EIH Limited (EIHOTEL) Earnings Call Transcript & Summary

Yes. Good evening, everybody. We'll start the session now. On behalf of Nirmal Bang Institutional Equities, I welcome you over to the session with EIH represented by Mr. Kallol Kundu, who's the CFO. This is part of our weeklong investors' conference. At the outset, I'd like to thank the management for joining us and giving their time today for this whole conference. I would request Mr. Kundu to start the session with some opening remarks about the business environment as it is today, after which we can open the floor for Q&A. Thank you, again, sir, and over to you.

Good evening, [ Hitesh ]. And thank you, [ Rahul ], and everybody else from Nirmal Bang for organizing this, and welcome to all of you. Well, about the business environment, I think the momentum that really got started in the quarter 1, by and large, continued through quarter 2, and the trends seem to be following in the following quarter as well. Although we are currently in the middle of the quarter, so we don't want to really jump the guns before it gets completed. But corporate business has picked up substantially. We are back to pre-pandemic levels in most cases. Rates are marginally higher than what they were in pre-pandemic levels on, in general. The other question that really comes to people's mind is the foreign occupancy. There again, in general, the trend has been that barring U.K., which has some visa-related issues, all the other major economies that really contribute towards our business are almost either or equal to what it was pre-pandemic or they have crossed those levels as well. So yes, all-in-all, I think it's -- our business is gaining traction as we move along the financial year. And of course, if there are any specific questions, I'm happy to answer.

Yes. Thanks, sir. We'll have the Q&A session now. [Operator Instructions] We have the first question from Dhiraj Sachdev of Roha.

I just wanted to know, I mean, this appears to be one of the best season in the last decade or so for long term issues and stresses in the hotel sector as such. So can you elaborate how much has been the room supply from our end? And what is the kind of occupancy we can see? Because I guess, this next 3, 5 months will be one of the peakest season that you would see, right?

Yes. Thanks. Sorry, I did -- just to clarify, did you ask about room supply?

Yes, how much has been our room supply right now from our end?

Well, there's no change in the room supply as of now. There's no change in the room supply, in our case, as of now. In the previous earnings call, our CEO and Managing Director, actually articulated that there are several projects which are in the offering over the next 4 to 5 years and in what stages they are. So if you speak of this particular period, there is no change in the room supply. But over the next 4, 5 years, there are several projects which are on the anvil. About 14 of them, which are concrete projects, which are either under planning or under execution stage. And there are about 8 which are under very active discussions for which we should be able to make announcements in the next 3 to 6 months. As regards to occupancy, I think you asked about that. Obviously, it's drastically different from what it was, let's say, even in pre-pandemic times. So if I want to look at, let's say, quarter 1 and quarter 2 alone, then let's say, in quarter 1 of FY '20, where it was about 65%. I'm talking of EIH hotels only, not the Group hotels. We completed quarter 1 with about 79% occupancy and the ARR was also higher. Quarter 2 also against about 67% occupancy in FY '19-'20, we did 77% at 20% higher ARR. So if -- that really helps to give you a trend.

Yes. So this 20% IRR is what in absolute terms?

For quarter 2, our ARR for EIH hotels was INR 12,000 odd. And of course, if you take all the Group hotels, it will be slightly different because we have villas properties and all as well. So let's see...

Yes. So all put together, how much will be the average for us?

Sorry, I didn't get your question. Sorry.

So for all put together, including villas and other properties and budget hotels, how much should be the average yield for us?

Average room rate?

Average, yes, room tariff. Yes.

Yes. So that will be pretty high because -- I mean, that's actually a hash total. I don't know if you really want to know that, but that's really a hash total because that's not what goes into EIH P&L. But if you're keen, then it will be close to INR 20,000.

Okay. And I just wanted to know because you've active discussions for 8 new properties and 14 more in the planning stage, you mentioned earlier. So how much do you think is going to be on a service model? For example, earlier, there was a time, a decade back, where people were constructing hotels, they took 3 years for the construction period and a lot of debt burden happened and the breakeven followed much later and the ROCs were dented. Do you think the hotels have come a long way in terms of maturity where they are taking over budget hotels on a licensee arrangement without CapEx and lending the brand, and is this a way to model ourselves now going forward?

