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‘Emergence of healthy domestic market in India is the most notable change in last decade’

Tuesday, April 3, 2018, 18:01 Hrs  [IST]

Vimal Singh is a veteran in the global real estate and hospitality domain with almost four decades of industry expertise. As a Joint Venture Partner of world’s leading hotel company, Louvre Hotels, he played a pivotal role in executing the acquisition of India’s major mid-market hotel chain, Sarovar Hotels, by Louvre Hotels. In a one-on-one interaction with P Krishna Kumar, the Managing Director of Golden Tulip Hotels-South Asia, spoke at length about the M&A market in India, expansion of mid-market hotel brands in India, health of the hotel industry, etc.

Q Louvre Hotels of which you are a JV partner in South Asia has acquired India’s leading mid-market hotel company, Sarovar Hotels early last year. When do you think the total integration of the companies will happen?
The notion behind any acquisition is to expand the existing platform. In that sense, acquisition of Sarovar Hotels was a significant one. Eventually all the companies will converge. Currently, the logistics of convergence is being worked out. The idea is to bring all these brands under one single management platform operationally. Convergence doesn’t mean Sarovar brands will be converted to Golden Tulip or otherwise. All existing brands will continue to exist and grow the way they are. The only thing is that all will be brought under a single management entity and platform. The process of integration is being worked out and is expected to be completed in next two to three months.

Q Are you looking at more acquisitions of hotel companies in India market?
Yes, we are. In India we continue to look at such opportunities of acquisition of similar nature, which is asset light. We come across assets all the time to buy, but we never looked at it.

It’s a question of scale. We need that scale at our end to offer services to our owners as well as customers. That also gives more marketing strength and enhanced public perception for the brands.

What we are genuinely looking at right now is leasing of hotels. We have already done few leases already and we are keen to expand that model especially in strategic locations in Delhi, Mumbai, etc. While international hotel management companies generally stay away from lease model, as a Joint Venture company, Golden Tulip Hotels can pursue the business model.

We also intend to use our leasing platform to bring more brands from our international portfolio into India. Two new brands we are looking to bring in are Premiere Classe (hardcore budget) and Campanile (a 3-Star) into India.

Q International hotel companies are pushing more of their mid-market and budget brands into India now. What is the reason for that?
There is no argument on that. The economic demographic of India is the answer. The numbers are in the bottom and middle layer of the pyramid. Top layer is so small, although they hold major chunk of the wealth in the country. The volume is in the middle. The airlines are operating full capacity, airports have become almost like railway stations because of the sheer number of air travellers. They need accommodation but may not be INR 10,000 a night customer.

They are looking for budget accommodation to the range of INR 2,000 and INR 4,000. That’s why hotel companies are bringing their budget brands to India increasingly. Everywhere in the world it is the same, even in matured markets like the US and the Europe, it is the mid-market brands that drive volume.

Q How do you look at the evolving owner-brand relationships especially with the advent of institutional investors?
It is an ongoing learning and education process. We deal with a lot of first time hotel owners. When they open a second property, the same learning process goes there as well. Local owners and their expectations are totally different compared to institutional owners. We don’t have any institutional investor in our portfolio as of now. It will be a learning for us as well when we have to deal with institutional investors. Owner-brand relationship is a mutual relationship, there is no ways about it.

We have seen a lot of institutional investors in India in the early years of the millennium. When the market went southward, they all exited out. Hotel is a difficult asset class, where you have to stay invested for a longer time for returns. Institutional investors generally look for ready assets as they don’t get into the development risk. In countries like India, development risk is higher as projects, approvals, licences, etc. take pretty long time. Therefore, they prefer to invest in ready assets which go into circulation quickly. As pipeline goes up, we will see more such investors coming to invest in the market again.

Q What is your sense of the health of Hotel industry in India today?
If you study the year-on-year figures, we have been struggling with rates, of course, but the occupancies are quite stable across markets. Even the growth in rates was double this year than the growth the year before. It is definitely growing. Why it is happening because the occupancies are strong. Also, we don’t see huge supply coming into the market. The new development market is quite subdued right now, and therefore there is no big pipeline out there in the market. It is a perfect opportunity for hoteliers to push the rate up. If you keep the rates flat and with all input costs going northward, the margins are going to suffer in the long run.

Another transition that is happening is in the F&B. Hotels are losing on F&B to standalone restaurants on the street. People are no more eating at hotels. It’s time hotels look at partnering with restaurateurs to help run their F&B outlets. Hotels look at F&B now from more banquets and conference side. They are not exploring ways to compete with restaurants outside. The problem with hotel F&B is that it is more internal, people have to access it through the lobby, etc. Hotels have to make it more accessible to people without entering the lobby. The whole design has to change. The West has already brought in that change. They are partnering with Chefs to run signature restaurants with easy access from outside. It is time Indian hotels revisited their F&B strategy.

Q What according to you are the major changes that have come into the sector in the last decade?
The most notable change in the last decade is the emergence of a very healthy domestic market in India. A decade back, the ratio of foreign guest to domestic guest was 60 to 40 in a city centre hotel in India. Today, it is reverse and in a different way – 80% is domestic and 20% international guests. That is a huge shift in business and hoteliers need to tool their services and product offerings with focus on domestic market. Secondly, the industry got more institutionalised from an operations stand point with the advent of international brands and management companies.

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