One of the key initiatives mooted by N. Chandrasekaran, after he took over as chairman of Tata Sons, the flagship holding company of the $110-billion Tata group two years back, was to better leverage synergies between group companies, engaged in sectors as diverse as IT, automobiles, steel, hospitality, retail, real estate and consumer goods.
The new business foray announced by Indian Hotels Co. Ltd (IHCL), the Mumbai-headquartered business group’s hospitality arm that runs a chain of hotels in India and abroad under brands like Taj, Vivanta and Ginger, is surely a step in that direction.
On February 19, IHCL announced its entry into a new hospitality segment segment – plantation trails and homestays. The idea is to utilise the non-core real estate – guest houses in the form of lavish bungalows – owned by several Tata group companies to allow families traveling for leisure enjoy a quality hospitality experience in a homely setting.
Ama Trails & Stays, as the new venture is called, will comprise a group of heritage bungalows, guest houses and homestays. IHCL has signed a management contract for nine heritage bungalows owned by Tata Coffee at its plantations in Coorg and Chikmagalur; and will also commercially market two of its own bungalows in Goa to kick-start the venture.
Puneet Chhatwal, managing director and chief executive officer, IHCL, is confident that Ama will be able to scale up to 100 properties by 2020. After Tata Coffee, IHCL will also look to use bungalows and guest houses owned by other Tata group companies. It will eventually also target such properties owned by other entities.
Chhatwal explains that Ama won't be a super-luxury offering. It will be like a home away from home, with a butler on call, and a kitchen stocked with basic necessities allowing guests to whip up their own meal, if they so choose.
“Many of our guests earn loyalty points through the Taj InnerCircle loyalty program by staying at our hotels while traveling for work,” Chhatwal says. “An offering like Ama will allow them to burn those points when they want to enjoy some leisure time with their family. Ama is an opportunity to strengthen our loyalty program and start something new without much investment.”
On the face of it, Ama looks like a win-win for all stakeholders concerned. For IHCL, it presents a ready pool of properties that it can run under management contracts and increase its topline and bottomline, as a part of its five-year vision called Aspiration 2022. With most hospitality firms looking to go increasingly asset-light, the Ama-branded properties will allow IHCL to enjoy fee income, without much investment of its own.
For corporate entities within the Tata group such as Tata Coffee, IHCL’s venture offers an avenue for monetisation of non-core assets without giving up their ownership. Since Tata Coffee would continue owning the bungalows that it contracts out to IHCL, it will earn a steady stream of revenue from guests staying at these locations.
New initiatives like Ama and the repositioning and expansion of the 115-year-old IHCL’s other brands such as Ginger and SeleQtions is what Chhatwal hopes will allow IHCL to become the “most iconic and profitable hospitality company that South Asia has produced.” As a part of Aspirations 2022, IHCL hopes to improve its EBITDA (earnings before interest, tax, depreciation and amortisation) margin to 25% by FY2022-23 from 17% in FY2017-18.
The company, which runs 178 hotels in 12 countries around the world, hopes to get there by scaling up its inventory, selling non-core assets, and simplifying its holding structure.
In the current financial year (2018-19) till date, IHCL has signed 20 new hotels, out of which 19 are on management contracts. Over the last one year, the share of properties that IHCL runs on management contracts has increased by six percentage points to 38%. Chhatwal says that 2019-20 will be a year of new signings, as well as new hotel openings for IHCL. “We expect to open a minimum of one hotel per month in the next financial year,” he says. Starting April 2019, IHCL will also take over the management of Goa’s iconic resort, Cidade de Goa. This will be a part of IHCL’s range of offerings branded SeleQtions, under which it will operate a bunch of “named” hotels, which won't carry the Taj or Vivanta prefix. Last year. IHCL also bagged the contract to operate the Connaught Hotel in Lutyen’s Delhi, as a part of its SeleQtions range.
Chhatwal says that IHCL’s business reached an inflection point in 2017-18 when it turned in a net profit after making losses in previous financial years, and the company is poised to increase profitability in FY2019. For the nine months ending December 31, 2018, IHCL posted a consolidated net profit of ₹172 crore, up 50% year-on-year. Revenue rose 10% year-on-year to ₹3,314 crore in the same period. In FY2018, IHCL reported a consolidated turnover of ₹4,165 crore and a net profit of ₹101 crore.