Indian Hotels to open 25-30 new properties in FY25, with 112 more in the pipeline: CEO Puneet Chhatwal

By Latha Venkatesh

Puneet Chhatwal, MD and CEO of Indian Hotels Company (IHCL) said the company has increased the pace of opening hotels and are aiming to open between 25 to 30 hotels this financial year (FY25).

Chhatwal said they might even exceed the annual target, as there are currently 112 hotels in the pipeline.

This is the verbatim transcript of the interview.

Q: Is it a busy season for you?

A: Indeed, it is, and we are looking forward to the next few quarters because this is the real test. The base level is high, but our spirit is higher, and our production in terms of the number of rooms, and the number of hotels is at the highest. So, let's see what the combination does.

Q: Q1 (FY25) was 6% revenue growth and about 11% profit growth and it was hit by elections, but we were worried about Q2 as well, or at least your investors were because there was G20 a year ago, and then Q3 (FY24) was World Cup. So, when we got the early numbers for July and August from the hotel industry, it was an eye-opener. It was all double digits. So, can you tell us how Q2 (FY25) may pan out? Is it better than you thought?

A: When we did the Q1 investor call, I already said that July will be 20% higher than July of last year because there is a pent-up impact despite the G20. One, there were the wedding dates that moved from Q1 to Q2. Second, there was no more election cooling-off period. Third, the extreme heat had left us. Fourth, a lot of business activity coupled with a lot of foreign delegations coming into India to work with the newly elected government, whether they were invited by the government or its business houses coming for business.

So, Q2 is exceptional but the way to look at it is Q1 plus Q2 together and the sector is well positioned to do well in the first half of this financial year.

Q: But Q1 and Q2 together what kind? Is it double-digit, is it mid-double-digit, or mid-teens?

A: It should be double-digit. Our guidance has been that we will do double-digit growth for this financial year.

Q: Coming to Q3 as well or the second half of the year (H2) because you would have a fair idea of what the bookings are like despite the World Cup in the base does it look like it is going to be an easy double-digit?

A: I remain very confident as far as Indian Hotels is concerned. As far as the sector is concerned, there is nothing that tells us that we should not have growth. Now, whether it's a double-digit or a very high single-digit that depends on which portfolio you have, what locations you have, and what kind of brands you have. So, since we operate across the spectrum from Ginger to absolute luxury with Taj, from homestays to home delivery, I think we are very well hedged and our not-like-for-like growth is very high.

We are opening now, as of last month, more than two hotels a month. So, our guidance of opening anything between 25 to 30 hotels in this financial year stands and going forward even marginally higher than that number because we have more than 100 hotels in the pipeline, 112 to be precise.

Q: So that is about 50% of what is already in operation?

A: 45% to be precise.

Q: Where will the growth come from or what is the percentage coming from new hotels, from increases in tariffs and margins or increases in usage?

A: As we change the business model, if we looked at the number of hotels, what we had 6-7 years ago, then that would not correspond when somebody tries to understand the topline, because we delivered on our promise of a balanced portfolio of asset light and asset heavy growth, which was 50:50, slowly it moves to 40:60. So, if we talk about system-wide, is the terminology the hospitality sector uses, or enterprise level revenue, then we would have more than doubled the total revenue in 5–6-year period.

If we look at the consolidated basis, then we have had an increase of 77-78%. So, going forward, it will be more or less a similar story, because we are not going 100% asset-free. We changed the terminology and said it is capital light or capital heavy. Capital light includes operating leases, which are based on a rev share with a landlord, so you don't capitalise them on the balance sheet and capital heavy is what you capitalise on the balance sheet. We believe that that is the sweet spot, which we have found, and that is making the operating leverage results very high on the capital-heavy side, and the margin expansion is coming for the capital light.

Q: Let me still use the word asset-light and asset-heavy. You said that you have moved from 50:50 to probably 40:60 now. What is the goal, in two years can it even go to 30:70?

A: As long as our growth numbers are not challenging, we want to keep growing at a very strong pace in the Indian subcontinent and asset-light is a good enabler for that. Further, it also helps you keep growing the margins or keep maintaining those even if there are some kind of sectoral headwinds coming your way. Having said that, one of my key learnings is that if you do not invest in strategic opportunities, in margin-enhancing assets secure for your brands in those key locations, and develop destinations in the spirit of Tata Group as we have done over a century, then you lose the competitive advantage.

So, we would not be having 40 outlets in Goa, including our homestays, had we not been the first one in the 70s to build Fort Aguada. We would not be where we are in Kerala today, had we not gone as the first mover in God's own country. Similarly, in Havelock and as we speak, we are in the final stages of getting the construction permit for the two islands in Lakshadweep. So, these are strategic investments, very strategic business initiatives. They will be capital-heavy but will also give you the first-mover advantage.

Q: Your margins are about 30%, 28-29%. Now, as you get asset-light, do you see the margins, in the next two years, crossing 30%?

A: We had, in our previous strategy, which we communicated, said we would do 33%. We finished last year at 33.7%. So, Q1-Q2 if you get close to 30%, the likelihood of exceeding 33% is 99% because Q3 is the best quarter and Q4 is the second-best quarter.

As I mentioned, because of the change in the business model and operating in all segments, I remain confident that no matter what comes our ability to deliver 33% or higher is very high, and we are very well positioned to do so.

Q: Over the last five years, you say you have doubled revenues. How does it look over the next five years?

A: The going is good, everything looks good, the pipeline is very strong, and we manage our pipeline quite well. India looks good. The gross domestic product (GDP) growth looks good. The disposable income is increasing because per capita income is increasing. India seems to be moving from number five to number three, and the investment of the government in infrastructure is going to directly benefit our sector. So, it is a good time to be in the sector, and within the sector, like you said, the kingpin of the hotel industry. So, it is good to be in that leading position.