I’ll take the clock back five years, then we’ll talk forward. When you came up with a five-year plan, which ends in 2024, Ahvaan, everyone said it was too ambitious. You’ve got it ahead of time. Now you’re going to come up with this plan, everybody says it’s pretty conservative because there’s a tailwind in the sector. So, what is right, what is wrong? Was the first plan too optimistic that was sent or was it conservative?
Puneet Chhatwal: In any journey, you need to have someone who believes in the journey, especially someone in the organization. When we first unveiled Aspiration 2022, back in February 2018, not many believed it, but they said, okay, now we’ve said we’re going to do it. Then came the COVID, which behind gave me confidence. If you can overcome the challenge of zero revenue, lock, return with a bang, and be very wise with your expenses, that gives you the confidence to get whatever you want. And if COVID doesn’t let you slip and you still go ahead and get Ahvaan in good colors, then anything is possible.
Now what we have always done is seek knowledge about what we communicate. We just don’t pick up a number and say this is the number. Finding the right balance that is important for India-centric companies in terms of light capital and heavy capital, in terms of luxury brands versus tier II, tier III, tier IV cities, in terms of nation building, and just building a cash cow, I think. there’s a lot of science and art behind it and that’s why we came up with what we’ve done. In an ideal world, if we can deliver on this promise, even in advance, as we have done in the last two roadmaps we have presented, we will be very happy as management.
So, can I say that this, the vision is a conservative vision and you again follow the mantra that you do and you want to deliver, so this is a conservative estimate? This is a basic number.
Puneet Chhatwal: No, from where we stand now, that’s a realistic number. At that time, we came from EBITDA margins of 12%, 13%, 16%. Last year, we did a little over 33% in consolidated, almost 40% plus in standalone. This is a huge number. And all in all, what matters is the business model, the mix of locations, the mix of contract types, the mix of geography, and at the same time continue to be on the global front as India’s crown jewel. , all these parameters must be balanced. So far we have done a great job and we hope to do the same.
A simple headline for viewers is that you will double the number of hotels and you will make a profit. Do the math behind this because this guide is art and science. Now let’s understand the math.
Puneet Chhatwal: The math is very simple. If you double the number of hotels, usually the revenue should triple or quadruple. But because 90% of the growth will come from capital exposure, and 90%, the other 80% to 85% will be through management contracts, according to accounting standards do we consolidate only the management fee, the management fee is only 6% to 9% depending on the size of the property and top line location, so the rest is not our revenue, it’s the owner’s revenue that manages the property, so we get double in the joint. The revenue reported at the company level is a larger number.
At the company level revenue, we are talking 30,000 crore plus, but that is very important for our business model because this will allow us to take out cyclicality and volatility in our portfolio. Everyone says that the hotel sector is very cyclical and volatile. How do we break through that volatility and keep moving forward in a strong way? One way or one of the levers is the brandscape and the other lever is the business model you use to grow.Now increase it because just think that if the hotel rooms double, then the revenue should be higher than this. All company numbers will be bigger.
Puneet Chhatwal: But when the market hits and RevPAR which is the multiplier of the average rate and occupancy drops 10%, 15%, 20% and profits drop 50%, then something is lost and it is expected to be lost. more and in an ideal world, we find a real sweet spot not only good for our portfolio but a benchmark for the global hospitality industry.The last column of the press release states that 75% of the business will come from traditional business which is the existing model, asset lighting as well as the hotel owned by the company, 25% will come from new business. 25% is a considerable revenue as it is at Rs 15,000 crore. Will the business increase its profits or will it first eat the profits and add up?
Puneet Chhatwal: In other ways round, it will significantly increase, as we have also been given guidance in the month that all new business is expected to add to the margin because it is light capital but does not eliminate the revenue sharing contract north of 35%. So, north of 35% means more margin than we’ve had before, but for 25% of the business. This is a healthy number and a brand like Ginger, Qmin is well positioned to deliver higher numbers than that.
When you gave the last five year guidance which is Ahvaan guidance, you also showed the margin picture. This time at least, until and unless I missed it, I haven’t seen any mention of borders. Did I miss something or you haven’t shown it yet?