That's a good question. Now this really depends from organization-to-organization and group-to-group. Some hotel chains do have that philosophy of getting budget hotels, et cetera. We are really not into the budget hotel space, very clearly. We are either in the luxury segment or were in the ultra -- sorry, in the upper upscale segment, not below that. So basically, our Oberoi vilas, Oberoi brand, and our Trident brands. So frankly, in our assessment, that segment, the upper upscale upwards to luxury is really going to be the cornerstone for us. So with that in mind, we have different kinds of properties among these 14 properties or there are 8 properties which are under contemplation. There are 3 properties which are own properties, where it is our own land where construction has already begun or it is an active planning stage or it has considerably progressed. For example, the Oberoi Rajgarh Palace will come -- it's already quite advanced in the stages of construction. And by 2024 calendar year, it should open. So that's Rajgarh, which will be a property, which is a very sort of niche property at a very high average room rate. It is a comparatively smaller property between 50 to 66 rooms, and it may be opened in stages, but the ARRs will be very high in that property. Likewise, the Goa project is already on where we are -- we have -- we are coming with 1 Trident as well as 1 Oberoi property. And that land again belongs to us in South Goa with our own beachfront, et cetera. The other -- third one is we have a land at Hebbal in Bangalore, where, again, this property will be a mixed-use property. But whether we will do it on our own balance sheet or whether we will do it with a joint venture partner will be decided in the next 2 or 3 months. But again, whoever does it, the planning and all is in progress. The rest of the projects are management contracts. Now to generally say whether the hotel industry has come of age, again, like I said, that everybody has their own philosophy. Some hotel chains like to go only the management contract route. Of course, management contract route is capital -- I mean, it is not -- it doesn't require CapEx. So that's one advantage. But one thing which has taught in the industry, I think, is that at the end of the day, the risk that we try to avoid by getting in management contracts which is to say that if there's a loss that the owner meets, then the operator doesn't have to bear a share of that. Now that, to my mind, at least, has proved to be a myth because what we've noticed is that at the end of the day, if there is a loss, whether the operator bears a share of that or not, even if it's a management contract and the owner has to bear the loss, I think the result is still the same, because eventually, if it goes on for a longer period, then nobody will be able to sustain that loss. So just to round up the whole point that you mentioned, you mentioned about debt as well. So in our case, actually, the debt has considerably come down now. It is sub INR 200 crore levels, where it has reached a peak of INR 600 crore during the COVID period. And by the year-end, we'll have to see whether any debt account remains in the book. So we do have a lot of appetite to even take debt. Our genuine policy is to have 20% debt equity. And if we are a zero-debt company by, let's say, in the next 6 months or so, then obviously, we will have enough appetite to absorb the capital that will be required for our own projects as well.

Sure. And just a broader industry question, while this year has been good, and we had typically a very prolonged kind of issues in the last so many years. What do you estimate whether this occupancy, higher occupancy levels and demand will last longer? Is the demand far greater than the supply creation? The supply cannot be created very easily now. So do you think it will be a very elongated thing or is just a pent-up demand after COVID people rushing out to holiday, and that's not going to last beyond the year-or-so?

No, no, no. See, I think it's very clear that this pent-up demand, I don't think any industry insider uses that term anymore because initially, we did think it was pent-up demand. And I think that was applicable last year. Then after the second wave, when it opened up, people started traveling and all, and we saw leisure business really growing by leaps and bounds. But the current year has been on the back of corporate and direct business. So therefore, our city hotels are actually really firing from all cylinders. So I don't think there is any question of any pent-up demand. The country is growing at a reasonably good pace as compared to competition. Traveling is happening, flights are chock-a-block. I don't see that calling this as a pent-up demand is a very prudent thing to say, although we will obviously conscious of the fact that risks could emerge from any sector, whether it's a -- we don't know what's going to happen in Ukraine tomorrow. So barring those unforeseen factors or let's say, risks of inflation, which again, we all know the way it's panning out in India vis-a-vis in countries abroad. But barring all these factors, generally speaking, the mood is optimistic.

Yes. I agree, Kallol, but you need to be more specific. I mean can we assume with a lot of conviction that it can long last for 3, 4 years?

We certainly do believe. That is the case. Which is why, we are also pressing the pedal on our projects to make sure they also get completed fast, and we come up with inventory. So we do believe that there is reason for optimism for the next few years.

