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| 'Full Tariff Rate business is hardly 3% of the total' | | Q&A: Vivek Nair, Vice-Chairman & MD, Hotel Leelaventure |
| Vandana Gombar & Ruchika Chitravanshi / Mar 05, 2010, 00:59 IST |
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 Hotel Leelaventure Ltd, which focuses on the five-star deluxe hotel category, will soon add two new properties to its existing portfolio of six. The plan is to expand to 12 properties with 2,500 rooms in five years. However, as Leelaventure’s Vice-Chairman and Managing Director VIVEK NAIR tells Vandana Gombar and Ruchika Chitravanshi in an interview, a strategic partnership with rival chain ITC — which has been buying into the company — does not make sense. Edited excerpts:
The last quarter has been pretty good for you. What are the trends in January and February?
It has been even better. You have the business travellers coming back to India after January 15, after their holiday break. Occupancy is picking up. Gurgaon is recording about 90 per cent occupancy. Mumbai is at about 80 per cent. Bangalore is also about 75-80 per cent. Average rates have also gone up.
What is the outlook for this year?
It is very positive. This month in Gurgaon, we have almost 60 per cent of our business in books already, which is remarkable. You don’t start a month with 60 per cent confirmed bookings. Normally, it is 20-25 per cent. It is the same scene in Bangalore and Mumbai. We should look at an increase of 20-25 per cent in profit after tax over last year.
What is the upside expected from the Commonwealth Games ?
Well, it is just a 14-day window. Right now, we don’t know exactly how many rooms will be actually taken. We have allocated rooms in our upcoming properties in Chanakyapuri in Delhi (120 out of 260) and in Gurgaon (200 out of 322).
In the space in which you operate, five-star deluxe, there is not so much of an oversupply issue. Will that mean higher tariffs?
Tariffs have become a bit redundant. Published tariffs had a sanctity earlier. Now, all rates are negotiated with corporates and the Full Tariff Rate business is hardly 3 per cent of the total business that we book throughout the year. Earlier, it was 10-12 per cent. Now, we follow the airline industry and have revenue management techniques. So, we have a rate of the day, which reflects the number of rooms available.
How is it that you manage such high margins?
The hotels business has traditionally been one where you had high Ebitda (earnings before interest, taxation, depreciation and amortisation) margins. The gross operating profit for a hotel anywhere is 40-60 per cent, mainly because of the low payroll cost we incur in India, compared to hotels in Europe or Asia. Our margins are also high because we own and operate our properties, and we don’t give a management contract to an operator. Management fee is normally about 7-8 per cent of the total revenue. That is saved and goes straight to our bottomline.
What is the update on your plan to raise $160 million through FCCBs and QIP?
While funding of the Delhi and Chennai projects was completed earlier, the Delhi government allowed us to add more rooms. To fund that, we are raising another series of FCCBs (foreign currency convertible bonds) and are considering an equity issue also. Either through a QIP (qualified institutional placement) or some other form. We haven’t exactly defined what type of equity instrument we will go in for. At the present rate of Rs 45-50 (per dollar), our share is very undervalued compared to peers, because Delhi and Chennai are under construction. Once those revenues come on board, then we will get the true valuation.
You intend to close this fund-raising within March?
It is not hard and fast. It can also spill over to April.
Do you have any specific offer from ITC for raising funds?
It is just that they have bought from the market, about 8 per cent. They seem to be buying because they find that this is the lowest priced stock in the market and they would like to acquire this as a “treasury operation”. We have 53 per cent promoters' stake and we intend to take it to 55 per cent, which is the maximum allowed by Sebi.
What is your view on ITC as a strategic partner?
It doesn’t make sense for us because we own and operate our own properties. We have our brand affiliation (with Kempinski), which has done very well. You tie up with a strategic partner if you get some benefit from that. There is no benefit at all.
What is your long-term expansion plan?
We have six properties now (with 1,614 rooms). Delhi will be the seventh and Chennai the eighth. Then Agra, Hyderabad and Pune will be ninth, 10th and 11th. Jaipur will be the 12th. We believe that, apart from Kolkata, there is no other area that can justify our investment per room, and we have completed our pan-India presence as far as the luxury segment goes. That will be about 2,500 rooms.
Your focus will continue to be on five-star deluxe?
Until we complete our pan-India plan with these additional four properties. That will take about five years. Only after that can we possibly look at Tier-II cities.
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