EIH Limited (EIHOTEL) Earnings Call Transcript
May 23, 2023
Earnings Call Speaker Segments
Good afternoon, ladies and gentlemen. On behalf of EIH Limited and SKP Securities, it is my pleasure to welcome you to EIH Limited's Q4 FY '23 and FY '23 Earnings Webinar. We have with us Mr. Vikram Oberoi, Managing Director and Chief Executive Officer; and Mr. Kallol Kundu, Chief Financial Officer. Kindly note, this meeting is being recorded for compliance reasons. And during the course of this discussion, there may be certain forward-looking statements, which must be viewed in conjunction with the risks that the company faces. We'll have the opening remarks and a presentation by the management, followed by Q&A session. Thank you, and over to you, Mr. Oberoi.
Thank you. Thank you so much, Navin, and good afternoon, ladies and gentlemen. I believe there are about 60 people on the call right now, and thank you for joining us. You would have seen our results both for Q4 and for the financial year, and thankfully, we've had a very good year, a record year for the company, both at a stand-alone and at a consolidated level. And these results wouldn't have been possible had it not been for the dedication of all our colleagues who work hard to look after, I guess, to gain their trust and loyalty. So I must thank them. Of course, I would like to also thank our guests and people who've invested in the company for their faith in us. Kallol has a presentation. So I'll ask Kallol to present that, and then we'll be happy to take your questions. Thank you so much.
Thank you, Vikram. Good afternoon, ladies and gentlemen. So we begin the presentation with the key highlights of the Indian hospitality industry. I mean this is as per the HVS Anarock report for February, March and April 2023 initially, which basically puts out the key highlights of quarter 4 where as per the report, the Indian hotel industry recorded its best-ever performance since the pandemic began with occupancies ranging from 70% to 72% overall and average rates exceeding INR 8,200. Domestic air traffic in India has increased by close to 7% in March compared to the previous month, and it increased by 11% compared to pre-COVID levels. So indeed encouraging statistics. Mumbai as per the report was a market leader in March 2023 with occupancy rates exceeding 76% and the average daily rate of INR 11,000. EIH performance for quarter 4 is the best ever in the history of the company. It's a stellar operating performance, where EIH has broken its own record several times over, which is really shown in this slide, the blue line representing EIH-owned hotels, and the golden line representing EIH-owned and managed hotels in India, where what is clearly visible is the fact that starting from the quarter 1 of financial year 2020, where RevPAR was around 6,500 levels has now touched 15,000, which is pretty record-breaking. I'm happy to share that EIH has demonstrated market-leading operational performance. This is measured by STR reports. And the source, as is mentioned in the footnote, is the STR comp set, which EIH uses for its owned and managed hotels. This data comp set -- this data sets is for all domestic hotels, which are owned and managed by EIH. And as is visible that since quarter 4 year period starting April '19 to March '23, the RGI has been consistently above 100, which is supported ably by the ARR index, which is also consistently over 100, which shows that -- or demonstrates that the hotel or the company has been able to command the premium in the industry. And this is primarily due to the company's unwavering commitment, quality and meticulous attention to detail that discerning guests yearn for. The premium positioning is also reflected in the awards and accolades that the company has received and the various hotels have received. The overall hotels and resorts, of course, ranked the world's best hotel brand by Travel + Leisure U.S.A. in the world's best awards in 2022. It's been ranked the world's best hotel brand for service [ excellent ] by Travel + Leisure in India and South Asia also in 2022. It was voted, as you all remember, the best hotel group for 3 consecutive years by Telegraph Travel Awards U.K. 2019, '18 and '17. Of course, the next 3 years, because of the pandemic, the Telegraph Travel Awards were [ withheld ]. Trident Hotels incidentally was also ranked amongst the best 5-star hotel group in India by Travel + Leisure in 2022. And our individual properties, these are all listed out here. I'm not reading them out one by one. The Oberoi New Delhi, The Oberoi Mumbai, The Oberoi Gurgaon, The Oberoi Amarvillas, The Oberoi Vanyavilas, The Oberoi Udaivilas, The Oberoi Sukhvilas, The Oberoi Beach Resort Al Zorah. The Oberoi, Marrakech and The Oberoi Beach Resort Mauritius, all of them have received plenty of awards and accolades, as are listed here. And we are incredibly proud of these achievements and the recognition they bring to EIH Limited and our [ tourist-esteemed ] hotels. These awards reflect our ongoing commitment to delivering exceptional hospitality experiences that create lasting memories for our guests. As mentioned earlier, the financial achievements have also been unprecedented. We will cover them in 2 aspects here in this presentation. The first one is with respect to quarter 4 for stand-alone as well as consolidated. Stand-alone revenues have increased vis à vis the same previous year from INR 279 crores to INR 586 crores, which is 110% increase. The EBITDA has grown by 621% over the same period [ with same ] quarter from INR 34.6 crores to INR 249.3 crores. These similar set of results are evident for the consolidated results as well, where revenues have grown from INR 316.9 crores to INR 663.8 crores, and EBITDA has grown from INR 34.9 crores to INR 231 crores. There is substantial financial agility that is evident because of enhanced operational efficiencies. As you could -- as you would probably notice, that the growth in EBITDA is actually -- the growth percent in EBITDA is actually higher than the growth percent in revenue, which means that there's an often more operational efficiencies that have really kicked in. And this is again evident here where in quarter 4 of 2023, while revenue increased by 25% over the same period, the total expenses increased by only 3%. Monthly occupancy trends in the quarter 4, occupancy, ARR and RevPAR trends, which slightly softened in March, but seem to be doing better in the months after that again. City-wise quarter-on-quarter financial year '23 versus financial year '20 is shown here, with Bengaluru recording the highest RevPAR growth, followed by Shimla Chandigarh, Mumbai, Hyderabad, and Delhi, amongst over. The quarter 4 occupancy and ARR performance at domestic hotels, including all managed hotels, this is available in the presentation, and it's a slightly busy slide, so I won't take you through the individual data points. But essentially, what we're saying is that where it's ARR or RevPAR or occupancy, all of them have seen increases -- substantial increases across the quarters that are compared herewith. Total beverage revenue also increased in domestic hotels, including managed hotels from INR 143 crores to INR 222 crores, which is a 55% increase. And one of the heartening facts is also the strong bounce-back