IHCL to draw up new Taj Mansingh blueprint

MD and CEO Puneet Chhatwal’s business strategy has profit enhancement at its core

The Right Name on Mansingh is Taj”— the big, bold declaration atop the Indian Hotels’ (IHCL’s) marquee property in Lutyens’ Delhi as it bathed in purple and white lights on its 40th anniversary on October 11 was more than a metaphor.

It was only less than a fortnight ago that the Tata Group’s hospitality firm wrested control of the property after a seven-year-long litigation outbidding ITC— the only other bidder in the auction done by New Delhi Municipal Corporation (NDMC).

Having managed to retain the property, Puneet Chhatwal, managing director and chief executive officer of IHCL, and his army of 20 top executives from across Taj properties, have got on to the task of charting a fresh plan to optimise profits from an asset that has almost remained untouched during the course of the litigation.

IHCL has earmarked an investment of ~1.5 billion for refurbishing the property. To be done floor-wise, in phases, the renovation may last for two and a half years .“We have six months to do all the planning, re-engineering and reimagining of the business so that the asset is repositioned profitably for us and the licensor (NDMC) for the next 33 years," said Chhatwal, who has earned a reputation of being a "hard-core numbers guy" within the Tata Group owing to his astute business acumen.

"The revenue will not stay where it is now, definitely not for the two years following April 10," he said.

The new business strategy with profit enhancement at its core will revisit everything - from limiting the number of food and beverage outlets in the property in favour of the ones that are margin accretive, to refurbishing bathrooms and making them more contemporary with experiential showers, adding more suites and larger rooms and re-doing the Taj Chambers to make it more exquisite. With larger rooms and suites, the number of rooms is likely to come down from the current 292 to 250 or 225 but revenue per available room (RevPAR) will go up.

“The idea is to position ourselves at an average room rate (ARR) north of ~15,000, which will increase our room revenue by over 25 per cent,” said Chhatwal, pointing out that with profitability, margins and revenue remaining flat over the last seven years, there is enough headroom for growth.

The plan dovetails with IHCL's fiveyear strategy of boosting margins by at least 8 per cent by revenue optimisation, cost rationalisation, and debt reduction by 2022. There is also a plan to centralise functions such as human resources, accounts, kitchen, laundry, etc, across all five Taj's five-star properties, including the ones in Lutyens' Delhi and the city's outer limits to leverage scale and optimise costs.

Brokerages maintain a positive view on Mansingh even as they believe it will weigh on the company's operating margins in the near to medium term. Morgan Stanley, for instance, sees this win positively as it maintains continuity of a marquee property for IHCL. It expects an incremental return on capital employed from this property.

Meanwhile, as part of a 2022 plan, IHCL will be signing up 50-plus hotels in India in the next five years. Of these, only a few will be both owned and operated by the company, while it will only have the management control in a majority of them.

“None of the expansion will be done with our own capital. We should invest wherever it is very strategic and brand enhancing,” said Chhatwal, adding that when these hotels are up and running, IHCL will not be as leveraged as it is today. After being in the red for six years, IHCL turned profitable in FY18 with a ~1 billion net income on a revenue of ~41.65 billion.

According to a plan to reduce debt and enhance margins, the owner of the Taj chain of hotels has been ce ding ownership rights while retaining management at its properties across the country. Its old properties in V isak ha pat nam and T hi ru van ant ha pu ram recently retaining the management control and

there are more such deals on the cards in tier one and tier three cities.

"The asset light model and debt reduction, will boost margins by 1 per cent each leading to margin expansion of 1,000 basis points over FY18 to FY22," wrote Rashesh Shah and Devang Bhatt, analysts at ICICI Direct, in a research note in August.

Others are also optimistic. Luxury hotels' RevPAR growth has been picking up and IHCL has been outperforming peers, wrote analysts Satyam Thakur and Binay Singh, analysts at JP Morgan in a September 28 note. "Incrementally, based on our channel checks we expect ARR growth to accelerate as well. With portfolio growth picking up and valuations attractive, we reiterate our overweight rating on the stock,” they said.