EIH Limited (EIHOTEL) Earnings Call Transcript & Summary

We have with us Mr. Vikramjit Oberoi, Managing Director and CEO; and Mr. Kallol Kundu, CFO. [Operator Instructions] This virtual meeting is being recorded for compliance reasons. We have the opening remarks from Mr. Oberoi followed by a Q&A session. Thank you, and over to you, sir.

Actually, Navin, what I'm going to request Kallol to do is to start with the presentation. And then we'll be happy to take questions if there are any. So Kallol over to you for the presentation. I think that will give people a good overview.

Sure. Is my screen visible to everybody?

Yes, it is.

Yes.

All right. Good morning, ladies and gentlemen. And it's a pleasure, as always, to be a part of this analyst call. And I'll take you through the presentation that we had already uploaded in the -- to the stock exchange websites. So the key highlights are -- and so far as the industry is concerned from HVS Anarock. This is the latest report from January 2022, with sales of the domestic air traffic has increased by 6% in December '21 with ease in travel restrictions, decline in COVID cases and aggressive vaccination campaign. The hotel industry recorded the highest monthly room rates since the onset of pandemic and this is the whole industry as a whole. And basically, the gradual resumption of corporate travel is assisting in the recovery of hotel demands in the cities -- in the metropolitan cities of Calcutta, Mumbai, Delhi, Bangalore and Pune, which were previously underperforming. There has been, as per the HVS Anarock, some grand openings and signings by properties, which have increased quite substantially. The rising number of Omicron cases in India has resulted in subdued leisure and business travel demand in January. However, the industry expectation is that there will be a strong rebound in domestic travel as soon as the cases subside. And so far as the statistics are concerned, the signs of recovery are visible with year-on-year growth in the last couple of months. In October, November and December, the industry grew by about 26%, 43% and 32% in ADRs. And the overall RevPAR growth of about 134%, 156% and 80% to 84% over the previous year -- the same quarter previous year. Compared to that, our company grew -- the RevPAR of our company improved by -- if we were to take only the hotels in EIH Limited, it grew by 142%, 146% -- 147% -- 167% and 107%. And if you take all the domestic properties, basically EIH total, which would show that we've grown in tandem with the industry, which is 133%, 146% and 112%. The RevPAR index continues to be decent. We continue with our mantra of enduring, revitalizing and flourishing. Balance sheet continues to remain robust with net worth at similar levels as we have been over the last few quarters. The asset base continues to be strong, and our debt is well within control, although there has been some increase vis-à-vis in the last several quarters because in the first 2 quarters, we had a loss. So therefore, that really needed to be funded, and therefore, the slight increase in debt. We do hope that this will remain under control until the year-end. Our weighted average cost of debt as on 31st December was one of the lowest at 7.1%, which is reduced by 8 bps in 1 year. This chart really shows the RevPAR recovery, which improved substantially after the second wave of COVID-19. It shows from the quarter 3 of FY '20, which was a normal year to quarter 4, what was the trend like and then it plummeted because of the first wave. And then the recovery in the second wave for both EIH and domestic properties and the wage has gradually gone up. And as is visible, the recovery after the second wave is substantially better than the recovery after the first wave. In terms of occupancy and ARR, as you can see, the trend lines show that there is an upward move in terms of both occupancy and ARR. Obviously, we are still to touch the FY 2019 kind of levels, but we are almost there in so far as the last couple of quarters are -- or last couple of months are concerned. The brand promise of our company, promising to be the best high on ARR and RGI, that's evident, and we continue to maintain this position. City wise revenue recoveries. Bombay has seen a very good recovery, also Delhi. And as you can see, the leisure locations are, obviously, they have -- they were already doing well. And therefore, the rate of recovery seems a little tepid. But like Mr. Vikram Oberoi, I think was mentioning before the meeting, really speaking, the leisure locations have done really, really well. If you want to classify in terms of our own segmentation, our internal segmentation that we use, Oberoi Metro Properties, Oberoi Leisure, Trident Metro properties, Trident Leisure, Trident City and others, then one would see that the improvement is most in case of Trident Leisure and the Oberoi Leisure properties, but also it's doing well in terms of, in the other metro locations as well. Food and beverage revenue