Indian hotels well positioned for a stronger show in H2 of this fiscal

The Indian Hotels Company (IHCL) is 'well positioned' to deliver much stronger growth in the traditionally robust second half and is on track to achieving the targets set under a new strategy, the chief executive of the Tata group-backed hospitality chain told ET.

IHCL managing director Puneet Chhatwal said the second half of the ongoing fiscal year has witnessed an increase in average room rates and occupancies, led by demand from a strong leisure segment and a boost from increased business travel.

In the first quarter, "we did an Ebitda margin of 31% and 25.4% in Q2. Cumulatively, the H1 Ebitda margin stood at 29%. A traditionally strong H2 for the sector should enable a full-year margin well within the range of 30% plus," Chhatwal added.

This was IHCL's 'best ever' first half in the last decade. In May, the hotels chain said it would launch a new strategy - Ahvaan 2025 - which aims to re-engineer margins, re-imagine its brand scape and restructure its portfolio.

The company said by 2025-26, it aims to build a portfolio of 300 hotels, register a 33% earnings before interest, tax, depreciation and amortisation (Ebitda) margin with a 35% Ebitda share contribution from new businesses and management fee.

Chhatwal said the Ebitda margin growth came from factors such as introduction of new high-margin businesses like Qmin, homestays brand ama, Chambers and Ginger; a change in the business model with a balanced portfolio, and a target of 50:50 between managed hotels and owned or leased hotels; and optimisation of corporate overheads and fixed costs at the property level.

In the first half, the domestic average room rate increased 32% and revenue per available room by 35% compared to pre-Covid-19 period.

"The macroeconomic fundamentals and consumer behaviour is changing. The demand has been strong for eight months in this financial year," said Chhatwal. "So, it's not just pent-up demand. We have signed 21 new contracts and 12 have opened in the financial year 2023."

He said the portfolio has nearly doubled and overheads have shrunk.

"It's about applying the right levers of asset management, monetisation of space and getting rid of non-core businesses. Our new businesses are high-margin businesses. It's also about managing our assets better and smart renovations," he added.

The strong performance was driven by the domestic market, which clocked an over 20% growth rate over pre-Covid-19 levels in key cities, and IHCL properties in the US, UK, Dubai and Maldives also registered a strong recovery.

Chhatwal, who is also president of the Hotel Association of India (HAI), said the sector benefited in the last six months due to strong domestic business and leisure demand which reflected the upbeat mood of India.

"Strong brands have grown faster, and the best is yet to come," he added.