Okay. And just one last thing from my side. I mean a lot of things are now getting into service model as well, like if I have to coin the word hotel-as-a-service. So is the restaurant business, which is typically 40%-45% of the total revenue, are we also catering to the outsiders as a service?

No. So if you're talking of home delivery, et cetera, though which was really one of the models, which in COVID people used, we are not very keen on the home delivery business because we've seen that currently, the restaurant business, rest of the food and beverage business itself is so bouyant that there's hardly any scope for doing home deliveries, et cetera. The second is that, as you would be aware probably that we, as a group, have also started our first cafe in BKC, which is a stand-alone cafe. And shortly, we are going to launch a stand-alone restaurant as well in BKC. So -- therefore -- yes, I mean, I don't see us going the home delivery route, if that is what you were referring to.

Just as a peer comparison, Taj obviously has some model on the restaurant side as well to cater to the outside, that's where I'm coming from.

No, I think I won't talk about competition on Taj, but obviously, they have their own branding and the way they want to do it. But we are very clear that we would like to concentrate on our hotel business, which is what really our customers and our guests expect, and it's profitable from our point of view as well. So we are very clear. I don't think competition really has stand-alone restaurants, but competition and other industry groups do, do -- continue to do home delivery, et cetera, which we really do not encourage.

Okay. Just a final one. So if the peak revenue and occupancy reach in terms of peak tariffs and peak occupancy, what kind of peak ROCE we can do? Any estimate there?

Well, ROCE, as a group, it's difficult to say directly. Now the way we look at it from our management appraisal point of view is we divide it internally into strategic business units. So there's one which is a flight catering business. There is one which is the hotels. And within the hotels also, there is -- so typically, what we do is, we look at the ROCE for each hotel. And let's say, hotels which are mature, for example, either renovated in the recent past or at least not sold, meaning they are, let's say, 10 years, 12 years, 20 years, where the asset base is comparatively lower, I think those properties are at a very high ROCE from -- ranging from anywhere between 40% to 60%. But the newer properties where renovations may have just happened or there's a new property which has come in at a considerable cost, there also the ROCE would be somewhere in the range of, let's say, 14% to 18%. We definitely -- at new companies, we definitely try to make sure that our hotel rate is more than the weighted average cost of capital. So I think to give an ROCE for the whole group would be erroneous because you would have to divide it into the various SBUs.

Yes. I mean as investors, we are comping in a consolidated business, which includes flight catering and others as well, including new nodes. So we don't want to distinguish that because we look at consolidated ROCE number. While you may justify that the old mature ones will have higher ROICs. From an investor's perspective, one has to ensure that ROCEs are much higher than the cost of capital on a consolidated...

I agree with that. But there, Dhiraj, I think what needs to be also kept in mind is we have stated that -- in the beginning of the year, we stated that we would be looking at our assets, which are low-yield -- yielding assets. And we've really managed to keep our word to that. So we've already -- one asset has been already disposed of, which was really low performing. There is another one, which has been a loss-making asset. That, of course, comes into the -- as an investment in the books of stand-alone, but that has also been publicly declared, which is on the -- the transaction is about to complete in the next few weeks. So when you take a futuristic view, I think it is important to consider the fact that the management is very clear that we are looking very actively to turn around -- either turn around or look at other means to monetize our low-yielding assets. So that should be kept in mind.

Yes, I think that's the right strategy to monetize any property which is yielding lower than the cost of capital. Great. All the best.

[Operator Instructions] Yes, Jayesh bhai. Jayesh Gandhi from Baroda BNP Paribas.

Am I audible?

Yes, yes, Jayesh, please.

Yes. So a couple of questions. First is that for next year, that is FY '23-'24, what is the room accretion that we will see -- likely to see based on your current plan in terms of percentage?

Well, not much. Our accretion of room inventory will start coming only from FY '25.

Yes. But '24 would be -- do we have a number that you can share? Or it will be like low single digit?

Yes. It's not really much. Just I would add that there are some renovation rooms, which are there in the pipeline, which has already actually been released. So these are the 10 to the 14 floors in the Trident, Nariman Point, which was earlier either kept shut or were sold at a very -- only when there was an extreme peak because the routes weren't renovated for a long time. So that additional inventory has come in, that is about 160 rooms.

