We Will Invest Rs 954 Cr In Oberoi, Trident Brands

Q: The Oberoi group has grown much slower than its competitors. What is the reason for this?

A: Right now we have 28 hotels. Our philosophy has been predominantly to grow by owning hotels. But it doesn't mean we will not have management contracts, but we have decided that we will take a (minimum) stake of 26 per cent even in these ventures.

All this implies that our growth may not be as fast as people who prefer growth through the management route. We choose this route for various reasons. One, we believe in high quality, excellence, and high standards of house-keeping. This can only be achieved if we have full control over the operations. For instance, in Oberoi Delhi we are going through a renovation. If it was a managed hotel we would have had to convince the owners to spend money who can have his own ideas, like instead of spending Rs 21 crore, he would have settled for just Rs 2 crore. So though the expansion of the Oberoi hotels is going on rapidly, we will still not be the largest chain in the world. Just growing by number of rooms is not our way. We want to maintain standards and be on top internationally. Our aim is quality not quantity.

 

QWhat is your five-year perspective?

A: We will invest nearly Rs 954 crore in both the Oberoi and the Trident brands.

Q: Will you continue with the two-brand strategy -- the upmarket Oberoi and the Trident which will be the second line?

A: The Oberoi brand will be a luxury one while the Trident will be a first class luxury brand. Of course, their would be a significant price differentiation in the two brands. We believe that there is a very good market for the Trident, both in India and overseas, with more and more people engaging in business and leisure travel who want safety, friendliness and efficient service -- our hallmarks.

Q: How will you finance the investment programme?

A Financing will be through internal accruals. Our profit this year is Rs 138 crore. If you take Rs 140 crore as profit for the next five years, we get nearly Rs 700 crore. Take away a quarter as dividend, that means we (still) have Rs 500 crore available for investment. Of this Rs 100 crore would roughly be for investments in renovation. So we have the capability on a one-to-one basis to raise a significant amount.

Q: But how do you plug the gap?

A: The gap is because of the appearance of the group-managed hotels in our investment plans of over Rs 900 crore where we don't have to invest much. For example,while the Madras property is under management contract, some of the joint ventures with the Government are with 50 per cent equity participation.

Q: You will not go through the equity route at all?

A: No, we just had a bonus issue and a convertible debenture and our equity has gone up to Rs 52 crore. So we have no immediate plans to increase equity, our borrowings are fairly low.

Q: What is the reason behind the 26 per cent equity stake decision in managed hotels?

A In future, when we see opportunities we will go in for a management contract in which we will pick up a 26 per cent equity. In this business getting the right opportunity and site is important and we are dependent on finding the right location.

Q: You opted for a collaboration with Accor for your second line of hotels and then broke off. Have you decided to go on your own or you are looking for a new partner?

ANo, we would be on our own.

Q. There was a controversy over the land allotment for the Trident hotel in Delhi. What is the position now?

A We are waiting for a few clearances.

Q. Do you plan to limit your international growth in west Asia, Asia and the Far East or go to Europe and the US?

A: Yes, our skills, experience and knowledge is based in Asia, where we are the pioneers in many of destinations. We were one of the earliest hotel chains to go to Saudi Arabia, Indonesia, Nepal, Egypt and Iraq. We have a good knowledge of this part of the world and we would like to stay there. We also believe that the opportunity for growth and profitability are higher in these areas. It is much more difficult to retain the right sites and properties in Europe and other places. However, we are looking at a gateway to London and New York if we get a good opportunity. .

Q: How do you plan to set up your hotels in London and New York?.

A: We will have to go into for some joint ventures, but we are open to other proposals, too. Our aim is to establish a gateway in these countries and build our presence and name here.

Q: You do not have any hotel in Goa. Have you taken any decision to go to the popular tourist spot?

A: We have land in Goa. But we have still not decided whether we should build a hotel there. Goa has become a large-volume destination but fairly low paying traffic and therefore we are uncertain whether we should go there.

Q: There has been no major addition to the number of rooms in Delhi. How do you plan to cope with the demand?

A: The third hotel in Delhi will be the Trident and we are waiting for a few clearances. We have Maidens in Delhi and we have a plan to develop it, too. We hope that in the next four-five years we will have 450 rooms in Delhi. Maidens is a Heritage hotel and we are looking what can be done to it. Our plans are not certain yet, but we could have very high quality rooms within the Heritage category.

Q: Like Goa, don't you have a similar problem of low-paying tourists in Agra?

A: Agra is a must for anybody who visits India. We believe that this destination will only grow as long you give people a good place to stay.

Q: The Oberoi group has been contemplating an entry into time share. At what level is this project now?

A: We are still studying it and we haven't taken any decision. We want to enter this business in a unique way. For that, we are looking the way of various opportunities and concepts so that we can get into time share in a unique way rather than the run-of-the-mill way.

Q: Will the time share project be related to the existing property or you will build separate properties?

A: We will build separate properties for this.

Q: Which are the other areas of diversification the Oberoi group is looking at?

A: We basically have certain commitment to start one hospital in Delhi. Otherwise our policy is to diversify within the hospitality business. For example, we have a subsidiary which is a travel agency.

We have also set up a joint venture for flight kitchens. Besides, we are into poultry feed business with an Indonesian partner which is a backward integration from poultry.

We are also into construction through a joint venture and they are building one of our hotel projects.

Q: What is your view on the Indian tourism policy and what is Oberoi's role in formulating the policy.

A: We do contribute to the tourism planning. Our view is that the government should focus on quality tourism and not look at numbers.

Especially for a country which has limited infrastructure, it makes sense to go in for tourists who have high spending abilities.

Q: So, is it that you are not in favour of the government policy of encouraging budget hotels for domestic tourists?

A: No I am talking of quality for international tourism. For domestic tourism, yes, we need budget hotels. Until the infrastructure can cope, you cannot build airports overnight so what you do. Therefore you should go in for quality international tourism.

Q: Are you looking at a third line of hotels apart from the Oberoi and the Trident?

A No we are not. Our approach is to stick to what we are good at and be world class in it. We can't do everything under the sun.

Q: Are you looking at any properties in the outskirts of Delhi?

A: We are in the searching process and there are a lot of development activities going on. But we are looking at other locations, too.

Q: What is the kind of growth you are expecting for the group?

A: Government has to give strong incentives for growth. There is no doubt, there was a slowdown in the business traffic last year. While the budget was good, there was a period of lull after that. Government has to send some strong signals. If that happens the growth this year will be much better.

Q: What has been the position in April-June this year compared with the previous year?

A: It is virtually the same.

Q: Is the hotel pricing in India lower than the international rates? Are we underpricing our room tariff?

A: No I wont say that. Yes, we are surely cheaper than hotels in New York and London, but then comparatively everything else is cheaper here. We believe in high quality, excellence, and high standards of house-keeping. This can only be achieved if we have full control over the operations. So though the expansion of the Oberoi hotels is going on rapidly, we will still not be the largest chain in the world. Just growing by number of rooms is not our way.

- Ravi Bhoothalingam, president, Oberoi Hotels