Indian Hotels cash flows positive for first time; H2 will be better: Puneet Chhatwal

“It is not just us, but the entire sector has bounced back. In our case, of course our strategy, our strategic guidance, our guidance from Ahvaan 2025 had a good start. This is the first quarter with Ahvaan and we are very pleased with it,” says Puneet Chhatwal, MD & CEO, IHCL

For a company which reported record loss during Covid and record profit after two years, the stock is at an all-time high. Iit is extraordinary, isn't it?
Yes, it is but I would not call it anti fragile. I would rather call it resilience and I think the entire hotel sector has demonstrated resilience like nobody else except for maybe tourism and aviation. That makes us proud. It is not just us, but the entire sector has bounced back. In our case, of course our strategy, our strategic guidance, our guidance from Ahvaan 2025 had a good start. This is the first quarter with Ahvaan and we are very pleased with it.

Margins are at an all time high. I have never seen Indian Hotels report margins of 30% plus. These are unheard of margins and we are looking at the consolidated picture, not only the India business which is the good part now. Is this largely because of cost cutting and debt reduction or just a business high?
Well it is a change in the business model. From an absolutely asset heavy company, since the last five years, we have been working on balancing the portfolio. That is our guidance also that we will have a balanced portfolio of 50% in owned and leased business and the other 50% of the portfolio to be driven by fee-based business.

With that, we have also added new businesses. Our name is a bit old but the entire brand has been re-imagined, the entire portfolio has been re-engineered for its margin and that is true for our balance sheet and our capital structure has also been restructured and reengineered and we are very pleased with also the new initiatives like Ama and Qmin based on incremental cost and revenue models. They drive high margins despite very low contributions today. But it is rising every day.

We are very pleased with the new businesses as they are high margin businesses. Our innovations with our old businesses like the private membership club chambers, taking it international, taking it in Dubai, London. Today we made a decision to open chambers in New York and so we started working on it. We have also taken a decision to open it in Bengaluru. So The Chambers as a private membership club becomes one of our very unique value propositions. It has been around for 40 years but we changed the value proposition and repositioned that too.

The sum of all this is beginning to reflect in the EBITDA margins that is coming up on the consolidated level, as you rightly said because we have hotels in London and Cape Town and San Francisco and New York and there it is very difficult to drive such high margins as one is able to do in the Indian subcontinent.

When we spoke last, there was a problem on the Covid front. I distinctly remember you said India is okay but you may have problems in the New York hotel, in London. Has all that become history? A friend of mine stayed at St James and said forget getting a hotel room, it is impossible to get a restaurant table now?
Actually your friend is right and I can confirm that London has had the best month ever and that was the last month in July. Also, London has performed better for the first quarter than the pre Covid level by 15%. The US is still 10-15% behind but as of this quarter, things will start changing.

At the latest, in September when we have the UN General Assembly, the business mix and the business expectations will clearly go ahead of 2019-20 numbers. San Francisco is a small lovely property in the best location and so is New York. But San Francisco has never been a challenge. It was profitable before also and we are very excited because we acquired the remaining 50% stake of Cape Town during Covid and the season in Cape Town begins as of October, that is their summer.

So, we are very anxious and excited to look how that will evolve and add to our top line as well as bottom line.

This is the best margin I have seen in Indian Hotels positive cash flow for the first time.
No, we have had that in Q3 in 2019-20 also.

So for the first time cash flows have become positive. Now the second half will be better?
The second half should be better. We are net positive when it comes to debt and we are making one payment in the next few days which is due and the second is due only in April of next year because it is a debenture. We are keeping the extra cash that we have through our equity raise in a separate account for that purpose.

That part makes us feel very comfortable and the guidance that we have given is not only at the EBITDA level. It is 33% but the flow through from EBITDA to PBT and PAT should improve because what is left is just depreciation or certain financial cost because of the change in the accounting. Wherever we have leases, there will be some kind of financial expenses out there but that os very limited versus what we are used to from a historical basis.

Revenge travel is a word which we use loosely because suddenly all of us are surprised and shocked with hotel occupancy. How much of that is sugar rush and how much is cyclical and how is a trend?
It is not really revenge travel. We are in the hospitality sector and do not like to call it hosting people because of some revenge. We would like to believe they are coming because they like to be here and like to be seeing. They like to enjoy life. Especially when people have lost their near and dear ones because of Covid, the attitude for the short term has changed. That is one factor which has benefited the industry. The second is a permanent change and that is a result of Covid.

Permanent change in terms of approach, attitude and specialty issue?
People are driving to a holiday. Very few did that before but Covid forced people to actually drive themselves and take the family with them and people had a good experience. It has now become a part and parcel of people’s lives.

The third is obviously the return of the business demand.

That is the delta point.
That is the delta first and that is working well, especially in this quarter it is Delhi, Mumbai, Bengaluru whether it is because of IPL or it is because of the government delegations or the Africa Summit that we recently had in Delhi or the G20 summit in December, all this is going to support the growth of room rates in our industry.

So there is no plan to get debt back, irrespective of what assets are there?
No, we have given the guidance of a zero debt and we want to stick to that.

Even if a great asset is suddenly available at a good price you will not venture there?
I hope we are able to generate enough free cash flows and get strategic investment partners like the platform we have with GIC or also with the group companies. There are different group companies which do investments in real estate. I hope we can work with them and become really true to our core business of running hotels and not building and owning hotels.

Yes, there are certain investments we have committed to and that is a part of our work ethics, our culture, our history, our past, like creating Goa as a destination, creating Havelock, Andaman, creating Kerala as a destination. Now we are working on Kevadia where the Statue of Unity is. We have just got the Letter of Award for two islands in Lakshadweep. So, some of those investments we will do and we will figure out at the right time what will be the platform.

That is from the existing cash flows.
That is either from the existing or we will get somebody to partner with us once the assets are done and not finished.