Right. So in '24-'25, when you see the actual increase in volume or capacity, as you call it, and that number -- and from '24-'25 onward, what would be the annual increase that one should look at?

So Jayesh, our group's philosophy is really -- I know where you're coming from here. And the question is probably looking at an industry viewpoint, but our philosophy is slightly different from the way -- it's not really is talking about the number of rooms getting added. It's all individual different properties and each have their own rationale for -- from a business perspective, right? So what we believe is that rather than having a 100-room hotel, let's say, I'm saying that I'll add 400 [ PTs ] it's really not very meaningful for us because when I say 66 rooms of Rajgarh, that will -- we're looking at an ARR of anywhere between INR 35,000, INR 40,000 there, minimum, right, to begin with. Now if I add the 66 to, let's say, a 200-room property, which earns an ARR, which is much lower, let's say, INR 15,000 or INR 12,000, then it wouldn't be right to comp. So if you could please excuse me for not getting into the numbers part of the story, but I'll give you a flavor of what we are talking about. So there are several projects, and I hope you have access to the document that was shared where we listed out the projects in the last earnings call that are going to come. So you would find that there are several projects which are either being done by EIH itself or there are projects which are being done by some of the -- either the subsidiary or the associated companies of EIH. So for example, there is one project in Tirupati, which will be done under Mumtaz Hotels, which is currently owns only one hotel, which is The Oberoi Amarvilas, there, EIH has a 60% stake and EIH is also going to manage those hotels. So if you really want a number, I can probably add up the numbers and give you a number, but that wouldn't be very meaningful. But the projects are as we defined out in the last earnings call.

I understand. Fair enough. Now I guess where I was coming from is that, from ARR point of view, there is only that much higher the increase that you can get probably in the double digit, but still, what you call, finite number, it is the volume and the combination of volume and tariff increase that will lead to your higher top line growth, which is something that you want to aspire to do if not next year than the year after that?

So Jayesh, I would say here that we are really way more focused on earnings per share. And let's say, the profitability is more important to us than the revenue growth itself, because we -- actually speaking, it is slightly the other way around. We are trying to position ourselves for at least we -- that's what we believe we are positioned as. Even during the pandemic where we did not really reduce our room tariffs too much. The whole idea was that our positioning needs to be a luxurious -- luxury, and upper upscale and therefore, a higher ARR actually fetches a way higher flow-through to the EBITDA. So occupancy really, to that extent, doesn't help. So -- yes, so ARR is actually the route to follow and so far as we are concerned. So the addition in room inventory will happen at a level at which we can maintain our service levels, et cetera. But we believe that we have a potential to get a much higher ARR than the market in general.

So if you are to [indiscernible] number, next [Technical Difficulty] by double digit?

Sorry, Jayesh, your voice was breaking -- your voice was scaling a bit.

Okay. The question -- the question I ask you is that for the next 3 years, will our ARR rise by double digits year-over-year?

Yes. I heard your question. Difficult to put a number on whether it will be double digits or not, but we do expect it to be a formidable increase is what I would say. And especially the properties that we're looking at, the positioning that we are looking at for our new properties, it will not be plain [indiscernible] properties. There will be...

I understand. No, no, I did not mean year-after-year in the sense, a 3-year target would be more than double digit?

Sure. 100%.

Wonderful. Wonderful. No, that's good to hear. The other question I have is -- and I know, it's very difficult to gauge margins because the seasonality of the business is so high, first quarter versus second quarter and then third quarter to be robust, et cetera. So if I take a year as a whole, will our margins, FY '24 and forward, be better than what we have achieved or are the margin peaked?

No, no, margins will definitely be much better. But if you really look at numbers, Jayesh, that quarter 1 actually we did -- EIH hotels did a 78.7% occupancy, right? Never in the history of, I think, the industry has such kind of occupancies happened. Now when we say various attribute, various factors to it, but really speaking, seasonality, I don't know, in the current year, at least seasonality has not played any role or very limited role, I would say.

Yes. But in the quarter 2, you had expenses also come up, right? So maybe some expenses were not there in the quarter 1, but if you see quarter 2 margins, they were lower. So -- and I know margins gets structured quarter-over-quarter, so I said I'm asking you for the full year that year-over-year, you'll see margins improving?

