A child plays with pigeons in front of the Taj Mahal Hotel, one of the sites of the 2008 terrorist attacks, in Mumbai, India. (Photographer: Prashanth Vishwanathan/Bloomberg)

Indian Hotels Expects Mid-Market Ginger Brand To Boost Margin

The Indian Hotels Company Ltd. expects its mid-market hotel brand Ginger to help improve margin even as average room rates are at their lowest in a decade.

The Ginger segment offers a greater opportunity to increase room rates than the luxury hotels where prices are already high, according to Puneet Chhatwal, managing director and chief executive officer of the Indian Hotels. This, he said, could lead to higher margin from the upscale business.

The hotel chain operator is aggressively expanding the Ginger brand and if the market bounces back, its owned properties (Taj brand) will ensure higher margin, he said.

The owner of Taj chain added six Ginger properties this year. The segment accounts for 48 of its 170 hotels in India—25 are under various stages of development.

The company wants owned and leased properties to comprise half of its portfolio and the rest to be management contracts, Chhatwal said. It also aims to increase the number of rooms to 25,000 from 17,000 by 2022.

That comes at a time the Indian hotel industry is yet to recover from the slump in average room rates. Rates declined across the country on huge supply of rooms after the 2008 Lehman collapse and the Mumbai terror attacks on Nov. 26 that year, according to Chhatwal. The only exception is Goa where they have gone up by 20-25 percent but markets like Chennai, Delhi and Mumbai are not doing better, he said.

Average room rents now are 28 percent lower compared to 2008-09. At its peak in 2007-08, the occupancy rates were 68 percent.

Occupancy is improving again but that hasn’t helped. “Once the occupancy is back, the trend globally is that rates tend to follow but we are yet to witness that,” he said.


Indian Hotels’ performance improved in the first six months of the ongoing financial year despite uncertainties. It reported a consolidated profit of Rs 10 crore compared with a loss of Rs 83 crore in the year-ago period, according to its exchange filing.

To be sure, 65 percent of Indian Hotels’ revenue comes in the second half of the year.

“A lot of our portfolio suffered from Nepa Virus, Kerala floods, difficulties in Maldives and Sri Lanka. I think this is kind of performance we can all be pleased with,” Chhatwal said.

The company aims to expand margin by 800 basis points over five years. In the first half of the financial year, the margin expanded by 290 basis points. (100 bps = 1 percent)

Debt And Rate Swaps

Indian Hotels’ debt nearly halved to Rs 2,448 crore in the last few quarters. “We plan to reduce it further by 30 percent in the next few quarters,” Chattwal said.

But the company faces the biggest challenge from its currency and interest rate swaps inked more than a decade ago. These swaps amounting to $108.42 million were undertaken to protect equity and shareholder loans in its international subsidiaries. Every 3 percent depreciation in the rupee impacts its profit before tax by 15.88 percent, the company disclosed in its 2018 annual report.

“We have been very strongly hit by mark-to-market. These swaps can’t be liquidated or if they were to be liquidated, they will come at a huge cost,” Chhatwal said. “Nearly 50 percent of that will get over by end of December 2019 and the rest by December 2021.”

In the first two quarters, the impact of the swaps was more than Rs 100 crore, he said.

International Properties

Indian Hotels is in the process of selling some of its non-profitable properties internationally. It sold the Boston property and leased it back. The amount was used to pare debt. The property is now witnessing a turnaround with margin increasing twofold. However, its other properties in New York—Plaza and Pierre—are loss-making. Renovation is complete for the company’s London property and its performance is improving, Chhatwal said. Indian Hotels continues to face stress in Dubai, Maldives and Sri Lanka owing to geo-political uncertainties.

Watch Puneet Chhatwal’s interaction with BloombergQuint here: