Sterling Resorts aims to double capacity in 5 years

“WE ARE IN TALKS WITH 10 OWNERS TO BRING THEIR ASSET TO STERLING UNDER A MANAGEMENT CONTRACT. THERE WILL BE NO CAPEX (CAPITAL EXPENDITURE) AND THE EXPANSION WILL BE FASTER” RAMESH RAMANATHAN, MD, Sterling Holiday Resorts

Vacation ownership company Sterling Holiday Resorts will take an asset-light route to double its room capacity to 4,500, through management contracts.

The Thomas Cook-owned entity, seeing a multi-year high occupancy of 72 per cent this year, is also expecting to be Ebitda (earnings before interest, taxes, depreciation and amortisation)-positive in 2017-18.

Sterling has 33 resorts in the country, with a room strength of 2,200. “We will expand this to 4,500 rooms in the next fourfive years. The majority of the addition will come from management contracts. We might build our own resorts but not in large numbers. We are in talks with 10 owners to bring their asset to Sterling under a management contract. There will be no capex (capital expenditure) and the expansion will be faster,” said Ramesh Ramanathan, managing director.

More than half the 33 operational resorts are company owned; the rest are leased. No property is under a management contract. “Management contracts in these leisure destinations are an untapped opportunity, as bigger global hospitality brands are not going to these locations,” said Ramanathan.

Revenue was ~250 crore in FY17, about 12 per cent higher to the previous year. Sterling has a land bank of 250 acres across several leisure destinations but the company does not want to incur large expenditure in setting up its own properties at all these locations. Under a management contract, the owner will share a percentage of revenue and profit with Sterling. In comparison, a committed rent is paid to an owner in leased properties.

Sterling’s properties have had average occupancy of 72 per cent this year, against 63 per cent in FY17 and 57 per cent in FY16. Ramanathan said the company was able to increase its average room rates by 36 per cent in the first quarter.

“It will reflect on our bottom line. We have not been Ebitda-positive so far, due to a lot of expenditure on the resorts,” he said.