I will take the clock back five years, then we will talk forward. When you came with your five-year plan, which ends in 2024, Ahvaan, everyone said it was very ambitious. You achieved it before time. Now you are coming with this plan, everyone is saying it is quite conservative because there is a tailwind in the sector. So, what is right, what is wrong? Was the first plan very optimistic which you delivered or is this one conservative?
Puneet Chhatwal: In any journey, you need to have people who believe in the journey, especially people who are within the organisation. When we first unveiled Aspiration 2022, way back in February 2018, not many believed, but they said, okay, now we have said it so we will do it. Then came COVID, which in hindsight gave confidence. If you could overcome the challenges of zero revenue, lockdown, come back with a bang, and be very prudent with the cost, that gives you a confidence to achieve anything you want. And if COVID does not allow you to get derailed and you still go ahead and achieve Ahvaan with flying colours, then anything is possible.
Now what we have always tried to do is to find some kind of a science to what we are communicating. We just do not pick up a number and say this is what the number is. Finding the right balance which is important for India-centric company in terms of capital light and capital heavy, in terms of luxury brand versus tier II, tier III, tier IV cities, in terms of nation building, and just building cash cows I think there is a lot of science and art that goes behind it and that is the reason we came up with what we have come up. In an ideal world, if we could deliver on this promise, even a little ahead of time, like we have done in the last two roadmaps that we have shown, we would be very pleased as management.
So, can I say that this, the vision is a conservative vision and you are again following the mantra of under committing and you want to over deliver, so these are conservative estimates? This is a baseline number.
Puneet Chhatwal: No, from where we stand today, it is a realistic number. At that time, we were coming from a 12%, 13%, 16% EBITDA margin. Last year, we finished a little over 33% on consolidated, almost 40% plus on standalone. These are very big numbers. And all in all, what is important is that the business model, the mix of locations, the mix of the contract types, the mix of the geography, and at the same time keep moving forward on the global front as the crown jewel of India, all these parameters have to be balanced. Up till now, we have done a good job and hope to do the same going forward.
The simple headline for our viewers is that you would double the number of hotels and you would double the revenue. What is the math behind this because this guidance is art and science. Now let us understand the maths.
Puneet Chhatwal: The math is very simple. If you double the number of hotels, normally the revenue should triple or quadruple. But because 90% of the growth will come from capital light, and of that 90%, another 80% to 85% will be through management contracts, as per accounting standards what we consolidate is only the management fee, the management fee is only 6% to 9% depending on the size of the property and the location of the top line, so the rest is not our revenue, that is the owner’s revenue for whom we manage the property, so that is why getting to a double in the consolidated reported revenue at an enterprise level is a much larger number.
At an enterprise level revenue, we are talking 30,000 crore plus, but that is very important for our business model because this will enable us to take out the cyclicality and volatility in our portfolio. Everybody says the hotel sector is very cyclical and very volatile. How do you take that volatility out and keep marching forward in a very strong way? One of the ways or one of the levers is the brandscape and the other lever is the business model you are using for growth.Now it is adding up because just thinking through that if hotel rooms are doubling, then the revenue has to be higher than this. The whole enterprise number would be larger.
Puneet Chhatwal: But then when the market gets hit and the RevPAR which is your multiplicator of average rate and occupancy drops by 10%, 15%, 20% and the profitability drops by 50%, so that is something which is gone and is expected to go away further and in an ideal world, we find the real sweet spot is not only good for our portfolio but becomes a benchmark for the global hospitality industry.The last column of the press release mentions that 75% of the business will come from traditional businesses which is your existing model, asset light as well as company owned hotels, 25% will come from new businesses. 25% is a sizable revenue as it is on Rs 15,000 crore. Will that business add to your margins or will it first eat into your margins and boost it up?
Puneet Chhatwal: The other way round, it will significantly add, as we have also given the guidance in the past that all the new businesses are expected to add to the margin because it is capital light but does not exclude revenue sharing contracts north of 35%. So, north of 35% means more than the margins we have done in the past, but that is for 25% of the business. That is a very healthy number and brands like Ginger, Qmin are very well positioned to deliver much higher numbers than that.
When you gave your last five-year guidance which is Ahvaan guidance, you also shared the margin picture. This time at least, until and unless I missed it, I have not seen a mention of the margin. Have I missed it or you have not shared it?