continues to grow. And compared to FY 2020, it's shown a much higher growth. And therefore, obviously, the percentage of food and beverage revenue to the total revenue has increased quite substantially. In fact, in quarter 3, the growth in -- versus the previous year, the same quarter is [ various impact ] 186%. Oberoi Leisure continues to outperform expectations in terms of RevPAR. So between ARR and occupancy, if you see the way it's plotted; the quarter 3 of FY '22 stands at a very decent position in the grid. This could be a significant chart for those were interested. Basically, this goes quarter-on-quarter. This is a consolidated one, and there's one slide after this, which is for stand-alone numbers. So really speaking, this shows right from quarter 3 of FY '20 to quarter 3 of FY '22 all the quarters. And the last 2 bars really showed the quarter-on-quarter growth. So revenue has grown of 53%, EBITDA by INR 91 crore, PBT by INR 99 crore and PAT by INR 78 crore. Obviously, this makes it the best quarter in the last 7 quarters since the onset of pandemic. A similar story is in case of the stand-alone numbers, and the presentations are available for everybody to go through separately. The company continues to be on this trend of efficiencies and improving efficiencies in almost all parameters, where other administrative expenses came down by 29%; payroll, et cetera, by 16%, which is consistently now being maintained for the last 2 years, as you would know. Overall corporate costs came down by 32% and total expenses down by 19%. So that really shows that efficiencies are here to stay. There's been a lot of efforts we've announced in the past about our solar plants, which have been commissioned in the hotels, in some of our hotels. We've included the ones which EIH manages as well but are not really owned by EIH Limited. So Oberoi Vanyavilas and Oberoi Udaivilas are owned by EIH and Trident Agra and Udaipur are owned by EIH Associated but managed by EIH Limited. Solar plants with a total capacity of 3-megawatt have been commissioned, which is expected to generate about 4.2 million units per annum, thereby substantially reducing the carbon footprint. As of now, with the current level of sunlight, et cetera, that is available, that has been available over the past few months, 36% of the electricity consumption is being met through solar power generation at these locations on an average. And our average cost per unit of electricity has reduced from in -- these 4 locations again taken together is from INR 11.5 per unit to INR 6.8 per unit. And the hotels which are currently consuming renewable energy are listed down here. Of course, in Bangalore and Chennai, it's wind power. Performance highlights. I'll not really run through these numbers, I'll just give the highlights because these were published. So in quarter 3 in stand-alone -- the stand-alone results have improved substantially from -- with revenues from -- going up from INR 167 crore to INR 324 crore. And for the 9 months, it's up from INR 275 crores to INR 631 crores. And I'm sorry, -- the EBITDA is INR 78 crore for the quarter against a minus INR 16 crore of the previous year's same quarter. EBIT at INR 50 crores. And finally, we have a PAT of INR 32.6 crores in the current quarter. But because of the losses of the previous 2 quarters, the PAT for the 9 months is at minus INR 111 crore. Consolidated P&L also shows a good picture, and much of it is because of the contributions from Wildflower Hall, Mashobra Resorts, which is a subsidiary of the company, and also from Mumtaz Hotels, which is, again, a subsidiary, which owns The Oberoi Amarvilas. And here also on a consolidated basis there is a total comprehensive income of 38.5%. And on a 9 monthly basis, it's INR 105 crores minus, again because of the first 2 quarters was a loss. Our Brand positioning continues in terms of offering the best to our customers. There are really revenue-generating opportunities, which really has held the company in good stat, basically some campaigns such as book direct and best rate promise through the brand website. And this has seen our revenues through the branded sites increased quite substantially. There is an aggressive promotion through digital marketing, in terms of offerings, which really provide a lot of value to our customers in terms of something called the Oberoi Select which we've spoken about in the past. The festive season also has seen a very good response, and the reaction, comments, et cetera, on social media, et cetera, is visible here. The corporate structure, it's the same as it has been in the last few quarters, except an addition of Cou Cou, which is the stand-alone cafe that we -- that has come into operation on October 8. And the number of hotels remain same as of now, with the plans, of course, for future expansion in tact as it was earlier. So that's all from my side, and I'm sure Mr. Vikram Oberoi and I will be happy to answer any questions that anybody has. Thank you so much.