in the [ OFS-wise ] revenues, which have grown in quarter-on-quarter by 100% and is going strong. For the full year, it's a similar story here. Again, revenues going up from INR [ 16 27 ] crores, the golden bars, in FY '19 quarter 4 -- sorry, the FY '19 full year to FY '23 at INR [ 18 36 ] crores. EBITDA going up from INR 406 crores in FY '19 to INR 626 crores in FY '24. And the profit after tax going up from INR 113 crores to INR 320 crores in the stand-alone, and in case of consolidated, from INR 149 crores to INR 329 crores. This is a depiction of the return on capital employed. So essentially, this is on a consolidated basis. The total capital employed on a consolidated basis, minus the cash and cash equivalents and all current and noncurrent investments, total of INR 2,867 crores. On an overall basis, the return on capital employed of this amount is 19%. And obviously, the cash that is there and the investments that are there are being separately monitored. The cash will obviously be deployed going forward for growth of the company and will also be used to garner additional debt for our projects going forward. If you were to look at the majority of this net capital employed, about 62% of this is deployed in hotels assets and in our investment property in Gurgaon, which where the ROCE range is between 16% to 35%. And if one were to break that further up, one would see that the domestic hotel assets alone, they contribute -- I mean, again, if you look at Oberoi Hotels, about 32.5% of the INR [ 16 94 ] crores is deployed in Oberoi Hotels, and this is at historic cost, of course, where the return on capital employed is 45%. In case of Trident Hotels, it's 22%, which just shows that the fact that the overall hotels are premium, also generates a very high capital employed, return on capital employed for the company. The company has demonstrated good financial resilience, strength and debt management. As a result of which, the year that we started with, we were at a net debt of INR 271 crores, which is now at a positive cash balance of INR 129 crores. This is on a net basis. Quarter-on-quarter and year-on-year trends. This is just to give a perspective. Direct segment is -- has really, over the years, been going strong quarter-on-quarter and is really one of the best-performing segments as of now. But corporate also has really picked up and reached pre-COVID levels. You can see the line, which I've drawn to just demonstrate that the highest in all these quarters from FY '20 to FY '23 was in quarter 3 of FY '20. And currently, as we speak in quarter 4 FY '23, the corporate business -- corporate revenues from corporate business has also gone up. MICE has also crossed well over the pre-COVID levels, et cetera. Leisure is just beginning to pick up, and especially with foreign leisure just beginning to come up, we have a separate slide on that as well. So the [ trend ] of foreign room nights basically shows that until February 2023 for Oberoi, for Trident and all hotels taken together, the foreign room nights were well below pre-COVID levels, which indeed is very encouraging because it just shows the optimism that one might really take away from this. Because the foreign room nights, when they come back, they obviously contribute way more to the overall [ quality ] of the company. We continue our efforts on carbon footprint. This is again some data points, which you can go through in the presentation. And the performance highlights, I'm not again going through these because these have already been published, and I'm sure you have access to all of this. So with that, I'll just quickly reiterate the upcoming projects which have been announced. So we have 2 sort of projects, one Bay Club in Mumbai, which has already opened in November '22. It's a world-class members-only club and the first one that EIH is managing. We are also shortly due to launch our new stand-alone restaurant in Mumbai. And in FY '24, '25, there are 3 committed projects which have been mentioned here. In FY '25, '26, there are 3 again. And in FY '26, '27, there are 3 more. And there are under -- about 11 hotels which are under active discussion, and we shall shortly be announcing them as soon as they are concluded. The business footprint is again available for anybody who's interested in the presentation, and this is just the statistics about the number of keys, et cetera. Thank you so much, and we will be happy to take any questions that you may have.
[Operator Instructions] Meanwhile, I have shared the investor presentation that Kallol just presented. So in case you want to go through it and you have some specific questions, please feel free. We have a question from Amit Agarwal. We have a question from [ Harry S. ]
The few years ago, like decades ago, we are among the top 2 players in the industry. But now others have gone up in capacity, though not in our scale or luxury. But is the management concerned about this, sir? And the second question is this 30% revenue to INR 126 crores. What will happen to it after the new lease deal and buying of the Himachal government holding? What will happen to this amount? And the third one, sir, what are the plans on Andaman and Nicobar Islands?
Harry, I'll try and answer those questions, and Kallol, please feel free to chip in. So the first one was on our company vis à vis other hotel companies. And Harry, we, as you know, are in the luxury segment. Now you also know that the segment with various statistics that you look at in India is growing much faster than others. And therefore, we believe that there's tremendous opportunity in this segment. This is the segment we want to focus on. This is the segment we want to grow. And if you saw the ROCE details that Kallol shared, even amongst Oberoi and Trident, Oberoi, the premium segment achieves a considerably high ROCE. That's also reflected in the average room rates and also on RevPAR. So we believe in the segment. We believe in the future growth of India. And we believe that the segment will continue to grow like it has in the past, maybe even at a quicker pace and a great accelerated [ place ], which will benefit certainly Oberoi Hotels and also Trident Hotels in the luxury and upper upscale segments. So that was the first question. The second question was on Wildflower Hall and Mashobra. And actually, we have provided in the accounts, in the consolidated accounts, which both include EIH stand-alone and Mashobra, INR 69 crores towards the lease payments, interest and there were some penalties. Kallol, do you just want to run through those figures to give greater insight on that?
Sure. I'll just -- maybe since you already mentioned the amount, what I'll basically say is that this entailed some payable from 2005 to the date when we accepted the award of the arbitrator. And therefore, we've not provided for the lease rentals as well as applicable, but I would not get too much into the details because the execution petition has been filed, and it is sub judice, so therefore, I won't really get into it. But just to give you a flavor of what happens to the company, I think that was your question, the company has over INR 200 crores of cash. So obviously, if this were to go through, and this is again sub judice, so please take it with -- sorry?
No, sir. Go ahead, sir.
Yes. So...
And Kallol, maybe I also made a -- probably I said more than I should have given that these -- I think we should really limit what we say. But please feel free if you share that view, then you can. If you don't, then please go ahead.
Yes. So I would -- that's where I was coming to it from. And I think, Harry, overall, I can say that it is positive for the company because we've taken a decision, and obviously, after charging lease rentals, et cetera, the rest of the profit belongs -- would belong to the company. But beyond this, I would refrain from commenting at the moment because it is sub judice.
And the last question, Harry, you had was on Andaman and Nicobar Islands. Now we would be very interested in a hotel opportunity in neither one of those. Of course, Andaman, I know well, and they're beautiful islands and beautiful beaches. And I'm not just referring to Havelock, but to others as well. And as and when these opportunities come up, provided they are on terms that make commercial sense, we would be very interested to pursue these opportunities, either on our own or with partnerships. So we would be -- that's really all I can say at this point on the Andaman and Nicobar Islands. And thank you, Harry, so much.
Amit Agarwal.
Can you hear me now?
Yes, Amit.
There's a mention of 13-acre land in Gurgaon. Can you please let us know of the plans for the same? This is my first question.
Sorry, Amit. I couldn't -- your voice is coming slightly rough. Could you repeat the question? I'm sorry. I didn't hear it.
Yes. There's a mention of 13-acre land in Gurgaon. Can you please let us know of the plan for the same?
There is a mention of 30-acre lot in...
13 acre.
Sorry?
1-3, 13 acre.
1-3, 13 acre lot in Gurgaon. So what is our plan for the same?
Yes. So this actually is -- there's a piece of land in Gurgaon on Sona -- in Sona rather, which is -- belongs to the company. And as we were actually thinking of selling this land, we're not now. And we will certainly -- when we have a plan for development of that site, we will share those details with you.
Nothing right now, nothing right now?
Nothing that I can share with you right now.
And my second question [indiscernible] it seems. Any particular reason for shutting down the operations over there?
I'm sorry. You were talking...
The question [indiscernible] Vrinda I guess.
Okay. I couldn't hear the question. I'm so sorry.
I think they are not being used nowadays. Any reason for shutting down the operations over there?
Yes. The boat is not sailing at present, Amit. And one of the things that we are really actively pursuing, which was apparent from the slide also that Kallol shared, is really focusing on investing our efforts in assets that give a return. Sadly, Vrinda didn't fall into one of those. And boat isn't sailing. We're looking at what can be done with Vrinda. It has been provide -- it's been written off completely on our balance sheet over the years. So Kallol, do you want to add anything at all to that?
That's what it is, Vikram. It's been -- the asset has been impaired a few years back, and it's not operational.
And my third question is regarding [indiscernible]. The construction hasn't started yet. As for my information, it's still open for regular tourist. Can you update the status of the project as of now?
Yes. No, Amit, the work at site is continuing. And the -- in close chart, you'll see we have a chart on when the hotel will also be ready for operations which was -- that was on '26. Am I correct? I can't recall the...
Yes -- no, it was '25, FY '24, '25.
'24, '25. So -- but work is well underway, Amit, at site.
Is it open for tourists right now or no?
Is it open for?
Tourists.
No, the hotel is under construction.
Okay. And my last question is regarding that COU COU cafe and stand-alone restaurants that are coming up and [indiscernible]. Do you think the management, too many [ investment in ] different businesses altogether, which is our main business?
Amit, it is very difficult to comprehend your question because there's a lot of disturbance in the line.
I heard the -- Navin, I think I heard the question -- I know it's a lot of disturbance, but I think -- so actually, Amit, these businesses are not -- they're all related to our core business, which is hospitality. F&B is a integral part of the hospitality business. So that's the first thing. And the Bay Club is -- it attracts our premium guests. It provides them and their families with exceptional facilities, and it helps us to build and engage with our customers, which not only visit the Bay Club, but also stay at our other hotels and pay premium prices at our hotels. So I think it's not a separate business at all. And the Amadeo, which is going to open middle of next month, is a -- going to be an exceptional dining venue, overlooking the geo fountains, an exceptional location. And we have no doubt that it will be very, very successful. So it's really in keeping with our business is certainly the perspective that we've taken. This isn't a business which is outside of hospitality.
Sorry. Why is it that -- COU COU [indiscernible] has been there for 2 years almost, but right now, there's no talk of extension of the [indiscernible].
I'm happy to -- yes. No. So Amit, I'll just tell you what happened with COU COU. When we opened COU COU, focus was really on a patisserie concept. That's what we thought would work. We realized that, that is not what it is. And so we've significantly changed COU COU's positioning from a patisserie to a casual dining venue. And some of these changes in menu, et cetera, took place a couple of months ago. And there has been a significant increase in sale. So I still believe in COU COU in the long run. I believe it will do well, and we're seeing some sites of that immediately. And once it stabilizes, we're clean on -- that this is a workable concept. Then of course, we'll look at scaling this concept. So I think I've said this before, and that position hasn't changed.
There was a brand -- COU COU has been taken by many other people. Right now, there's [indiscernible] very well, and its name is COU COU again. [indiscernible] company.
Actually, Amit, could you just send us details on that? Because I'm not aware of it. And if this brand name is registered, so they -- nobody else should be using it. So if you could share those details with either Kallol, myself or Navin, I'd be really grateful.
We have a question from [ Kirti Jain ].
A good part of my questions have been covered by previous participants. My question is to Kallol, sir. Sir, there is an increase in other expense on a Q-o-Q basis. So what is the reason, sir?
Yes. The increase is actually increase in variable expenses. It's mainly 2 factors. One of the most important increase is in account of increasing commission to travel agents, which has increased because the business has increased as such. So obviously, the quantum of commission expense has gone up. And second is repairs and maintenance is also something that was a little subdued during the COVID period, so that has also gone up. But there are several other heads where it's just come down. So this increase is not really one to really worry about.
Okay. No, sir. So when we see stand-alone, the other expenses are flat on a Q-o-Q basis. But when we see console P&L, other expenses are up INR 50 crores, actually.
Are you comparing with last year?
No, Q-o-Q, sir, quarter-on-quarter.
Quarter-on-quarter, yes. Yes, that is -- yes. So Kirti, quarter-on-quarter, actually, if you see, there are some expenses which are not incurred during the peak seasons, and they are deferring to the summer seasons, et cetera. So really speaking, it's all in control. It's nothing really out of the line.
And Kallol, it was just -- again, maybe you want -- we just want to emphasize the point on the increase in flow-through.
Commission [indiscernible].
Yes. Now in also the flow-through that you mentioned right in part of your opening presentation, you had covered that, which suggests that expenses are well under control. All expenses are well under control.
Sir, just one last question. Sir, with regard to the under active discussions pipeline, how close are we for the materialization of this pipeline? If you can highlight something, that would be great, sir.
I think Kallol's presentation has dates on everything. But we -- you would have seen that our existing hotel portfolio has performed well. I think we're well positioned as far as these hotels go in terms of future performance as well, I hope. I think the -- we all recognize that a key area of focus of the company, and therefore, all of us, is on growth, and that's what we're focused on today. And we will -- as soon as we have information to share with you on growth -- we're working on this every day, and this is -- if there's one thing that gets leadership's attention, it is to drive growth. So I hope all our efforts will have a positive outcome, and we'll be able to share something with you in time to come. And hopefully, that shouldn't be too long. So that's what I'd like to add to that, Kirti. I hope I've answered your question.
No, sir. What I meant was in the Slide 30, on left-hand side bottom, you mentioned that the under active discussions at Oberoi Hotels 3, Trident 7, my question was pertaining to that, sir.
Yes. So they're all -- and my answer would remain the same. We are pursuing these with great determination, with great energy and with great passion. And with all those 3 things in place, I hope we will be able to share details with you soon.
We have a question from Bharat [indiscernible].
Am I audible?
Yes, Bharat. Loud and clear.
Sir, when we are talking of driving a growth and we are seeing a big opportunity in the luxury segment where we are present, so in -- what will be the -- in absence of a new -- addition of the new hotel, what will drive our growth in short term and medium term? How do we really take this growth strategy going ahead?
Bharat, very good and a very fair question that you asked. So there is still -- if you look at hotel prices in India, and we've seen rates go up for us, whether it's Oberoi or Trident, and this is also an industry or hospitality trend in India. But even today, if you compare the quality of hotels that we have today with most parts of the world, our hotels are -- in India are really underpriced. For the quality of hotel and the quality of service you get, these hotels are very a great value. Now I'll give you some insights, and this is a function of supply and demand. We have a hotel in Gurgaon, the Trident Gurgaon, and that used to do an over 20,000 average room rate. So really -- and this is -- the hotel opened, if I remember correctly, in 2006. So these figures that I'm quoting you may be 2010, '12. I don't remember exactly. The point I'm making is that there is considerable upside in average room rate. And there is also some upside in occupancy as well. So I think in the short to medium term, there's quite a lot of headroom, both at Oberoi and Trident Hotels.
And how do we see -- because these higher ARR are largely contributed by foreigner visitors, whereas I mean we understand this still has not really picked out -- I mean pick up the way it should have -- domestic traveler is. So how -- what is your sense on when do we see really foreigner start visiting more or occupying that can help in improving ARR as well as occupancy level?
So two things, Bharat. Bharat, first of all, as Indians, our propensity to spend is actually very high. And we see -- if you look at the presentation that Kallol has, foreign occupancy hasn't -- so there are 2 slides in Kallol's presentation. One shows the occupancies -- foreign occupancies, and the other one shows average room rates. So you can see foreign occupancy hasn't come back, but you'll also see that average rates have grown considerably despite that. So our India guests or we as Indians are more than happy to pay those rates for a quality experience. That's the first point. The second point is that we certainly expect foreign business to bounce back to or hopefully even surpass COVID levels in this coming winter, and that will help our hotels further. So I think both those signs are positive, both for rate and for occupancy.
Vikram, if I may add to what you said. Basically, Bharat, if you see the last 7 quarters, it was not as if visa requirements, et cetera, were very relaxed. So therefore, it was -- people in different countries really found it difficult. So those are -- as those are easing, foreign travels, arrivals are also going up. So really, we have a case for optimism here.
Okay. And when do we expect a new hotel to be operational in our -- for our company?
We've got a chart, Bharat, on Slide 30 on all the upcoming projects which have already been announced. And a list of 11 hotels, which are under active discussion, which will be announced shortly.
Okay. Fair. And my one more question is about, normally, when we open a new property, normally, how long it takes to break even or start contributing at EBITDA level?
It varies from location to location, but I think our industry, generally, it's between 3 to 5 years, depending on the location.
Fair. And last question for our CFO. So what -- I mean I have seen that in stand-alone, our Q4 is always better than the Q3, whereas in -- if you look at on console, whereas Q4 is a little lower. So what does that mean that seasonality is there in console level that is really -- if you can give some more color into it.
Well, I'll first begin by saying that if you see the composition of the consolidated results, so one large chunk of that is international. And international, the hotels have 2 kinds of financial reporting. Some hotels are on a financial year basis. Some are on a calendar year basis. So therefore, in the case of some of the hotels which gets consolidated on our one line consolidation, there in the last -- the results which are incorporated are as of December of the last year. So obviously, there's a seasonality factor, but that really does not change the owned perspective. I think the point that is very relevant for us to consider and which we are very actively pursuing is there's a major shift and focus on how to really make our international business extremely profitable. They are great properties and very well appreciated by guests. But they need to perform as good as the Indian hotels -- the hotels in India do, which their management is very, very well seized off. And hopefully, going forward, we'll have similar kinds of trends both for stand-alone and consolidated results.
The next question is from Saurabh Patwa.
Yes. Am I audible?
Yes, you are.
Yes. Sir, I just wanted to understand your thoughts on sort of the kind of hotels which we have on the luxury side and I think we believe is largely -- that's why we have a larger proportion of owned and -- versus manage a lower -- and lower proportion of management [ console ]. Is this -- I think is this sort of a roadblock in increasing the pace of growth or -- essentially, we want to remain focused on owned versus not going for a lot of management contracts -- management term.
I think for us, Saurabh, they are -- we can grow through management contracts. We can grow through hotels where EIH is an owner, like many of our -- the EIH hotels, or we can grow through partnerships. And growth is very important for us so that we are in locations where our guests travel to and also important to us for the career aspirations of our colleagues. So we can offer growth as well. And also grow the company profitability -- both top line and profitability. So we at EIH are happy to pursue all those options for growth. There's no one single pill. We'd be keen and we're actively pursuing opportunities in all 3 areas.
If I may just add to what Vikram said. And I'll give a financial perspective to it, Saurabh. I think it -- first, it's a good question. I think, if you study the company's balance sheet and profit and loss accounts very carefully, including consolidated, you will see that all our subsidiaries and EIH is today a debt-free company and has sufficient amount of cash reserves in hand, all right? We also listed out the projects which are going to be managed, which are going [indiscernible], et cetera, so what you will realize, if you really do a deep dive, is that, along with the company being cash surplus, obviously that lends us enough credibility to raise an amount of debt which the company can sustain, which really adds up to say that there is quite a bit of funds in hand which we can easily deploy over the next 3 to 4 years. And if you correlate that with the point that the return on capital employed that I've shown to you [ on an earlier slide ] -- really speaking when these hotels that are built, they really provide the return on capital employed. You can see the difference in management fees -- only management fees versus the difference in overall earnings in the hotels [ our own ]. So to answer your question in short: I think it has to be a mix, and that is what the management is pursuing. It has to be a credible, balanced mix. And quality is our topmost priority. Therefore, really speaking going into the volume game to get many, many managed hotels is not really something that we will want to run, but having said that, we are very, very well positioned to deploy our funds adequately over the next few years and therefore generate very high returns for our shareholders.
Yes. And so my next question was related to, linked to the response that you already provided in [indiscernible] and which you provided[; in the past ]. So the way you've highlighted, like, normally any hotel would take, say, like, on an industry basis 3 to 5 years. And since the addition of hotels in -- for us in next 2, 3 years is -- would be very minimal, we will be essentially betting on operating leverage really. And that's why the growth in revenue would be outpaced sharply by the growth in profitability. Is it a fair understanding?
So Vikram, do you want to take that, or should I?
No. Go ahead, Kallol. The -- I was trying to really understand the question, but please go ahead, Kallol.
So Saurabh, again if you see, really speaking, the results that you've seen this quarter and for the financial year is just reversed, all right? The growth in profitability is actually higher than the rate of growth of revenue. Now that's possible because of a number of reasons. And like Vikram mentioned earlier on, I think there is still enough and more upside on the room rates front and which therefore really the flow-through to EBITDA in case of room rate growth is much higher. So therefore, we don't see that really as a concern but also to say that -- I think you mentioned that we have limited properties which we are talking about. That may not well be the case. If you wait for the year to go by, probably you'll hear more such announcements, just that we are today in a position where we wouldn't like to really jump the gun, but surely that's not an assumption that one should straightaway make.
So that is exactly what I wanted to understand.
We have a question from [ Yashowardhan Agarwal ].
Sir, am I audible?
Yes, [ Yashowardhan ].
I have a few questions. Sir, first, on the industry competitiveness. So as we are in the luxury segment -- so there are other companies like [ ITC ]. And even the Marriott is like very bullish on the Indian market, so sir, what is our competitive advantage if we are competing in this industry? Like how are we competing against them? So if you can answer that -- on that, sir, that would be helpful.
Sure, [ Yasho -- or Yashowardhan ]. Sorry. I shouldn't shorten your name. I apologize. I mean what really our guests tell us -- and this isn't our perspective. It's our guests' perspective, that we provide guest experiences that are the best in the industry. And therefore, guests, number one, value that. They see that as distinguishing us from others, and they're willing to pay a premium for that. And that is reflected in the RGI index that Kallol had shared earlier on...
That's Slide 5.
Yes, yes. So that's it's at 127%, of which rate is 120%, so -- and this is against -- just to clarify: This is against, in each location, we define our competitive set, so these are against hotels that we believe -- that we directly compete in. With STR, you need a minimum of 4 hotels. So these are the leading hotels in each of the locations where we operate. And STR data indicates that we considerably outperform our competitors in these markets, so our guests' views on us is what's important. And we know from data and from what our guests tell us that they appreciate the quality of our hotels. They appreciate the quality of personalized care and attention that our colleagues give to each and every one of our guests. And most importantly, they -- that creates loyalty. And they're willing to pay a premium over our competitors to stay with us.
Okay, sir. That's a -- so that will be the only competitive advantage. Or like is there any other point you would like to add?
So I think that's the key thing, if I've understood your question correctly, but if I've missed something, please help me.
So [ Yashowardhan ], I'll try and just add up to what Mr. Vikram Oberoi said. So that Slide 5 that we've presented is data from 2019 to 2023. And in every single quarter, you will find that our average ARR index is higher than 100%. Similarly, the RGI index is also higher than 100%, which obviously means that, the competitive set in which we are operating, we are able to really drive premium for the quality of services that we provide. So that should be -- if that trend is prevalent for 4 years, then I think that's quite an established trend.
But [ Yashowardhan ], if there's something you feel -- I really meant that seriously. If you feel we still haven't answered your question, please feel free to elaborate further because obviously we would like to answer your questions. And we may learn from what you ask us or tell us, so please don't hesitate.
Yes, sure, sir. So sir, what I'm saying is that, if we listen to the management commentary of other hotels, sir, there are many hotels which are in their pipeline. And many hotels and rooms are coming into the market maybe, say, for -- in the next 3 to 5 years. So in -- so supply is increasing a lot. And so we are saying that the demand is also increasing, so my question is that I've got that, when the guests will come to us in case so -- that we are providing them with the good, like, services and all, but sir, is there anything else that we could be saying; that we are having locations, for example, at very good locality or the very -- the hotels that we are having? So the [ catering there ], they are very good. And we are providing them with a good service, but is there anything else in which we can say that we are superior to our competitors? So on that, I am looking for more clarity, if you could help me in that.
Sure. So [ Yashowardhan ], we are -- yes, I'm not here to comment on our competitors, who I'm sure do a fine job in the hotels that they operate, but what I can maybe just add in what you said is that we need to be in locations where our guests travel to. And I think I made that point earlier on as well. And we are entirely focused on meeting or -- meeting, if not exceeding, that objective, so -- and that comes to -- down to your point on growth. Absolutely, we need to grow. We need to grow in locations where our guests travel to. And we need to grow with profitable hotels, either for our owners if it's a management contract or our partners if it's a joint venture; or if it's an EIH hotel, grow profitably as well. So our efforts are focused on all three of those.
And also I'll add that our balance sheet is very strong. And as I described in one of my previous replies, that leaves us with a potential to really execute projects and profitable projects. And we have access to enough and -- enough capital for that.
We have a question from Rajiv Bharati.
Sir, on Slide 21, you had this direct channel, which has increased materially in terms of contribution. And then you had said that your OTA commission has increased. So all -- those 2 comments, can you throw some more light on that?
The OTA is actually a means to bookings, so it's included. It's guests coming directly to us but using an OTA, so that comes within the direct segment, Rajiv.
Sure, okay. And you have specified the flight catering business with the quarter. Is it -- is there seasonality in that? Or we can multiply that by 4 to get, let's say, FY '24 [indiscernible].
I don't want to give a -- I wouldn't -- like Kallol keeps telling me that I can't give forward-looking statements and so I better not, but we remain -- the flight kitchen business went through a very, very difficult period due to COVID. International travel, as you know, stopped. There were then limited flights. There was domestic airlines that also greatly reduced the number of flights, and that increased over a period of time. The flight kitchen business, for us, is -- our largest contributors are international travel. And we've seen Kallol has presented a slide on foreign arrivals into India, at our hotels. And I know that people in India are traveling more internationally as well, so I think we're well positioned with all the key drivers for growth increasing, particularly and -- in winter, just to answer your question. That is greater in winter. There's greater travel to India internationally in winter. So from October to March. And that will be reflected in the numbers, no doubt.
Right. And if you [ won't provide ], let's say, what is the ballpark margin at which this segment operates at -- I mean I just want to derive [ what is ] the hotels business margin because -- this kind of [ guidings level ].
Yes, yes. Kallol, can you -- I don't know if you can...
[ I don't ] ballpark [indiscernible], yes. So ballpark margins are between 20% and 25% EBITDA. For [ FS ], you were asking, right, for the flight catering and airport catering business.
Yes, yes, yes.
It's a combined percentage that I mentioned. However, if we were to give a split between them, that's really going really deep dive, which you always do, I know. The airport catering business is actually more profitable than flight catering, but flight catering is also equally profitable. And with the competitive landscape that is opening up in India today in the aviation sector, I think there is a high propensity to -- for rates to really go up.
Kallol, would it be fair to also say -- and again I don't know if we should be making these statements not, but I'm not talking about us in particular. But there is a capacity constraint for the segment with limited suppliers and demand picking up, so there is a capacity constraint, which should see prices going up and, with prices going up, margins going up. Would that be a fair comment to make?
Yes, yes, absolutely a fair comment. And I'm sure our analyst friends would be able to easily work it out as to how many number of flights are potentially going to get added in the next couple of years. And what is the capacity of -- there are only a limited set of caterers. What is the total capacity [ well ] available? If you really [ correlate the two ], you will see the deficit in capacity that is getting projected, so I think there's nothing wrong in saying that I'm sure Rajiv can find that out.
Sir, on the arbitral awards. And so you mentioned that the thing is sub judice, but -- in terms of what the potential risks are in terms of this number ballooning even further, apart from the number you already provided for.
Well, the management has made a best estimate. And therefore, this is the best estimate of the risk that has already been provided for in the accounts as of date.
And why is there a differential between, on my understanding on this, in the standalone and the consol, where there is a 10 crore on the standalone and -- yes.
Yes. See, the difference is because the lease rental payment is payable by the company, the subsidiary which is Mashobra Resort Limited. So obviously that comes in from the consolidated part into the EIH accounts, whereas EIH's liability is only towards the initial building of the project and all of that. So obviously the lability for EIH, to the government, is much less, as compared to the liability of Mashobra. That's why the stand-alone figure is lower and the consolidated figure is higher.
Yes. And sir, in terms of divestment, is there any talks of considering Oberoi Mauritius, divesting that? It seems they are contributing to losses in the contribution to the profit of -- from associates.
Are you talking of EIH Flight Services? Or are you talking of Oberoi Mauritius?
Oberoi Mauritius and Mercury car rental piece, which is part of the profit of share from associates. Because otherwise, Marrakech should have contributed to profitability, but ex of that, the number is a negative number...
[ I'm trying Vikram to ] answer that. I can answer that as well.
No, yes, no, no. Please go ahead, Kallol. These tough questions, the -- very difficult. So I think definitely you can answer them.
No. Rajiv, yes, you always ask tough questions. So well, I think you'll have to wait a little for The Oberoi, Marrakech to stabilize because it opened in December 2019. And in March 2020, COVID hit; and then the hotel was closed and all of that. So we are the newest entrant in the market there with a beautiful and outstanding product which is just beginning to really pan out with reviews, et cetera, so you'll have to wait a little before Marrakech really comes in. And about Oberoi Mauritius, there is no reason at the moment to really believe that there is a need to really look at it. Of course, there are renovation plans, et cetera which are being currently assessed. And as soon as we come up with a plan, I'm sure, yes, that will be available to you, but on divestment in general, if you say, I think in our previous analyst calls in previous years we have always articulated that there is a need, which management as well, that we need to really move away from investments which have [ not really lead to those ] profits. 2 of them, we have successfully done in the last 1 year. 1 was the EIH Printing Press. And 1 was the EIH Flight Services Mauritius, which has also been completely -- the whole transaction has been completed. So I think, as of now -- and we already mentioned that there are other businesses that are all really in a state of rebound, so we are in no hurry to really look at any further divestment plans, but if there are any, then we'll be happy to come back.
