A year after taking charge of the Tata Group's Indian Hotels Company (IHCL), Rakesh Sarna says it is time for some tough decisions, to ensure a profitable future.
Loss-making IHCL, the country's oldest hotels chain, is streamlining its portfolio, exiting partnerships and signing new ones, restructuring subsidiaries, reducing debt and renovating some of its aging properties. The aim is a return to profitability after three years of losses. The consolidated loss was Rs 378 crore in 2014-15, from one of Rs 554 crore in FY14.
"Our position is much better now than a year ago," says Sarna, managing director and chief executive of IHCL. "In another year, we will be in the middle of a massive restructuring of our subsidiaries, as well as recalibrating our financial instruments. I believe in nine to 21 months, we will be on track," Sarna, a Hyatt Hotels veteran, said in an interview to an in-house Tata magazine.
Beside its internal challenges, IHCL has to battle the combined forces of Marriott and Starwood, whose merger has put them in the lead in terms of inventory in India. Though, until the deal is closed, which would happen only next year, IHCL will remain the biggest in India, followed by ITC.
IHCL's current India inventory is 13,443 rooms and is set to expand to 14,467 by the end of March. In comparison, the merger of Starwood and Marriott will create an entity having room strength of 18,000.
Says Sarna: "By 2020, Indian Hotels should have a stable pipeline in terms of assets and talent. It is not going to be a smooth ride. We have to take some tough decisions to streamline our portfolio. On the other hand, we need funds for some of our hotels that need renovation."
Last month, it decided against renewing the management contracts of two Gateway properties, based in Jodhpur and Ahmedabad, from which it will exit in May. This is the fifth such exit by IHCL in 16 months. In September, it pulled out from managing the Taj Palace, Dubai, after 14 years. Last year, it decided to exit managing the Taj Palace, Marrakech (Morocco), only a year after it took charge. The same year its offshore wholly-owned subsidiary, Samsara Properties, liquidated the Blue Sydney hotel to Hong Kong-based Hind Hotels & Properties Group for A$32 million (Rs 180 crore).
"The first (task) is to get the best out of the portfolio of assets we have, in performance; and to maintain the quality, considering we have had to bear the brunt of a severe downturn over the past decade or so. The second is growth. We need to build a pipeline of quality projects because you cannot expect your customers to patronise you if you do not have a distribution footprint that will allow you to scale up your operations. Moreover, without development, you cannot get the best talent to work with you and stay with you. Growth is imperative for survival and sustenance," added Sarna.