Still A Safe Bet
Background & Business
AHL entered into a technical services, sales and marketing agreement with Hyatt, Hongkong in 1981. Hyatt, Hongkong is a fully owned subsidiary of Hyatt International Corporation (HIC) which has its headquarters in Chicago. The agreement came to an end the year 1993. Effective 1st January 1994, AHL entered into a Management Agreement with Hyatt International (HIC) for a period of 20 years.
HIC's operations are spread worldwide and it manages around 194 hotels and resorts. As per the agreement , AHL pays a predetermined percentage of Room Revenue and Gross Operating Profit as Management and Incentive fees to the HIC. In return,
AHL has the exclusive right to the brand "Hyatt Regency" in Delhi apart from having access to the global reservation system of HIC. Agreement with HIC has provided
AHL the "name acquisition" travellers (tour operators).
Also, this tie-up has provided AHL with a competitive strength which enables Hyatt Regency to compete successfully with the other 5-star deluxe hotels in Delhi. The right and responsibilities of the owners of the hotel and HIC are clearly defined in the agreement thereby minimising any possible conflict of interest. AHL's relationship with HIC has remained cordial for more than a decade of association and no problems are anticipated between the two which could have a bearing on the operation of AHL.
Operating Performance
AHL has positioned its present property - Hyatt Regency as a business hotel. As a result business/corporate travellers form the bulk of the clientele of AHL. The leisure and air crew segment account for around 25-30 per cent of the guest profile of AHL. The business traveller offers steady business throughout the year as opposed to the leisure segment where business is seasonal. Also this segment offers better realisation as compared to the leisure and air crew segment as they use more facilities.
As a result, Asian Hotels has benefited, as have the other hotel chains catering to the segment for the rising demand for rooms by business travellers in the post liberalisation period. Currently, Hyatt Regency is the largest earner of total room revenue in Delhi by virtue of its largest room base of 518 rooms. Hyatt Regency has recorded comparable average room rent (ARR) and occupancy rates in the past to the other 5 star hotels in Delhi.
Almost 75 per cent of its earning have been in foreign currency indicating that it enjoys a steady patronage by high end international travellers. However, being a single property hotel, it is exposed to concentration risk in addition to the `normal' Industry risks associated with a decline in economic activity,
Prospects
The five star hotel business is sensitive to the level of economic activity by way of influence it has on the flow of business and leisure travellers, particularly foreign travellers. The slowdown in activity levels apparent from the third quarter of 1996-97 has been accompanied with the postponment of projects and overall dip in investor confidence levels.
This has resulted in reducing occupancy rates in premium hotels. ICRA however expects the sluggish growth rates witnessed by the hotel industry to be a temporary phenomenon and the long term fundamentals of the industry continue to be good.
AHL is likely to maintain its position in the industry despite the depressed conditions in the market.
ICRA expects the growth, till the new projects are commissioned in mid 2000, to be driven by increase in ARRs. The income and profits are expected to get a major boost from 2001-02 onwards as the new hotels become fully operational. The growth thereafter, in operating income and operating profits will be driven by increases in ARR.
The net cash flow from operations is expected to be more than twice the debt repayment obligation in each financial year indicating a high degree of comfort. The cash generation from the Delhi property alone would be sufficient to service a major portion of the debt obligation.