100% it will improve, because the cost reduction that happened during the COVID -- so one side, the ARRs are higher, and therefore, flow-through to EBITDA is higher. Volume of business is higher. That again contributes. And the third thing is the cost rationalization that happened, we've been able to sustain it. We mentioned that we would -- as an example, let's say, our payroll cost or our fixed costs would be down by 15%, we continue to be at a 10% reduced cost than what we were before, even after the increases that we saw in the current year, increases due to higher consumption costs as well as higher payroll costs because of attrition, et cetera, which all industries have been witnessing, even after that, our overall cost, fixed cost is 10% lower than what it was. So obviously margins have to improve.

Probably. And then we will see the reflection of that in probably quarter 3, which is kind of the full-blown quarter 3.

Absolutely. Quarter 2 also, if you are looking at EBITDA it was a different story. But quarter 2, one of the other reasons is that we are also looking very carefully to make sure that we don't carry any assets in our books which are really -- we're looking at very -- refining all our balance sheet as well. So therefore, you will find that we are looking at our asset values much more closely. And if there is any scope of any impairment or any reason where we believe that investments may be lower, we have not hesitated to carry out impairment. We want to do that. We want to be absolutely sure that the value that we are carrying in books is what we can realize. And I think one of the reasons you would have seen some impairment happening in the quarter 2 as well. We don't expect any such further impairment to come. But if it -- that's also one of the reasons why our bottom line may look a little different than what it should have looked.

Understood. So ARR increase and margins is how we should focus -- and see improvements going forward is what I understand.

Yes. ARR, margins and reasonable growth. I would not say we would do a runaway growth, but we would definitely do a reasonable growth. And we believe by that, we can remain market leaders both in terms of service delivery as well as STR rankings as well as, at the end of the day, profitability to our shareholders.

The next question is from the line of Aishwarya Deepak of Nippon AMC.

Sir, just wondering how is the occupancy and ARR doing for us at this point of time for this quarter 2?

It's similar, Aishwarya.

No. I was -- I mean because I understand from few people that right now the ARR or the day rentals has gone up by, say, 20%-25% versus...

No. I thought you talked about occupancy. ARR, of course, has gone up substantially.

So 20%-25% is a number which I hear from the different sets of people.

Well, versus quarter 1, it would be around 35%-40% range. If you compare it with quarter 2, it will be around 20%-25% range.

Okay. And that's very good. And what is the outlook? I mean from -- we are already in the very strong season, November came slow, so should we expect this to continue for the remaining 3, 4 months? Or do you see even further upside from here? Especially, in this next, say, 2 months because there we have the strong season.

So one of the policies that we have is we don't make forward-looking statements, but I can give you a trend of what we believe it will be. And this is based on circumstances. So there were concerns earlier about foreign occupancy, about Indian occupancy, et cetera. We have seen foreign occupancy also rebounding back to pre-pandemic levels, as I mentioned in my opening remarks except for one country, which is -- has its own problems at the moment. But if that really is looked at, then we can safely say that if foreign tourism really goes back to pre-pandemic levels, especially in the last quarter, then there'll be further pressure on the rates and obviously, that will help improve our margins even better.

Sure. And sir, that's worth to know. And how do you see the order booking or the visibility of revenue from here on because now we are in a season and probably you can give some -- how do you see the next 4, 5 months booking? Where there inquiries by the customer or maybe the foreign travelers [indiscernible]

No, it's very robust. As I said, the trends are very robust. The business on books is quite strong. Contracting also has been happening at a very decent pace. And obviously, the stagnation that was earlier there, -- of course, there is -- there are inflationary pressures that I must say. But subject to that, I think people do understand that especially these 2 sectors, hotels and aviation are doing very well in terms of demand. And we are certainly reaping the benefits of that at the moment.

And sir, in this part only, how do you see the corporate booking? Because one of the biggest lever was the corporate bookings and the rate of the corporate bookings are supposed to move up in a meaningful way. And there was also -- there are some revision in the rates on a global basis, which is supposed to happen from 1st of April, where I understood that 15% kind of hike is the minimal, where it could be, one should expect from 1st of January?

