Athiva won't be force-fitted, as Chalet Hotels studies soft branding

Plans soft-brand rollout alongside Athiva expansion, with ₹2,500 crore capex to add over 1,000 keys and scale big-box hotels in metros and leisure destinations through debt and internal accruals

Chalet Hotels, the maker of big-box hotels for global and Indian brands with a market capitalisation of over ₹18,800 crore, is evaluating the introduction of a soft brand in the coming months, following the launch of its own hotel brand, Athiva, last year. Managing Director and Chief Executive Officer Shwetank Singh told Gulveen Aulakh in a virtual interview that the company remains brand-agnostic but will consider partnering luxury chains for its sub-brand. With a capital expenditure (capex) plan of at least ₹2,500 crore over the next four to five years, the company plans to add more than 1,000 keys and nearly 1 million square feet (msf) of commercial space, funded through debt and internal cash accruals. Edited excerpts:

 

What will be the operating model for Brand Athiva? 

We are being very brand-agnostic. We are not force-fitting Athiva everywhere. The deciding factors will be the demographic–geographic mix and the guest profile or client base.

 

For example, at the Four Points by Sheraton in Navi Mumbai, which we are converting into Athiva Navi Mumbai by March-end, almost 50 per cent of guests are expats from the US and Europe. That made us think about whether we have the distribution power of Marriott Bonvoy or Hilton to attract this guest profile while still wanting to operate an Athiva.

 

We have now practically decided on sub-branding — Athiva By something, similar to an ITC luxury collection — which gives us the distribution strength of an international or domestic brand, while allowing us to run the unit with a cost structure we control. The model is franchising, but the branding is soft.

 

What will be the split between the different categories? 

We currently have 3,389 keys and about 2.4 msf of office space. We have announced another 900,000 square feet of office space and about 1,180 keys in our pipeline, which will take us to around 4,600 keys.

 

Of this, Athiva will account for about 900 keys, of which roughly 300 are already in Athiva Khandala and Athiva Navi Mumbai. We are having second thoughts on some of the Athiva projects we have announced — whether to go down that path or opt for a management contract instead — so the decision is dynamic, and the final split has not been decided.

 

What will be the capex investment for the projects in the pipeline? 

Capex goes into projects under development, refurbishment of hotels, and pure FF&E (furniture, fixtures, and equipment), which is a percentage of revenue that we reinvest in the property to keep ongoing capex going.

 

Taken together, over the next four to five years, this will amount to about ₹2,500 crore, which puts us at the top of the table among owners investing in new properties. There are also discussions underway in the brownfield space, where we plan to acquire hotels. There are multiple right-of-first-offer assets — where someone develops on a shell basis, and we do the fit-outs and begin operations — which will be announced. As a result, capex could increase substantially.

 

How will this be funded? 

We have a lot of headroom to take on debt. At least ₹350–400 crore is coming from the commercial real estate business, which alone is funding all the debt. Technically, our hospitality business is debt-free on paper, despite having about ₹2,000 crore of debt on the books.

 

Over the past few quarters, our debt has only declined. We are clearly under-leveraged and have room to grow from a debt perspective. We also have internal cash flows of about ₹1,000 crore, which is pure equity. Capital is not a constraint.

 

What is the company’s strategy over the next few years, in the near and long term? 

We are ready for a major expansion spree. We want big-box assets in big cities, ideally ahead of the infrastructure curve, or leisure destinations that are within a one- to two-hour drive from key airports.

 

The residential business was a one-off — we will not do it again. Commercial projects will be evaluated on a case-by-case basis. We now have to decide between greenfield and brownfield opportunities. Greenfield remains an ongoing strategy, with some land parcels coming in.

 

In brownfield, we also follow a strategy of extensive refurbishment, as we did with Dukes Retreat in Khandala and plan to do in Udaipur. The additional capex for refurbishment and repositioning delivers much better returns, in percentage terms, compared with buying an operating hotel or a bare land parcel.