Chalet Hotels may consider own brand in long term: MD & CEO Sanjay Sethi

Sanjay Sethi says that bulk of the company's growth will come from its existing pipeline taking the total keys to over 5,000 on the back of the domestic hospitality boom till 2030

K Raheja Corp’s Chalet Hotels may look at bringing its own brand of hotels after having firmly established itself among the top-four players in India’s hospitality space with a market cap of more than ₹19,000 crore. In an interaction with Gulveen Aulakh in New Delhi, Sanjay Sethi, managing director and chief executive officer of Chalet Hotels, says the company’s performance, its strategy to diversify into leisure hotels and expansion to more geographies provide a springboard to launch its own brand. Edited excerpts:

 

You’re among the largest hotel companies in the country. What is holding you back from launching your own brand?

 

We are 100 per cent asset owners of whatever we have in our portfolio, and some of them we manage ourselves. This creates a springboard with some time in the future to launch our own brand. We do run some of our hotels ourselves and when we get more of them under our management operations, we may just string them together to begin with, with a common name. This could become the genesis for something different or the springboard for an asset-light initiative a few years down the line.

 

What’s the growth outlook for the next three-four years?

 

There’s favourable arbitrage between demand and supply, which is supporting the industry's growth, going forward. We have visibility for the next four years, within which demand will continue to outpace supply. Supply growth is around 5-6 per cent year-on-year (Y-o-Y), but when we slice and dice that data, we find that most of the growth is actually coming from Tier II, III and IV markets, and not Tier 1. This is because of natural barriers to entry like high real estate prices. 

 

How is the diversification into leisure panning out? Chalet has traditionally been a big-box, business hotel player.

 

We've executed three operating resorts — the Dukes Retreat, Lonavala, the Courtyard by Marriott outside Delhi, and recently the Westin Resort, Himalayas, above Rishikesh. In addition, we've announced two land parcels in Goa and oceanfront properties, which will take 3.5 years to develop. The Varca one will have about 190 rooms and the Bandolim about 170. So, we've got to play in Goa, both in the north and south. When we discussed our leisure strategy, we definitely wanted to be in the deep markets of Goa because that's a perennial market. It's not seasonal anymore. We wanted to do Rajasthan and the Himalayas. We've explored Rajasthan and shortlisted a few land parcels, but then we saw the supply coming in Jaipur. We realised that it doesn't make sense because in three-four years it's going to be a very, very crowded market. In the Himalayas, we’re open to looking at more opportunities. 

 

The business hotels’ side is also promising as we see many new signings across the industry…

 

We also continue to grow our business hotel on the upscale or upper upscale and luxury positioning. Today, we have about 3,300-odd rooms in operation. We've got another 1,200-odd rooms that we've announced, taking us to 4,600. I'd like to add another 700-800 in the next couple of quarters to take us to over 5,000 rooms. Each of them contributes pretty significantly to the balance sheet and profit and loss account. We had about ₹640-crore of earnings before interest, taxes, depreciation and amortisation (Ebitda) last year on hospitality. We should be able to double that in the next three-four years, as a soft goal. 

 

Will more hotels be run by Chalet, going forward? 

 

So, we are running three-four. And over the last few years, we've been building capabilities on the operating side to run more of the hotels ourselves. We see both the Goa ones being in formats where we run them ourselves. We're looking at new additions in cities like Hyderabad, Pune, some more maybe in Delhi, and we'd like to do more in Mumbai. We have the Hyatt Regency, which is about 280 rooms, where work will start shortly. But each asset will be evaluated on its own basis. If we think it's in the best interest of that particular asset to have a brand run it for us, we will do that. We are in a very pretty situation where we have the whole option of picking from 100 brands globally for franchise or management contract.

 

India’s office space demand is hotting up. What opportunities does it present for Chalet’s diversification strategy?

 

That is the real estate asset class. We have almost all our hotels sitting on pretty large land parcels and the floor space index has not been sweated enough. So, we began with JW Marriott at Sahara airport in Mumbai, 500,000 million sq ft office space, which has been leased out for the last six-seven years with 100 per cent occupancies. We built a new tower at Whitefield Bangalore Marriott Hotel, combined with the old mall, which has also been converted into offices. There is now almost 1 million sq ft of office space co-located and connected to the hotel. In Powai, Mumbai, we've also got about a little shy of 900,000 sq ft of office building ready and being leased out recently.