Well, as I said that I won't be able to give specific numbers, but I will, if you take, in general, corporate business is still about 35% of our business. And if we are saying that we are going to do an ARR, which is, let's say, 35%-40% higher than first quarter, and obviously, a large portion of that has to come from the corporate segment as well. Of course, direct segment is most profitable in terms of higher ARRs. But obviously, if a large chunk is in corporate segment, then that rates have to also similarly go up. So from that, I think you can get an indication of where the rates for individual corporates are.

And [Technical Difficulty]

Sorry, Aishwarya, your voice is breaking. I can't hear you clearly.

Yes, sir, if I divide the revenue, then what we discussed is some 35% is the corporate, what is the remaining 65%, if you just give us the breakup?

Well, the largest chunk is direct business as of now, which is from our own website, from our contact center and from online travel agents. So that is the second largest segment followed by leisure. And yes, that's about -- and the rest is MICE. So conferences and MICE has also picked up quite substantially.

Sure. And sir, revenues improve the activity, where you have the better ARR and I hope the occupancy will also be good. So in that case, I expect that the cost to grow, because there was too much rationalization of the cost and because of the COVID because the revenue was not there and it was a logical step, but now with slightly a decent rate and the decent occupancy, how we should look at the cost versus pre-COVID?

You know what the -- actually, the costs were not reduced per se, but they were rationalized. So a couple of things happened. One is that, as a group, we invested heavily into technology over the last 3 years. And in fact, that process had started even before COVID really were kicked in. So we got the benefits of that, and that really led to a lot of savings that we did in terms of reduced manpower where we did not have to fill up the positions that were vacant because it was replaced with technology. So as a result of many of these actions, as I mentioned earlier on, the payroll cost is lower by 10% than what it was in a pre-pandemic period. Now this is even after the addition of employees, for example, for contracted employees and others where because of enhanced business, more people had to be taken in. So the reduction that I'm talking about is even after taking that into account. So really speaking -- and then there are several other measures. For example, we went with solar plants which is not only a good thing for us from an ESG point of view at 4 of our hotels, where between 40% to 60% of our electricity, for example, is completely at a negligible cost compared to the normal tariff, which is between INR 9 to INR 11 anywhere in India. So I think many of these cost levers, these are at least semi-permanent in nature, if not permanent. And therefore, we don't expect those to arise. In terms of variable cost, which is high because of inflationary trends and other things, we are keeping a very watchful eye and making sure that our supplies, et cetera, are not affected. And there also, we are in a better position to negotiate with our vendors, for example, because in the good old days when systems for manual, let's say, we are not in a position to really -- I mean, the question of, let's say, timely payments to vendors. Now that does offset a bit of the price increase as well because now we can promise to vendors, for example, that we'll -- that we make payments to our vendors in the stipulated time and there's no delay, et cetera. There's no manual intervention. So I think all of these things have helped us, and it is only going to increase. So we don't expect the cost to go up in the same proportion as which the revenue is going up. It will be much lower than that.

Yes, yes. Sure, sir. I'm sorry, one last question is, what's the -- as a percentage of number of [indiscernible] what kind of growth we should anticipate in, say, financial years '24 and '25 for EIH?

Well, are you talking in terms of growth of profitability or growth of revenues?

No, I'm talking in terms of room, the number of rooms...

No, I mentioned already, in '24, there is -- the number of rooms addition is not going to be very large, FY '24. But in the last earnings call, we had mentioned the projects that are coming year-by-year, which year how many projects, how many rooms. So you can refer to that document. But in quite a few projects are on the anvil in the next 2 to 4 years.

[Operator Instructions] So while we wait, Poonam, do you have any questions?

Yes, I do have a couple of them. So just a follow-up to the previous participant's question. Did we get into negotiation with the corporates on the rates? And is it at par with what we charge for the retail clients?

Sorry, I couldn't hear the last portion.

So is it at par the corporate room rates have gone to that of par compared to that of retail clients or is it still below?

No. See, corporate business is definitely more commoditized than individual FIT businesses. So obviously, that will always be slightly lower than the direct rates. But yes, there is a revision across categories and across segments. And most of the contracting in case of corporates, which are -- except the ones which work on a calendar year, the other corporate rate agreements have already been concluded.

Okay. And if I have to compare this with 1Q FY '23, what is the growth rate in terms of increase in ARR from the corporate side you have witnessed?