[Operator Instructions] Okay, the first question is from Amit Agarwal. [Operator Instructions]

Congratulation for a good set of numbers during this COVID times. I have 2 questions regarding the company. First is regarding Cou Cou, how has it been doing? And it's been 2 months that is operational, so you must be having some idea about the expansion of the brand Cou Cou to cities like Delhi, Calcutta or some other cities? Or what is the initial plan? I understand it's too early but still you've must be having some vague idea -- how it will pan through for the next 2, 3 years? And my second question is regarding -- company presentation have been silent on Doha property, which was supposed to be opened in 2022. What is the update on London property? I think 2, 3 years back, you've spoke about some collaboration and some -- with some multinational company about your London property? These are the 2 questions.

Sure, Amit. First of all, nice to be online with you again, and I hope all is well with you and family. On Cou Cou, Cou Cou has been well received. In fact, our guest feedback has been very positive. And -- but we've been impacted by unfortunately by COVID. People going to public spaces, particularly in Bombay, where there was a concern that there'd be a sharp rise in infections and possible hospitalizations. Thank God, that hasn't been as severe as it was initially expected, but that did dampen footfalls to the location where Cou Cou is and also as a result to Cou Cou. But I think the important thing is guest really [ appreciated ] the quality of Cou Cou both in terms of the food and beverage offerings and the quality of service. And we hope that once things return to some level of normalcy, which I think would be very soon, Cou Cou will again start to do well. There were days actually where Cou Cou is doing very well with high revenues. So we know that on -- it has the potential to succeed. And so far as your question on future expansion, you're right, Delhi would be a natural choice. We still would like to let Cou Cou stabilize, learn what we can do better and then look at growth. So that still continues to be our plan. You asked about Doha and also London. London, actually, the -- because of the pandemic, the owners of the serviced apartments, luxury serviced apartments decided to sell the property. So London will not be happening. I hope we'll have other opportunities in London and in other parts of the world. And Doha has been delayed. The hotel will not be ready for the World Cup in Doha. So that's an update on both of those.

Yes. This is regarding, Cou Cou again. Do you think getting lease properties in the shopping malls would be a problem for Cou Cou in the future because I think you are looking for bigger space compared to the other cafes that have been there in the existence?

No. I think luxury retail is a great location for Cou Cou.

But have you figured out some properties in other cities right now? Or it's still too early to decide about it?

We have a fair idea of where we'd like to be, but it's best that I don't comment until we have some good news to share.

The last one, can you share some numbers on the Delhi revenue you were able to generate on Cou Cou in this COVID times?

Is it okay to share that, Kallol? Can we share our numbers?

Amit, very specific numbers. I think it's better not to get...

It's still too early, I understand that. But the highest you reach on certain days, that would be a good idea for the investor for the future expansion of our plant.

Kallol, I'm happy to share the numbers. I don't know, if I should or not.

Okay, fine. I think it's a public forum, so...

I can't share?

Yes. Maybe the only highest numbers let's share, let's not get into too much details.

It was over to INR 3 lakhs a day.

The next question is from Sumant Kumar.

Overall, my question, overall, we have seen a significant improvement in ARR in the leisure side, but still in the metro side as per the PPT, the Oberoi 27% lower ARR compared to a pre-pandemic level. And also, say, Trident brand is 30% lower. So this time, in the past quarters, we have seen the ARR and occupancy has been driven by the leisure destination. Now talking about going forward, yes, Q4 is going to be some -- have some impact in the ARR side also. But how much time do you think the gap of 27%, 28% of the -- business hotels gap of versus pre-pandemic? What's your thoughts? When we can have this gap is going to be filled in how many quarters, which year, some perspective on that?

Thanks, Sumant. Kallol, please feel free to add, but I can start. Sumant asked hotels in metro locations -- city locations, depend largely or to a large extent on corporate travel. And we saw corporate travel resuming gradually, but it was. And we saw month-on-month increases in Q3. But for rates to go back to the levels that they were, will require corporate travel to come back, maybe not totally because there are some other segments that have been developed over the last 2 years, but it's fundamental that corporate travel resumes. And I can't tell you when that will be. I didn't expect -- none of us expected Omicron to happen. I hope the expert [ opinion ] pandemic is over and any subsequent variants will be a less severe holds true. If that happens, corporate travel will resume. And I would imagine in the beginning, we'll resume with a spike because people just haven't traveled for so long. So the first opportunity that they have to travel safely, they will do so. We also expect international corporate travel to resume. But that's dependent on these variables and your guess is as good as mine on this. So I don't know if I've answered your question, but it really is a fundamental that corporate travel resumes.

Now talking overall Trident Leisure, as per the PPT, ARR in Q3 '22 is around INR 2,000 per room night higher compared to Q3 '20. So what's your view? Is this rate is going sustain at this level, when the outbound is going to start?

So again, a good question. Let me just give you a little bit of breakup on that. Kallol, is it okay to get into. Yes, I think it's fine, right, on specific hotels. But this was really driven by Trident Udaipur in particular and particularly the weddings that take place in the hotel very, very high rates and strong occupancies at the hotel. So all segments did very well in Udaipur. Similarly, in Jaipur, the Trident Jaipur also saw improvements in both occupancy and average run rate. Is this here to stay? I hope it's here to stay.

When talking about the pent-up demand, particularly, there was a lack of -- the marriages had been postponed in the past. And because of the higher demand ARR has improved significantly even versus pre-pandemic. So is there any risk to the ARR? Or it is going to stagnate here or is it going to decline maybe to the pre-pandemic level or some correction from here?

Sumant, I think one thing that has helped not only us but other hotels other than the very, very large hotels that have extremely large banqueting facilities is that wedding sizes were limited. And I think is -- [ are wedding ] is going to continue to be small, I don't know. If weddings continue to be smaller than they were earlier on, I think many hotels would benefit, including some of ours. If weddings return to the large gatherings that took place then many hotels will not be considered for those wedding, including some of ours. So hotels like Sukhvilas have benefited from small weddings. Rajvilas has benefited from small weddings. Amarvilas has benefited from small weddings. Udaivilas actually has always done well on weddings because there are many hotels, the Trident is next door. And competition hotels are located quite close to us. So even prior to the pandemic, it did very well, and it will continue to do very well in the future. But others that are more in locations where they aren't comparable hotels next door, if weddings resume to then full size, we'll see an impact.

Can you talk about the occupancy of metro hotels and what was the reason to be a decent OR in this quarter?

Sorry, could you just repeat the question, Sumant? I'm sorry.

We have given our overall occupancy rate for the hotels in the PPT. So can you talk about the metro cities occupancy in this quarter?

So which hotels did particularly well were, in terms of occupancy, was the Oberoi in Bangalore. It also benefits because it's a smaller hotel. For our city hotel locations, it's roughly just over 160 keys vis-à-vis other ones that are, Delhi is 130, but Calcutta also did well in Q3 from an occupancy perspective. South Mumbai, the Oberoi Mumbai ran lower occupancies with a higher rate. And the Oberoi New Delhi, even though we STR 1, ran higher occupancy -- lower occupancies, but a very good rate.

So whatever the occupancy was, what was the key driver for these hotels?

So again, all the -- there was -- like I mentioned earlier, there's some corporate travel that started to resume. There were socials. It is all the usual stuff, Sumant. It's the usual segments that performed.

The next question is from Achal Kumar.

Yes, hope you all are keeping well. So this is Achal from HSBC Securities. So I had 3 questions actually, if I may. So first of all, what kind of structural changes do you see in the customers' behavior going forward, that could have a long-term positive or negative impact on the hotel industry? And when I say a change in the customer behavior, of course, we've been hearing that the customers now would prefer more hygiene sector, and that means the big hotels, the better brands like yours will benefit and probably the people will start combining work with leisure. So that means they will have a more short breaks for leisure trips. So how -- what sort of -- what sort of structural changes do you foresee in the customers' behavior, please? That is my first question, please.

Certainly, Achal. I'm glad you're well. So, Achal, I think you've covered 2 of them already. So I won't comment on those, and both of those are positive. The only one that I think is a concern for us is whether a decline in corporate travel will -- what the decline in corporate travel will be? We anticipate some decline in corporate travel. People have learned to conduct work online. And if you look at various reasons why people travel, some of those meetings may take place online. But there are others which will essentially require corporate travel to still take place, particularly when you're just trying to secure new business and you're competing against others. There's no substitute for face-to-face meetings. So it's really a question whether the other unintended consequences of post pandemic. You covered 2 of them, whether they will more than offset any decline in corporate travel.

Right. So Mr. Oberoi, so as you rightly said, I mean, of course, some of the corporate travel would probably not return because of the Zoom meetings and all the technology. So what is it that you think could offset the loss from the corporate travel?

I think one is people are taking more breaks, they're taking shorter breaks. I think the trend of people taking holidays within the country, I hope that will continue. So staycations, I think we went, hotel companies went as aggressive as they were for staycation business that is likely to continue as a source of revenue, particularly at city hotels when occupancies fall on weekends. So I think those are the businesses that will hopefully offset declines. And people combining work and leisure, people being able to travel and still conduct their work not necessarily confined to an office anymore.

Okay. I mean, linked to this, I also wanted to understand your thoughts on the customer spending on the hotels. I mean, so it's a question for, of course, some [ categories ] of the customers, they really don't care about the budgets, but many are there who sort of have an annual budget, "Okay, fine, I need to spend INR 2 lakh on the leisure trip." So -- and they spend sort of you can say that 50% on the air travel and 50% on hotels. So I mean, do you think there will be a change, people will start spending more on the hotel side, less on the travel as they prefer to drive down to the nearby places? Or do you think that will remain the same, probably come back to the normal level?

It's a very tough question for me to answer because I'm looking -- I'm not -- I can't gaze and tell you what the future would be. I think one thing that we have seen is a change in consumer behavior across the world, which is for more experiential travel. So initially, people would want to buy goods and services or goods, whether it was a watch, a car. I think people now are shifting some of that to experiential spending and travel comes right on top of that list, including hotels. So I think that's a very positive trend. It started in the Western world some time ago. We're also seeing that in India. I don't have any quantitative data to give you on that. But certainly in talking to [ our guests ] and corresponding with our guests, we see [indiscernible].

Vikram, I'll just add to that. Achal, in continuation to your question, actually, you talked about this budget of people having INR 2 lakhs and whatever else, I think that's one of the reasons why programs like the Oberoi Select are doing -- are very successful. That really gives an opportunity for a person to block a year's travel probably at very competitive rates.

Achal, you're familiar with Oberoi Select, are you familiar with the program?

Yes, sir. I am.

Have you subscribed to it?

Not yet, sir.

But I think, thinking of holidays with your family, it's certainly why we're subscribing to it. It's a great value-add, a great program and touchpoints has been really well received by our customers.

Right, sir. Right, sir. No, I've stayed at your Udaivilas hotel and it was really a nice experience, I must say.

Great. Please go back and visit again and try Vanyavilas too.

Sure, sir. Okay, sir. Moving away, I had a question around the property prices. So, sorry, how do you see the asset prices moving? I mean, after a 2-year long challenges, the industry is going under tremendous financial stress. There have been some permanent exits in the non-branded space, but not many in the branded space. Now -- I mean, combining all that, do you think the property prices are going down? And since the financial stress is there, more and more property owners would be ready to sell out their properties or lease out or given the management contracts at a much lower price since they are not able to run the properties, and that means the properties with the or the hotel owners with the strong financial muscles will benefit in terms of right priced growth or the growth at a right price or a low price? What is your opinion on that?

I'll ask Kallol to help, but I can start. So I think hotels were or many owners and without naming specifics were under some financial strain even before COVID. And I think that's been made worse. So will that happen? More than likely it will, included branded hotels.

And does that mean you see the opportunity for the players with the strong financial muscles to grow at the right price or at a lower price?

I think there's -- it's really demand and supply and the force of economics that will determine that. But do I see that there will be opportunity in the market? I do believe there will be opportunity in the market.

Okay, sir. My last question on the corporate side, although you have touched up on the corporate side. But have you -- sir basically, have you sort of started discussing with the corporates in terms of renewal of the contracts and all. So how -- so what is your experience says as of now that, I mean, when do you think the corporate travel would be back? Or what is the level? Any thoughts on that? I know you already shared, but any additional thoughts you want to share on the in terms of, your agreements or your discussion with the corporates?

