Lalit Suri Makes Room For Growth

Hotelier Lalit Suri sits in an office that overlooks the lobby of his five-star hotel. The joke in the industry is that the hotel employees cant sneeze without his knowledge. Suris own attitude doesnt help to keep tongues from wagging. Whoever comes here now will be reporting to me, he states emphatically.

Thats Lalit Suri for you. Just a day after snapping ties with international hotel chain Hilton, he is brimming with confidence. Indian companies can do far better than multinationals. ITC, Oberoi and Taj have already proved this. I will prove it next year, he says.

Lalit Suri has taken complete control of his Delhi property. But this is only the beginning, he says. If he has his way, by 2000, from being the owner of one five-star hotel, he will metamorphose into a hotelier with a chain of five-star properties in the country. He has already bought properties in Mumbai, Goa and Srinagar. He has decided to call them The Grand an appropriate brand name, if his plans materialise.

 

In Srinagar, Suri has taken possession of Dr Karan Singhs palace Gulab Mahal, earlier managed by the Oberoi group, at a cost of Rs 42 crore. Sixty rooms of the palace will be thrown open to guests in May this year. Another 60 rooms, a swimming pool, squash and tennis courts will be ready by the end of the year.

Suri is quick to point out that in recent years this is the first major investment by a hotel company in Kashmir. I am the only person who has dared to go to Kashmir, he says. Any day now, Suri says, he will also close a deal with Farooq Abdullahs family to purchase the Highland Hotels in Gulmarg. Meanwhile, construction work is on at the two properties in Mumbai and Goa. The 86-acre property in Goa will have a nine-hole golf course and water sports facilities for the guests.

Industry analysts have always regarded Suris schemes with circumspection. But there is no question that at the five-star hotel just off Connaught Place in New Delhi, Suris the boss. Delhiites would have noticed that Hiltons familiar red neon sign has been missing from the Connaught Place skyline since the first of this month. Suri wants you to know that the changes on his property have been more than cosmetic. For instance, he says, As soon as a guest checks in, shell get a call asking her if shes comfortable. The earlier management was far too carefree. It was falling back on all aspects billings, purchasing, service.

So, for the third time in 10 years Lalit Suri has found a new partner for his hotel. We are close to signing a deal with Intercontinental. It should come through by the middle of May, he announces.

This time, Suri is calling the shots. While many hotels are moving away from mere franchises to full-fledged management contracts with foreign partners, Bharat Hotels is bucking the trend. Intercontinental will only be lending its name and one general manager to Bharat Hotels for the next 10 years.

Contrast this with the previous arrangement. At a cost of $170,000 a year, New Delhi Hilton was being run by seven senior management personnel from Hilton. A company source says, The total wage bill of 1,250 Indian employees was 60 per cent of the salary drawn by the expatriates. Suri adds, Management contracts will not last. No owner is willing to incur unnecessary expenditure.

In his new contract with Intercontinental, Suri is driving a hard bargain. Generally, under franchises the overseas partners receive anything up to three per cent of the total revenue earned from room rents.

But industry observers hint that so eager is Intercontinental which had alliances with the Taj group and the Oberoi group several years ago to re-enter the country that it is ready to settle for a fee fixed at 1.5 per cent of the revenue. Suri, however, does not confirm this figure.

Meanwhile, company insiders say that under the management contract, Suri had to pay as much as 4.5 per cent of the total turnover to Hilton. Of late, Bharat Hotels had started questioning Hiltons failure in meeting the annual budgeted revenues and felt that the contract was too expensive to justify its continuation. Suri does not mince words: I had two basic problems with the contract. First, the revenues came down. Second, the expenses went up.

Suri believes that after bidding goodbye to Hilton, Bharat Hotels will move into the fast track. We will touch a turnover of Rs 300 crore by the turn of the century, says Suri.

Thats an ambitious goal for a company which has just announced a turnover of Rs 87 crore for the year 1997-98 against a projected target of Rs 128 crore. Its profitability has also been much lower than expected: instead of the Rs 82 crore that it was hoping to net this year, Bharat Hotels closed its book with a profit of only Rs 33 crore. Suri puts the blame squarely on Hilton: The contract was too expensive and not yielding economic returns.

Hilton refuses to comment. But industry analysts are of the opinion that Suri is being unfair to Hilton. This is not unexpected. Often, arrangements between single property entrepreneurs and big hotel chains are not renewed for the simple reason that the owner does not find the balance sheet as rosy as he expects within a short time, says consultant Rabindra Seth.

Adds another industry analyst: No management chain can guarantee an occupancy level. It is dependent on economic and political conditions of the country. The entire industry went through a rough time in 1997-98.

Suri says he will finance Bharat Hotels Rs 300 crore expansion partly out of the companys reserves of around Rs 100 crore. He has also been sanctioned a $10 million loan by Merrill Lynch.

Once again, the industry is sceptical. Says an analyst with a leading research and consultancy firm: He might have the money, but I wonder if his plans will take shape. Every time he changes partners, he announces grandiose plans but very few materialise.

Bharat Hotels broke off with its sales and marketing franchiser, Holiday Inn Worldwide, in 1995 and signed a management contract with Hilton. He simultaneously announced two new joint ventures with the multinational a property and investment company in which Bharat Hotels would hold 51 per cent shareholding and a management outfit in which Hilton would hold the majority stake. The joint ventures never took off.

Bharat Hotels shares, which were trading at around Rs 200 two years ago, are now going for around Rs 44. There is a sense of unease about the hotel. It has frequently changed its tie-up and the general perception is that something is definitely wrong somewhere, says an analyst. Adds Rabindra Seth, The USP of a hotel is usually its foreign brand name and international standards. A hotel which changes its name again and again can hardly hope to build a loyal clientele.

But Lalit Suri knows how to silence his critics. Basically, people come here for the product. Why should they care whether it is called Holiday Inn or Hilton or any other name?

And to prove his point, he rummages through his drawers and digs out some old photographs. These are pictures of Lalit Suri in New Delhi Hilton with supermodels Kate Moss and Naomi Campbell. Old clients of Hilton? No personal friends, says Suri sotto voce.