Boom time for hospitality sector? India Hotels eyeing nearly 40% growth: Puneet Chhatwal

Puneet Chhatwal, MD & CEO, Indian Hotels, says the growing middle class in India will make sure whether through consumption or through the growth of the middle-middle class or the higher middle class, hospitality in mid-scale and upper mid-scale is going to experience a boom that it has never seen before.

Chhatwal says Indian Hotels has focused on the homestay with Ama, along with Qmin and the Qminisation of Ginger. Every Ginger location offers all-day dining through Qmin. Additionally, they recently acquired a 55% stake in the Tree of Life brand. If they can quickly expand these brands, they could achieve a 30-40% impact. Their guidance suggests that these new businesses will grow by over 30%, with current trends indicating growth between 38% and 40%. Achieving a compounded annual growth rate of 38% to 40% on the top line is impressive, especially since they are operating with a capital-light model.

How do you think the income tax cut will help boost consumption?
Puneet Chhatwal: The money is not so much that is going to change your lifestyle completely, but definitely you can satisfy your wanderlust and you can go and try things which you were maybe hesitant in doing so. I think it's a very, very good boost to the consumption sector and I personally believe that a part of the hospitality and food and beverage space are integral parts of the consumption sector today and not discretionary that it used to be maybe 10-20 years ago.

But the entire hotel sector is going through an interesting and encouraging time. Can this encouragement because of a government push translate into a boom?
Puneet Chhatwal: This is one of the important factors, but for me the most important factor has been the infrastructure spend that the government has incurred in the previous years. The Udan scheme, the Mudra scheme, the Prasad scheme and all these culminate into a big opportunity for the sector and definitely this should give the boost to the sector that is needed because if you have new airports, then people will fly. If there are 1200 new planes coming into India, they are not coming here to get parked. It is going to improve connectivity. Infra RCS is going to be a very important part of the growth of this sector.

Also Read

• Budget 2025 tax cuts could trigger consumption multiplier and lead to 8% GDP growth rate: KV Subramanian, IMF

Coming to Indian Hotels. Your portfolio starts with luxury, then it moves into the middle market, then Ginger, which is affordable. How would you classify Ginger, affordable luxury or entry level at a good price?
Puneet Chhatwal: It is an absolute phenomenal value for money in great locations and absolutely clean products, ready to compete anywhere in the world. We are India centric, but this product can be lifted and placed anywhere in the world.

Also Read

• Indian Hotels, ITC Hotels, other tourism stocks rally up to 10% as FM unveils ambitious plans in Budget

So, an affordable entry level hotel where the average rates are anywhere between Rs 5,000 and Rs 8,000 per room now.
Puneet Chhatwal: That is correct.

Can I say the biggest delta for the industry and for the hotel sector would be felt in this Ginger brand?
Puneet Chhatwal: Absolutely. If you look at our standalone average rates which include one or the other is around Rs 20,000 and the average for Ginger is around Rs 5000. So, this would be an absolute entry level versus a Vivanta or a Gateway or a SeleQtions or even the newly launched Tree of Life.

In the Indian hospitality sector, what is luxury and what is affordability? How is the trend changing?
Puneet Chhatwal: Luxury is timeless and it is there to stay. Luxury is not going away, especially when so many people are entering into the top class in India given that India has become the number five financial power and hopefully next year itself number four and by 2027 number three. So, obviously, the number of people entering into the top tier is a lot and for them luxury is absolutely a conditio sine qua non or also for people coming from outside of India to do business in India.

We are not like a mass tourism nation. We are not going to do what southern Spain and northern Africa has done. You keep getting charters of 500 people and they come and go and the next charter comes. So, given that positioning which is also synonymous with our culture, with our history, with our palaces, which we also call the living legacies of the Taj ,where you have Maharajas and Maharanas living – is something unique and that is there to stay.

A lot of people love that because it is not available anywhere else in the world. Having said that, the growing middle class also will make sure whether through consumption or through the growth of the middle-middle class or the higher middle class that hospitality in mid-scale and upper mid-scale is going to experience a boom that it has never seen before.

