Room for growth: Indian Hotels MD Puneet Chhatwal's key to unlock value

Indian Hotels Company Ltd Managing Director & CEO Puneet Chhatwal has introduced the use of traffic-signal colours in executive committee meetings of the company. Jobs completed or on-target are marked as green. Halfhearted efforts get a yellow and red is reserved for stuff that has not moved forward at all.

Since taking over the 116-year-old hotel company of the Tata group, Chhatwal has used regular meetings with senior executives to strategise, set goals and then tick off deliverables. A self-confessed “naughty boy” in his youth, the 54-year-old Chhatwal says whoever lands the most number of reds at one meeting takes extra pains to achieve an allgreen report card at the next.

This colour coding based on traffic lights gets the job done for Chhatwal, who has embarked on a relentless journey of higher revenue and profit growth at the hospitality behemoth that owns the iconic Taj brand. Company insiders say since Chhatwal took over as CEO of the 178-hotel chain on October 1, 2017, his single-point agenda has been revenue growth.

Indian Hotels Company Ltd (IHCL) boasts a market capitalisation of about Rs 17,000 crore. The next biggest publicly traded hotel company in India is EIH (of the Oberoi Group), with a market cap of Rs 10,000 crore.

But Chhatwal had to hit the ground running. IHCL had recorded a net loss of `82 crore in April-September 2017. If that wasn’t enough, Chhatwal’s predecessor Rakesh Sarna had abruptly put in his papers in May 2017, citing personal reasons. Sarna had faced allegations of sexual harassment, though an independent panel had exonerated him from the charges.

In the 16 months since taking over, Chhatwal — a graduate of IHM in Delhi, with an MBA from ESSEC Business School, Paris — has managed to turn the conversations around IHCL on to subjects like debt reduction, better margins and profitability. Central to his plans is a target to improve IHCL’s consolidated operating margin from 15-16% to 25%.

He can give himself a green mark now. In April-December 2018, IHCL recorded a 10% growth in revenue and a 588% jump in net profit over the year-ago period. “Even though it looked ambitious, for whatever reasons like history or past baggage or legacy, we went for it,” Chhatwal says. “We were able to get the math right. We said we will achieve it by growing revenues through gains in market share and by cutting wastage.”

Making the most of existing assets and resources was part of the plan to cut wastage. Chhatwal managed to do that with IHCL’s brands, its manpower and its mix of properties.

However, the biggest impact has been on the group’s brands. “India is a heterogeneous country with the need for every kind of brand at every level. This is a big opportunity for a company that is sitting on so many brands at so many levels and so many opportunities and yet is only focused on one and that is Taj. Not just the company, even for the country, we are the Taj.”

Clearly, the hotelier — who is fluent in German, English, Hindi and Punjabi and speaks a little French and Italian as well — wants to address different parts of the Indian hospitality market through different languages. Chhatwal has mapped out separate pathways for all group brands — Taj, Vivanta, Gateway and Ginger — with a special plan to revamp Ginger’s operations. He has also started a new brand, SeleQtions, for iconic properties — like the Connaught Hotel in Delhi that was signed up last year or the Cidade De Goa, where rebranding iconic properties as Taj did not make sense.

The plan for Ginger includes building hotels and making the brand more aspirational. Chhatwal says Ginger is trapped in its image as a cheap option, and that its image as well as the brand need to be revamped.

Chhatwal is also focusing on the retail and restaurant brands that reside within IHCL — for example, restaurants such as Golden Dragon or Thai Pavilion, Jiva Spa or the Khazana-branded retail stores. He wants all these brands and the businesses that run under these to operate as separate profit centres.

Consolidation is another path that has been taken to get the most out of the assets. IHCL operates through almost 20 corporate entities. These are likely to be merged or consolidated. While that will help create more time for the top management, the staffers lower down the order are being given more responsibilities. The group is expanding, Chhatwal explains, and this will ensure good career opportunities for employees. It also means professionals are being anointed as general managers earlier in their careers and general managers are being elevated as area directors, or are being asked to look after two adjoining properties.

These steps will help ensure Indian Hotels can make the most out of the opportunities that the hospitality sector is expected to throw up soon.

