After waiting for government clearances for over six years, heritage hospitality chain Neemrana Hotels has finally started work on converting a 19th century fort at Tijara in Rajasthan into their largest property with over 70 rooms.
Presently, the group has 20 properties at 14 destinations with its 60-room flagship hotel, the Neemrana Fort Palace, being the largest.
Neemrana has acquired the Tijara property from the Rajasthan Tourism Development Corporation (RTDC) on a 60-year lease and will pay an annual rental to the government body as well as an initial amount once the hotel begins operations.
The Tijara undertaking, worth about Rs 30 crore, is larger than the Neemrana group's turnover of Rs 23 crore last fiscal and is the chain's most ambitious restoration project, will also allow a small number of investors to participate through a special purpose vehicle (SPV).
“We intend to float an SPV for the Tijara project which will comprise four investors, who will put in about Rs 4-5 crore each, banks and the promoters. This is the first time that we will have the involvement of independent investors and banks for developing a property,” Neemrana Hotels Co-chairman Francis Wacziarg said.
So far, the Neemrana group has been averse to the entry of independent investors as well as banks, instead preferring to plough back profits from their hotels into developing new properties.
“The execution of the project has been delayed by over six and a half years because we were unable to get the clearances from the Forest Department. Also, the guidelines for public-private-partnerships in this sector are not clear, so that has also caused problems,” he added.
The Neemrana Hotels chain, which began in 1986 when Francis Wacziarg and his business partner Aman Nath purchased a crumbling fort in Rajasthan's Alwar district for Rs 7 lakh and restored it into their flagship property, is also working on two projects in Gwalior and Chettinad region of Tamil Nadu.
In recent years, Neemrana hotels have registered strong growth in a niche market. Even as large established players have posted losses on the back of an overall slump in the hospitality sector, the group has seen revenues rise by 10 per cent this year, compared to the corresponding period last fiscal, and its turnover is expected to reach Rs 30 crore this financial year.
“In the first half of the year, sales are lower. The majority of our business happens in the second half and things are looking up,” Wacziarg said.
For a group that has based its business on making small properties profitable, the slowdown has been a test for its fundamentals. But then, 'cost cutting' is not something new to Wacziarg and Nath.
“We use locally available materials, traditional techniques and only recruit from the neighboring areas. The implementation, too, is hands-on and, instead of using designers, we execute the projects ourselves. There is close control on spending. The end result is that costs remain low,” Wacziarg explained.
While many established hospitality firms require between 8-10 years to recover their investments, Neemrana properties take about 3-4 years to become profitable as the amount spent on each project is significantly lower than those made by larger companies.
But most properties that are part of the Neemrana chain aren't owned by the group. Of the 19 hotels that comprise the chain, most are either owned by the original owners, or by friends of Wacziarg and Nath, who also play a part in running the individual ventures. There are a variety of arrangements, including long-term lease deals, to involve the original owners of the properties.
As a result, the group's financial stake in most properties remain small but the profit margins from running a tight ship remain robust at about 25 per cent.
However, with new properties entering the Neemrana fold on a regular basis, the founders of what counts amongst India's largest heritage hotel chains are also exploring institutionalising their closely administered business.
“Our growth has been quite haphazard. The business model has evolved over the years and as we have acquired more properties. But in the long term, the group would like to go public. In another 3-4 years, once we've attained a turnover of Rs 50-60 crore, we would like to do this,” said Wacziarg.
Looking forward, the biggest challenge ahead for the hoteliers will be to find a balance between restoring heritage and recovering investments. Although, so far, Wacziarg and Nath have been able to do both with success, the equation is bound to change once the profit-hungry markets enter Neemrana's coffers.