I would -- I mean, again, what I think -- why people didn't travel because they felt a risk associated with travel. The [ moment ] that risk is either gone or diminishes, I think corporate travel will resume. And I expect corporate travel to resume for the remainder of the financial year, leave alone next year -- next financial year. So I do see corporate travel resuming over the next 2 months or 2.5 months. Achal, we look forward to welcoming you to the Tiger reserve, right?

Sure, sir.

We have a question from Deepak Varma.

Mr. Oberoi, so I have a small question about corporate travel, since you're saying that is an area of concern. So just wanted to assess how big a revenue share is it? Pardon my ignorance if I don't know it.

Deepak, I don't have the figure. It varies from hotel to hotel. So if...

Overall percentage?

I don't have that. I have to look at the pre-pandemic number, and I don't want to give you a wrong number. I'm not going to hazard a guess. So I'd rather not answer that question because I don't want to give you an answer, which is not absolutely precise.

Fine. Fine. I just wanted an approximate number even...

The corporate travel will be the single largest segment in city hotels. So it will be the single largest segment.

Okay. And the other thing I see is the other expenses in the latest quarter or actually in the last one year or so has gone up. So any comments on that?

Kallol, you want to take that?

Yes, nothing really to speak about. But I'll give you some, it's gone up marginally, but it's mainly on account of, there's a lease rent that has got added because of the new Cou Cou that is there. There are some repairs, which we were a little slow on in the last financial year, meaning in the year of the COVID. So those we have done. And nothing really much, everything else is more or less the same. I think there's a small increase in renewals and replacements.

Kallol, does hygiene -- all the hygiene measures come within that as well? Because I don't know if that's coming under. I don't know how it's classified.

Yes, it is. It is, Vikram, but it is comparable because it is -- there's no change in hygiene numbers from the previous year. So that's similarly. So it's, all in all, it's gone up from about INR 214 crore to INR 298 crore and the details are as I mentioned to you.

Okay. I was just looking at...

Also power and fuel. I think power and fuel also, there is a slight increase because of rates in certain cities.

I was just looking at the 9-month consolidated numbers, which seem to have gone up by about INR 100 crores. So I just thought I'll ask.

Which is what I just said, INR 214 crore to INR 298 crore. So it's gone up by about, whatever, INR 80 crores or so.

[Operator Instructions] Okay. Probably, questions are done.

Can I ask one question?

Please, Deepak.

Sumant here. Can you talk about air catering business, how is the performance currently going on?

So international travel still, as you know, hasn't resumed. And we are -- many of our clients were the foreign airlines. So some have started to fly, but the flights are not as frequent as they used to be. So that obviously has impacted revenue and profitability. And we are increasingly catering also now to domestic airlines. And that is at a low cost of smaller margins. Kallol, would you like to add anything to that?

Yes. I think, Sumant, the good news is that revenues with the airlines that have been currently taken on and before international travel resumes, the good -- positive thing that we have seen is vis-à-vis last year, the revenues of that segment has gone up by double -- so the revenues of quarter 3 in FY '21 was INR 15 crores vis-à-vis which is now INR 29.7 crores in this quarter. So that obviously brings down the EBITDA loss. And we hope that as more international borders open up. And already, many countries are -- have started relaxing, as you know. So probably going forward, this will be better.

What was the 9-month number?

9-month would be around -- roughly, you can double the numbers.

INR 60 crores?

Yes.

Okay. And loss is minimal or your loss is [ high ] as well?

Losses reduced, I would say. I mean, in any case, this is not such a big contributor as the hotels are. But yes, it's reduced from, by about 1/3 from what it was last time.

I believe that was the last question. Like now, I'd like to hand over the call back to Mr. Oberoi and Mr. Kundu for the closing remarks. Sir, please?

Navin, nothing specific other than to say a very big thank you to you and to the people who dialed in. And we are optimistic about the future of travel, whether it's corporate or leisure. And I think we will see an upward trend over the next -- in this financial year, and hopefully, that should grow over the next financial year as well.

I take this opportunity to thank you on behalf of all of us at SKP Securities. Thank you, Mr. Oberoi. Thank you, Mr. Kundu. Thank you, everyone, for joining in, and we look forward to hosting you once again in the next quarter. Thank you and have a nice day. Bye-bye.

Thank you.

Yes. Thanks so much. Thank you very, very much.

Thank you.