Yes. And the last question is in terms of the dividend payout ratio. So you usually have 50% dividend payout some years in the past, and this time around, the number is lower. Are you working towards a -- let's say, a certain number for the upcoming projects and then the payout ratio would go back to the historical levels?
Well, Rajiv, the percentages are actually higher than 50%. I know you are talking about dividend payout. And the reason why we want to really emphasize, and I think Vikram has adequately covered that, is that we want to strike a balance between distributing dividends to our shareholders versus retaining funds for our future growth because we are very aggressively looking at going ahead with projects. So therefore, we need to be careful and to maintain that balance and which is why, even though we have increased the rate of dividend, the rest of the fund is actually available for growth, which I'm sure will benefit shareholders because, in the long term, asset value accretion is probably as important as dividends.
Yes. Just one last thing. On the -- there was a center of excellence initiative which you guys had. On the receivable number, is there any more juice left? Or are you happy with, I guess, the current number?
Well, receivables, I think, has really done phenomenally well. If you see what used to be with much lower sets of turnover if you go back to previous years, the debt used to be well over 200 crores. Now the debt, even with way, way higher turnovers, it's still around those levels, but out of that, about 40 crores is on account of internal debts. So really speaking, debt levels have come down a lot, but yes, if you say is there any more room left for further improvement, there is always room for improvement, of course, so we continue to find out ways and means to improve our excellence. I think the center of excellence has really done very well for us, especially during the COVID years. And we are definitely looking to refine it further along with our colleagues in operations.
The next question is from Tarang Agrawal.
Just steering wheels towards the international business, if you could give us a sense on how the revenue and the profitability for the international business alone panned out for FY '23 versus '22. Number two, is there any debt specifically on the international business? And number three, across the 7 properties that you have there -- I mean a couple of them in Bali, 1 in Mauritius and the balance in the other parts of Africa. If you could just rank -- help me understand, which are the stronger properties right now from a P&L perspective? And which are up and coming?
Kallol, over to you, to tough a question...
I thought I'd give it to you. So Tarang, yes, I think...
Tarang asked you -- Tarang always asks tough questions. So thanks, Tarang.
So well, you -- Tarang, the reason why we would -- so I mean, in terms of profitability, let me tell you what -- the businesses have been profitable at EBITDA level, but we've also worked very closely towards looking at better because we also want to be a very, very well-grown organization. So there are some losses that have been accumulated into -- in the current year's consolidated accounts, but that is primarily because of some impairments that we have taken on some of our assets. And some of our assets, for example, The Oberoi, Bali and The Oberoi Mauritius, really need renovation, although they are doing very well. They're achieving good rates as of now. If you see, Oberoi Bali is doing -- or average room rates from $300. Vikram, please correct me if I'm wrong. And The Oberoi Mauritius is also doing about [ 625-odd ]. Marrakech is really flying away, so really I don't want to speak about that. That's our newest property, but overall...
[indiscernible] over $800.
Over $800 per room night. So yes, they are doing well, but I think the focus of our attention for the last 2 years was more on India because we were just struggling to come out of COVID. Now having established that and with our colleagues really taking full control of the India operations, it's time for us to also look at what is happening internationally, so therefore, I wouldn't [ vent ] too much on the past performance, but obviously, going forward, I think we will have better news to share insofar as even [indiscernible] EIH is concerned.
Well, I mean, some sense on the international top line and EBITDA for FY '23. Because while ARRs sound nice, I'm not too sure how occupancies are panning out there.
No. Occupancies are also not bad. So, well, it's the difficulty of discussing our figures is because these properties are all in different geographies and in different currencies. So they get translated many, many times before they reach the Indian rupee; for instance, the rupiah going to dollars. So really this -- it will be difficult to give a straightforward answer if you want to really analyze. And I'm happy to take it off-line, if you wish, in a separate discussion to explain to you the way it is done, but really it will be, in a conference call like this, when we have limited time left, maybe difficult to really explain.
I understand. Just last: Is there any debt on EIH International or any of your EIH International subsidiaries?
No. Tarang, there is -- I mean that is the best part of our balance sheet. None of our companies, including the parent company or any of the subsidiaries or associates, have any debt on books [ as on date ].
No gross debt there, right?
No.
Tarang, If there is still something unanswered, let me know. We'll fix up a call.
Sure.
We have a question and a few more questions [indiscernible] [ Jayakanth Kasthuri ].
Sir, my questions have been answered. Thank you.
Okay, great.
Thanks, [ Jayakanth ].
[ Nikunj Thakkar ].
Yes. I just wanted to come back to the question about expansion and maybe ask it a different way. I would love to get your thoughts on maybe 2 factors as it relates to your growth strategy. The first part is just where we are in the industry cycle; and whether, because of the rising income levels, for example, within the domestic consumer, that might reduce the seasonality or the risk of seasonality from international travelers; and how maybe this industry cycle might allow you to be more aggressive. That's the first factor. And then the second is in terms of wanting to maintain your brand equity. And so this maybe relates more to management contracts but, I guess, the level to which that focus on maintaining the brand equity reduces the opportunity set available to you when you think about management contracts that might be up for bid.
Great. So I'll try and answer that. And Kallol, please -- with anything, please feel free to nod or -- anything that I need to say or anything that I say. So I think one of the positive sides of India's increasing affluence is that people are taking short breaks. They're traveling within the country. And they're traveling year round, so I think that will certainly help, maybe not completely but to some extent, seasonality. And of course, when it gets very hot in the North, [ like ] Delhi, et cetera, people will then go up to hill stations. We have hotels in Shimla. So I think, in time -- and we've already seen this trend. Seasonality has been coming down over the years, if I were to take the COVID period out of it. In terms of the quality of hotels and the -- our ability to secure management contracts -- in fact, this is one thing we learned from Mr. Oberoi, Chairman Emeritus. And in those days he was Chairman, he said it's, when you are partnering with somebody and they are relying on you, you have to be even more careful with giving your owner a return. And therefore, we get many opportunities. If we do not believe the hotel will be profitable, we do not pursue those opportunities, because it's just creating a problem for the future. So we have to believe. We have to do our analysis. And we have to know with a high level of certainty that we will give a good return to the owner. And we've demonstrated that with our Gurgaon hotels, with Sukhvilas. We have a fourth hotel with the same owner. And we take great care in our partnerships or in management contracts to ensure that we only pursue projects where we will -- where the owner will be happy with the returns that we can generate. So I don't know if I've answered your question. If I were to just maybe say one other thing: We do get opportunities that we do turn down for that very reason.