Puneet Chhatwal: We can’t. One reason that I have shown, this is going to be the margin and this is the revenue, so you have calculated everything now.
So, the margin has not been divided.
Puneet Chhatwal: Second, in an ideal world, we keep what we have and add more. As a high growth company with some new business and at the beginning you ask this question, will this new business be accretive to the total business or are they going to eat into it because they need capital to grow? We don’t need capital to grow the business, but we certainly don’t want to miss out on a great opportunity.
I always talk about the opening of Ginger Mumbai Airport, and this has become a new benchmark. People hear you, people believe you, but the real belief comes when they see the black and white, the numbers.
So, if the first six months of operations are doing 50% plus margin and generating more than Rs 50 crore and the year is still left, then the picture looks very different. Then, you say, okay. Now when I’m going to do more Ginger brand properties in very important markets, in important locations, then we can pick the numbers. But we have to get there. So we reimagined Ginger which was first launched in 2004, like 20 years ago and struggled for a long time because the business model wasn’t right.
The words revenge shopping, revenge travel, revenge adventure, you only live once (YOLO), all kinds of terminology are used to explain early returns in the tourism sector. But what happened is that for the past quarter, car sales decreased, clothing sales decreased, but hospitality sales increased. Does this style persist when combining guides? You have to look at rates, cyclicality, demand, supply. Where does it lead in five years?
Puneet Chhatwal: I believe there are three-four important factors that will contribute significantly to hospitality. Number one is GDP growth. If India becomes the fourth and then wants to become the third economy in the world, it will also get all the other attributes that these top five economies have and one of them is long weekends, leisure travel, business conferences, meetings, etc. , etc.
Number two is when countries get richer, then per capita income increases. If per capita income goes up, disposable income goes up, so that’s how it goes.
Number three, things that haven’t happened yet, but will happen at some point. As India’s economy is number five and is expected to be number three, India will become an important destination for foreign tourists. Not today. Nothing even comes close to its true potential. It is not even in 20% of the true potential. There are 10 million foreign tourists coming to India of which the Indian diaspora is around 50%. So, I think the factors that drive demand will drive growth in this sector, will drive rates, will drive profits and also inflow of new capital. When Taj started and other companies in India started, they were owner-operators. Then, came the age of builders and developers. But institutional capital is waiting to enter. As global institutional capital begins to pour in, the hospitality sector will go through the roof.
I hope there will be a mention of your market cap in the last five years, one lakh crore. Any number you want to have a market cap? How will the journey from Rs 1 lakh crore to Rs 2 crore lakh be achieved in the next five years?
Puneet Chhatwal: I will take from one of our last interviews almost six, eight, nine months ago. You have planted that thought in our minds. If we come among the top three hospitality companies in the world, we have to do it. And we will, as management, do everything to get there. And one of the three dimensions is the strength of your brand. The other is scale. But one of the other attributes may be the market cap. And for one thing, with Taj being the strongest hotel brand in the world, India’s strongest brand in all sectors, I feel very happy that we are not only maintaining our current position but continuing to improve. As India grows, Hotel India grows. And as Indian Hotels grows, the backbone of Indian Hotels, the Taj brand grows.
When you measure your peers, there is an absolute comparison and there is a relative comparison. Markets are about absolute comparisons, boardrooms are about relative comparisons. How do you determine your market share in India? Have you gained market share over the last few years because now at the industry level, it’s launched?
Puneet Chhatwal: very. It is certain that today our income is equal to other industries of India put together. Even though we are taking other global majors, we are the same.
what’s your number
Puneet Chhatwal: As I said, our company level total revenue is about Last year we were at Rs 13,000 crore, this year we may be at Rs 14,000 crore plus or close to Rs 15,000 crore and this is a very high number. Only the Taj Mahal Palace and Tower can do anything north of Rs 750 crore on the top line.
That’s more than a boutique hotel chain.
Puneet Chhatwal: Many other global companies are consolidating in terms of management fees they earn in India. So not one, but several combined will not equal that income or EBITDA of that one hotel.