Puneet Chhatwal: We cannot. One reason is if I share already, this will be the margin and this is the revenue, then you have calculated everything already today.
So, margin has not been shared.
Puneet Chhatwal: Second is, in an ideal world, we keep what we have and improve on it further. As a high growth company with several new businesses and at the outset you asked this question, will these new businesses be accretive to your total business or are they going to eat into it because they need capital to grow? We do not need capital to grow in these businesses but definitely we do not want to lose out on very nice opportunities.
I always used to talk about the opening of Ginger Mumbai Airport, and that has become a new benchmark. People heard you, people believed you but the real conviction came when they saw it in black and white, the numbers.
So, if the first six months of operation does 50% plus margin and does a revenue of more than Rs 50 crore and the year is still left, then the picture looks very different. Then, you say, okay. Now when I am going to do more such Ginger branded properties in very important markets, in key locations, then we can go for that kind of a number. But we have to first get there. So, we reimagined Ginger which was first launched in 2004, like 20 years ago and it struggled for a very long period of time because the business model was not right.
The word revenge shopping, revenge travel, revenge adventure, you can only live once (YOLO), all kinds of terminologies were used to explain the initial comeback in the tourism sector. But what is happening is that for the quarter gone by, car sales were down, apparel sales were down, but hospitality sales have gone up. Is this trend here to stay while incorporating a guidance? You must have taken a view on rate, cyclicality, demand, supply. Where is that headed for five years?
Puneet Chhatwal: I personally believe that there are three-four important factors which are going to contribute significantly to hospitality. Number one is GDP growth. If India becomes number four and then aspires to be number three economy in the world, it is also going to get all the other attributes that these top five economies have and one of that is long weekends, leisurely trips, business conferences, meetings, etc, etc.
Number two is as the country gets richer, then the per capita income increases. If the per capita income increases, the disposable income increases, so that is how the spend comes.
Number three, something which has not yet happened, but at some point it will happen. Just like India’s economy became number five and is expected to become number three, India will be an important foreign tourist arrival destination. Today it is not. It is nowhere close to what its true potential would be. It is not even at 20% of its true potential. There are 10 million foreign tourist arrivals of which the Indian diaspora is approximately 50%. So, I think those factors that are driving demand will drive growth in this sector, will drive rates, will drive profitability and also the influx of new capital. When Taj started and other companies in India started, they were owner-operators. Then, came an era of builders and developers. But institutional capital is waiting to come in. When global institutional capital starts coming in, the hospitality sector will go through the roof.
I was hoping there would be mention of your market cap in the last five years, one lakh crore. Any numbers where you aspire the market cap should be? How will the journey of Rs 1 lakh crore to Rs 2 crore lakh be achieved in the next five years?
Puneet Chhatwal: I think I will pick up from one of our last interviews almost six, eight, nine months ago. You have inculcated that thought in our mind. If we come among the top three hospitality companies in the world, we should go for it. And we will, as management, do everything to get there. And one of the measures of becoming top three is your strength of the brands. The other is the scale. But one of the other attributes could also be market cap. And one way or the other, with Taj being the world’s strongest hotel brand, India’s strongest brand across all sectors, I think we would be extremely pleased if we not only retain our current positioning but keep improving it. As India grows, Indian Hotels grow. And as Indian Hotels grows, the backbone of Indian Hotels, the Taj brand grows.
When you measure the peers, there is an absolute comparison and there is a relative comparison. Markets are about absolute comparison, boardrooms are about relative comparison. How would you define your market share in India? Have you gained market share in the last couple of years because now at the industry level, launches are happening?
Puneet Chhatwal: Immensely. It would be fair to say that today our revenue equals other industry peers out of India put together. Even if we took other global majors, we are at par.
What is your number?
Puneet Chhatwal: As I said, if our total enterprise level revenue is around Rs 10,000 crore or plus and going forward to Rs 30,000 crore is what is expected. Last year we were Rs 13,000 crore, this year we might end up at Rs 14,000 crore plus or close to Rs 15,000 crore and that is a very high number. Just Taj Mahal Palace and Tower might do anything north of Rs 750 crore on the top line.
Which is more than a lot of boutique hotel chains.
Puneet Chhatwal: A lot of other global companies put together in terms of the management fee they earn in India. So not one, but several put together will not be equal to that revenue or the EBITDA of that one single hotel.