesses, in a bid to release shareholder value. And leading Indian resort operator Mahindra Holidays & Resorts has also declared it is on the lookout for acquisitions, as it seeks to grow.
The IHCL move comes after the April to June quarter saw cash burn continue, as India suffered a renewed wave of covid-19 cases. First quarter results, announced in August, saw the group reduce ebitda losses by 50% as it grew revenues 111% year on year, to INR370crore.
Cases in the country are now at 10% of the May peak, with travel restrictions eased – though international travel remains difficult. As a result, Indians are booking hotels once more. According to STR, occupancy in July had improved to the 40-60% range; with a mid-month peak in New Delhi of 79.7%.
“This growth is driven by domestic leisure demand,” said CEO Puneet Chhatwal. “July was a good month and business on the books for August looks promising. New businesses have performed very well. For every employee at IHCL, our Taj brand being recognized as the World’s Strongest Hotel Brand in 2021 is not only a moment of pride but also inspires us to continue developing and delivering new customer centric offerings that are innovative and that leverage the strengths of the growing IHCL hospitality ecosystem.”
IHCL’s Taj brand was recently tipped in Brand Finance’s annual ranking of hotel brands, which named it the sector’s strongest brand, ahead of Premier Inn, Melia, NH and Shangri-La.
Scoring it top on the Brand Strength Index, the ranking noted: “Renowned for its world-class customer service, the luxury hotel chain scores very well in our Global Brand Equity Monitor for consideration, familiarity, recommendation, and reputation especially across its home market of India.”
Taj was marked up for the successful completion of a five-year plan to divest assets, for reducing its dependence on the luxury sector, and for quickly implementing its RESET strategy to survive the pandemic.
During the first quarter, the group opened Vivanta branded properties in Thiruvananthapuram and Bhubaneswar, and added Pilibhit House on the banks of the Ganges in Haridwar to its SeleQtions collection. In addition it added 11 villas to its amã Stays & Trails homestay portfolio.
Two signings included a massive 775 room commitment at Bengaluru Airport City, where a co-located 450 room Vivanta and a 325 room Ginger hotel will run under management contract, from opening in 2025. The company has also recently signed another Ginger hotel, in Udaipur.
In July 2021, Chhatwal added three new responsibilities to members of his executive team, acknowledging the need for further performance upgrades within Taj. Ritika Gupta has been asked to lead a focus on customer centricity; Rakhee Lalvani was given the new role of head of diversity; and Ram Maheshwari was given direct responsibility for streamlining owner and partner engagement.
“In pursuance of our asset light growth strategy with around 70 hotels signed in the last three years, strengthening owner relations has never been more important for IHCL’s future,” said Chhatwal. “We have identified three experienced and veteran leaders who will champion each of these strategic imperatives in an institutionalized manner.”
At ITC, recent statements have confirmed earlier speculation around a demerger. “We had said last year that we will look at an alternative structure, which we are reiterating,” said ITC chairman Sanjiv Puri at the company’s AGM. But he said the move was unlikely to be immediate: “We accept that given the situation faced by the hotel industry, it is not the right time to do it. We will have to wait for the recovery.”
ITC has over 100 hotels large and luxury across India, under its Welcom and Fortune brands. It also has a relationship with Marriott, having a number of its properties listed under the group’s Luxury Collection.
Also looking at growth options is Mahindra, which has seen a strong uptick in occupancy at its resort properties. “There is revenge travel,” said chief executive Kavinder Singh in an interview with Bloomberg, who expects occupancy for the current quarter to exceed 75%. “We have a very good pipeline of properties that we’re looking at for acquisitions.” Singh expects to invest USD150m over two to three years to take the group’s room inventory from 4,200 currently to 5,500.
HA Perspective [by Andrew Sangster]: Puneet Chhatwal’s success at IHCL was justly recognised when Brand Finance identified the Taj hotel brand as the world’s strongest in its Hotels 50 Report 2021.
Despite a torrid time during Covid and associated lockdowns, IHCL looks set to emerge from the pandemic with strong tailwinds. Just before Covid struck, IHCL held a Capital Markets Day in February 2020 that highlighted its big ambitions. While delayed, these still look on course to be realised.
Typical of this “reimagination”, the company has embarked on is its refresh of the Ginger brand, now categorised as “lean luxe”. Motel One is perhaps the nearest European counterpart.
IHCL has a number of strengths that make it a tough rival for any would-be entrant to the Indian market. It is part of Tata, the 150-year-old conglomerate that dominates Indian industry. While this is often a disadvantage – think slow and bureaucratic – in a market like India, provided you have dynamic leadership from the likes of Chhatwal’s team, you are able to open doors and exploit opportunities that outsiders will rarely see.
The potential size of the Indian market is a huge prize which IHCL is uniquely positioned to unlock. IHCL’s closeness to the domestic market means that it can tap into cultural elements that outsiders struggle with.
An example is niu&nau, the beauty salons that are a feature at Taj properties. These have evolved into social hubs and are part of a push to evolve non-hotel brands in retail, lifestyle and catering.
Other examples of diversification include catering venture Qmin, launched in June last year and now at 70 restaurants as well as in a food truck. Ama Stays & Trails is another offshoot, taking the Taj know-how to private rentals.
In global terms, Taj is a minnow with just under 20,000 rooms, of which barely 2,500 are outside of India. But the growth of the Indian economy will surely spur outsized expansion, as it has in China. There is not going to be an exact mirroring of the Chinese experience but the potential is there for India to be the next growth giant of our sector, and Taj is in pole position in this race.