ICICI Securities analysts Rashesh Shah and Romil Mitra wrote in a report on February 14 that IHCL was best placed to take advantage of an upswing in the sector. “The domestic hotel industry is expected to witness robust growth in the coming years, led by higher occupancy, limited capacity addition and rise in spending by domestic travellers. Indian Hotels, one of the largest domestic hotel players, will be a key beneficiary of a turnaround in the industry,” they said.

Others have also noted the industry tailwind. CARE Ratings had said in January the Indian hospitality sector would see steady growth. Authors Darshini Kansara and Mradul Mishra said in a report average room rates were likely to go up by 3.5-4.5% per annum in major markets. “We expect the occupancy to inch up to an average of 68-70% by the end of 2022-23, compared with 66.6% in FY18. Accordingly, the hotel industry is expected to see an increase in room revenue at the rate of about 10-12% CAGR over the 5 years.”

To take advantage of lower growth in supply compared with demand, IHCL has signed up 30 new properties, and plans to open at least one a month for the next one year. Another key shift in its preparation for the growth phase has been to boost the fee income for the group and manage the balance sheet better.

There are three kinds of hotels with the company — some are owned, some owned by associate companies and the rest are managed by IHCL on a management contract. Chhatwal has made an effort to increase the share of properties that are on management contracts so that it would lead to higher management fees. This will tilt the balance a little in favour of a more asset-light model. It has even done deals of sale-and-lease-back of properties, where the ownership moves on to a different entity but the hotel property remains within the chain.

One cannot discuss an asset-light model in Indian hospitality without addressing the elephant in the room — Oyo Rooms. It has notched up a valuation of $5 billion in September — double that of IHCL’s market capitalisation. Oyo has no hotels on its balance sheet and neither does the company claim to manage its branded properties. It is an aggregator, and yet the valuation is something no one can ignore.

But these valuations do not bother Chhatwal. He says these kinds of valuations were seen during the dotcom boom of 2000-01 and then again in 2006-07. “What is my core business? It is that of providing hotel management services. I am not aware what the core business of these companies is, and I should not comment on them.” Chhatwal says he was looking at the numbers for one such company and found that the revenue of the company was smaller than the revenue of one hotel of Indian Hotels.

However, IHCL is harnessing the potential of the new-age economy as well. It has integrated table-booking facilities with third-party food and beverages channels such as Eazydiner and Zomato, and is revamping its own online presence for hotel booking. It has also moved into homestays with its latest offering called Ama Trails and Stays. Indian Hotels has converted bungalows owned by group companies in scenic locations into homestays. This will not be restricted to Tata group bungalows alone. Chhatwal points out that when the business gets going, IHCL will be ready to manage bungalows owned by other companies too.

With Ama, IHCL has taken another step to be known as a company that is ready to evolve and is eager to go beyond the Taj. Another green tick for Chhatwal.

In an interview with ET Magazine, Indian Hotels Company Ltd MD & CEO Puneet Chhatwal shares his views on his life philosophy and his time with the Tatas. Edited excerpts:

How has your latest stint in India been so far?
There is nothing like a perfect world, a perfect country or a perfect human being. That has been my philosophy. If you count the positives and they far outweigh the negative, the net is a positive, and that is what I would say about India. I feel blessed to work with the Tata group and am proud to lead a company like IHCL.

Transfer of Taj Air to Tata Sons or creation of Ama Stays and Trails are examples of collaboration with the larger Tata group. Will we see more such moves?
It will continue. The group chairman has this drive of simplifying, synergising and scaling, and I think that is a very good idea. With such a large group, we should collaborate. And as we say charity begins at home — collaboration begins at home. If we start collaborating internally, we can start collaborating outside the group. And this whole thing about Ama is a very good example of collaboration, like when we gave a special rate for all Tata employees when the group turned 150.

You have said that the international business was a bit of a drag. How have you addressed it?

A lot of focus has gone into it. Over the years, we have started talking negatively about that business. I personally feel we are very fortunate to be the only company from South Asia to have a wonderful hotel at Buckingham Gate, and a wonderful hotel overlooking Central Park in Manhattan, New York. We are at the Mandela Square in Cape Town. Just take those three destinations. How many companies can get there? That is what makes our company iconic. So we just have to focus on profitability — and that is true not only for overseas. Just focus on doing what you promised and profit will automatically follow.

Source:-https://economictimes.indiatimes.com/industry/services/hotels-/-restaurants/room-for-growth-indian-hotels-md-puneet-chhatwals-key-to-unlock-value/articleshow/68130109.cms