Okay, great. That's very helpful. And maybe just to follow up on one of the earlier questions. There was a question just about where the growth might come from the next few years. The -- right. And you mentioned some of the options you're looking at, including management contracts, including some of the hotels that are still under discussion. The -- I guess the question is were you almost implying that we could see growth from some of these hotels that are under discussion in some of the early years, not necessarily the out-years. Or is that something you were not implying?
So if your question is on timing, I hope we'll have positive news to share with you. We are as eager -- or we're very eager to share that news with you, and as soon as we're in a position to do that, we will do that.
We have a question from [ Jevi Shekhawat ].
So firstly, given the TCS in position, 20% is TCS in position, from 1st of July, I mean, how do you think about it in terms of, one, your domestic rates; and also the impact on the international business? Can you provide your views there?
You're talking about -- when you say -- this is the tax that is deducted on foreign travel...
The foreign expense, yes. That's right.
Yes. I mean I'm sure that will help Indian hotels, including us. The extent to which, I'm not sure, but I would say just, if you're a traveler or a guest who -- or somebody travels and you need to make a choice between an Indian hotel and traveling overseas, I think your take on this will be probably greater than the insight we can offer. Our perspective is just from consumers as well of hotels. And finally, it's really our customers who make the decision, but I think, more than that, people are -- I think the greater impact comes from a trend we're seeing where people are taking more breaks and shorter breaks. And those are -- a large proportion of them, I presume, will be in India. I think, for the really affluent, this may not have a direct impact, but we have a wide spectrum of guests. And for some, I'm sure [indiscernible].
Understood. And I also want to pick your brains on the hotels up cycle. Now given that most of the hoteliers are posting all-time-high profitability and also expanding because of that, so -- one, how long do you think this up cycle could last? And secondly, when I look at your ARRs or even that of your competitors, these are probably 30%, 35% up versus the pre-COVID levels, so one, given the FTA recovery, what further room do you think there could be on the ARRs? Yes, these are my 2 questions.
So I think ARR is really a function of what the supply is and what demand is. I mean I used to work at our Bombay hotels years ago. This was in -- I think it was when India first started to liberalize after the first gulf war, and we saw demand just shoot up. The hotel was -- our South Mumbai hotels were full all the time; and rates suddenly, within a short period of time, shot up drastically. So there is limited supply coming in, and supply does take time. So I think there is in -- certainly in city locations, also the hotels that have been there for some time occupied premium locations that are no longer available. And location for city hotels are very important in a guest choice, so I think, in my view, there's -- if demand continues to be strong, there's considerable upside in average room rates. And we are -- our city hotels in India are very underpriced, when you look at other markets around the world.
And Mr. Oberoi, given that -- most of the people say that the supply is likely to take another 3 to 4 years to come in, but aren't you seeing a lot of acquisitions happen, a lot of management contracts? Because there are a lot of distressed assets available as well. So could supply hit much earlier than what probably the industry is expecting and then hence sort of matching the overall demand growth? I mean, do you feel that?
I don't think -- we don't fear it. And maybe we should. We don't fear it. I mean these -- we've looked at, in the past, a number of hotel assets and not pursued those opportunities because to these -- as to refurbish, redevelop these assets and to make them into hotels that certainly could be an Oberoi or a Trident, we've at least thought that, that would be challenging. Now there may be others who can do that. I can't really say, but guests will pay a premium for quality hotels and for quality service. That, we are certain on; and also quality locations, particularly for city hotels. For leisure hotels, there's a greater flexibility on location. And the premium hotels today in a particular city already have those well covered.
Friends, we have already taken the liberty of exceeding the time allotted for this con call, so probably we'll just take one last question, which has been posted on the Q&A board. This one is from S. Krishna Kumar, from KK. Can you elaborate the role large shareholders like Reliance and ITC [ of late ]? Has anything changed in their role and involvement?
So as far as Reliance is concerned, we have 2 Reliance directors on our Board. We have all their support and their trust and we enjoy a very good relationship with them. And they supported the company during COVID with the rights issue, if you recall. So it's there is really nothing perhaps other than that, that I want to add. We have the full support of the 2 Reliance directors, who are very supportive in the advice and guidance they provide us at a Board level. And we greatly appreciate that and value that.
I hope that's answered your question, KK. Thank you very much, Vikram and Kallol, for patiently taking all the questions. I hand over the call, the webinar to Vikram for his closing remarks. Please...
Navin, no -- first of all, thank you to you. Nothing more to add. I hope this year will be better than last year. We're going to work very hard to do drive the best top line we can, the best bottom line we can; and there's always opportunity to improve. And every rupee counts. And certainly, as far as our general managers are concerned, as far as the corporate function heads are concerned and in fact all our colleagues are concerned, we want to do whatever we can to provide our guests with a great experience. We want to do whatever we can to drive every rupee on the -- on top line and every rupee on bottom line. Every rupee counts and we're focused on achieving that. So other than that, thank you so much. Really appreciate all of the questions. Some of them were very difficult, so please be kinder to us next time, but thank you very much.
Thank you so much, Mr. Pachisia. And thank you so much, Navin. And thanks to all of you, ladies and gentlemen. We are always happy to answer questions even if it is -- it couldn't be done within this time slot. Thank you so much.
Thank you very much, ladies and gentlemen. If there are any further unanswered questions, please feel free to send them to me. I've shared my e-mail addy. And we'll take it up, take them up with Kallol. Thank you very much, Vikram and Kallol, once again. And I look forward to hosting you again.
Thank you so much, Navin. We really appreciate it. Thank you so much. Bye-bye.
My pleasure.
Bye-bye.
Thank you. And have a lovely evening. Bye-bye.
Yes. You too. Bye-bye.
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