In the Budget, there was a specific mention of a spiritual destination. There was a specific mention towards tourism. Is that good enough to reignite a lot of things in the sector?
Puneet Chhatwal: First of all, we have to be gracious and thankful that the kind of mention tourism got. I have not seen it in seven years. I think that is the starting point. The most important point that the Honourable Finance Minister said in her speech was in collaboration with the state governments because the land is going to come from the states. So, getting the land, the permissions and if it is coupled with those 50 new destinations with infrastructure status, then it will really accelerate the pace of hotel development in these new destinations.

Not everybody is sitting on a cash reserve. The sector is labour intensive and capital intensive and the infra status enables some form of moratoriums along payback period for the property and a cheaper interest maybe by 100 basis points or so but at the same time many states have come forward and done the industry status at the state level, but more than half have still not done it and we would always keep pushing for that in every state because this is not luxury, we are talking about mid-scale, upper mid-scale, upscale and that will really help in the growth of the sector, growth of the GDP, growth of the jobs direct and indirect.

This has an absolutely great potential that India is sitting on which is waiting to get tapped. The start has been made with this Budget and hopefully, we will keep evolving it over the next few years into something which is really lasting and meaningful both for the nation as well as for the sector.

When the Budget came out, hotel stocks, hospitality stocks, QSR anything and everything which has got to be the discretionary spend, went up. So, if markets are assuming that this Budget will have a multiplier effect both in terms of demand and also in terms of profitability, is that assumption by and large incorrect or correct?
Puneet Chhatwal: I would say that the tax reform for the hotel sector is a little bit of a cherry on the cake. Demand is outpacing supply. There is no way that supply is going to catch up at least in the next three-four quarters with the demand. My personal view is that in the next ten quarters, demand will continue to outpace supply by 300-400 basis points.

This is your pre-budget view or post budget view?
Puneet Chhatwal: Pre-budget view and with that, now we got this a boost through the consumption. The reason is very simple, the change in the infrastructure. Today we have a Bharat Mandapam. It can hold an event for 3,000 to 5,000 people. The same is Yashobhoomi, a very large centre in Dwarka or the Jio World Convention Centre in BKC in Mumbai. So, in these cities nothing has come up in terms of new supply in the heart of the city. Projects may have come up in the suburbs, Navi Mumbai for example or maybe in Noida. But Lutyens Delhi still has those very famous iconic hotels which were there ten years ago, which were there five years ago.

So, your proximity to Pragati Maidan or to Dwarka is really ideal from the heart of Delhi from what you call the diplomatic area and that is not going to change because the connectivity is also through the metro. I remember when the German Chancellor was there, we created one evening in Yashobhoomi where we took everyone on the metro to Yashobhoomi. So, there is this kind of a change with the possibility of doing an event for 1000, 2000, 3000, 5000 people in an evening and if 10% or 20% of them need rooms, your Delhi is full.

If there is an event happening in the Jio convention centre in Mumbai, then hotels within five square kilometres of that are also full. If there is a Coldplay happening in DY Patil, then everything around Navi Mumbai is full, maybe it is only two days or so, but you get a lot of good basis for occupancy, for rates which help you sail through. This is not going to change in the short term in my opinion.

For Indian Hotels to move its needle, how much experimentation are we likely to see? Qmin is an experiment, Ama is an experiment, Ginger at some point was an experiment. What could move the needle for Indian Hotels in the next three years by at least 10%?
Puneet Chhatwal: What we have done is in the homestay with Ama, with Qmin and the Qminisation of Ginger because every Ginger has all-day dining in terms of Qmin and Tree of Life which we just acquired in the middle of January (55% stake in the Tree of Life brand). So, if we can scale up these brands very fast, we not only create a 10% impact, we can create 30-40% impact because the guidance that we have given is that our new businesses, all these are part of new businesses, will grow anything north of 30 and the current trend is more in the direction of 38 to 40. So, 38% to 40% compounded annual growth on the top line is something wonderful because we have been doing this on a capital light model.

So, maybe we have some operating leases with revenue share, but we have not invested any capital in these brands. If this journey continues for the next three-four years, then we are talking about at least 30% and not 10% growth and I remain very optimistic. I would not use the word cautiously optimistic that this kind of positioning is crisis resistant. No matter what slowdown may come, at a certain price point it is just a very compelling proposition and most of these brands are in that price point and hopefully, will significantly contribute value with all these businesses together with TajSATS 25% of the total which was like 90% dependent on just Taj.