So I somewhat answered that question earlier on, to say that our ARR, as I said, in quarter 3 is anywhere between 35% to 40% higher and our 35% -- 30% to 35% of our business is corporate business. So obviously, there is a contribution from there as well. So I won't be able to give an exact number, but it could be in the range of 10% to 15%.

Okay. Understood. Can you also talk about the demand side for the upcoming quarter and considering that G20 things are happening, so how the demand is going to be? Your thought on that?

I can only say that we are pretty bullish about the next few quarters. We don't want to talk much beyond that. But the next few quarters, we are quite bullish barring any unforeseen kind of factor whether it's Ukraine or whether it's inflation or recession. Barring those, I think we are looking at -- we are expecting good business in the next few quarters.

Sure. So I was just going through the presentation at this question, it's the RevPAR growth in cities such as Kolkata, Agra and Chennai markets have been lower compared to what it was in pre-COVID level. May I ask why this so and when can you expect the recovery in those cities coming back?

Yes. No, you're right. And the city -- these are characteristics of the city more than anything to do with our business, because in Kolkata, for instance, we continue to be STR 1. So in our comset, we are RevPAR 1. So despite that, the city itself, the rates are more subdued. And therefore, it's difficult to say. Chennai is definitely picking up. And I think with the winter season, Trident Agra should also not be a problem. So let's look at it. I mean on the contrary, if you look at cities like Bangalore, which is on a 90-plus percent occupancy is consistently over the last 6 months, there, of course, both the occupancy as well as the RevPAR, I mean IRR is higher, which leads to a much higher growth in RevPAR. So I think it's more of a city characteristic than anything to do with our hotel.

Okay. Got it. And also, if you can give your take on the flight catering business, how you are seeing any improvement? Are you seeing any improvement from here on? And if possible, can you please compare how second half of FY '23 will be vis-a-vis first half given that...

Second half certainly will be positive because in the past years, the company has seen losses because of losses coming in from this segment, especially after Jet Airways debacle in 2018. After that, there was a substantial drop in the business. But yes, it has picked up now. And this year, definitely from this segment, we will be EBITDA positive.

Apart from this, are you also catering to other airlines, like we were catering to Tatas, right, before -- Air India?

No, no, no. We never had. There was a very fair business long back, but we never -- our clientele in OFS, in Oberoi Flight Services, 70% of our clientele is international airlines. So we have always been more concentrated on international business.

Okay.

The only addition that happened during the COVID, which continues till date, is one of the prominent domestic carriers actually approached us and we started supplying to that business as well. But now with increase in occupants meaning increase in utilization of our flight kitchens, I don't see any further domestic business being picked up by us.

Okay. And if you have to give the growth rate in terms of revenue and EBITDA, will you be able to comment on the number? For the air catering business. Can we expect profitability from this segment?

Yes, I did mention that we will be EBITDA positive this year, definitely, which was earlier at a loss. So I can't put a number to that because we don't declare that as a separate segment, even in our accounts. So it will not be right for me to really come out with a number, but we will definitely be EBITDA positive, this is what I can say.

Okay, understood. And also, India has a destination gaining traction in terms of beaches destination, where we are not present at this moment, but we have our plans to get into, especially Goa, wherein we are setting up this Trident hotels with 150 -- roughly around 150 keys. I believe this is not -- the hotel is not into ultra luxury segment wherein we have plans to create some kind of paralysis and all. So we shall follow the same trend of expansion into another cities or it's like we are refraining ourselves from getting into palaces kind of hotel into the beach destination. Your take on this?

So in Goa, there are 2 hotels, firstly. If you look at our presentation carefully, there is 1 Oberoi hotel and 1 Trident hotel. We have a very large area there, which we own. And these 2 hotels are being built there. Total, it will be about 250 rooms, both of them taken together. It will -- really, we don't have a segment called Palace, but if you're referring to the Vilas properties, which is in, let's say, Udaivilas or Rajvilas or Amarvilas, for example, yes, we are not planning any vilas properties immediately, but we will -- whatever -- whichever hotels we come up with, Vizag is also on the anvil, through one of our associate companies, which is also a beach destination. So therefore, these will either be upper upscale or it will be luxury hotels, but it will definitely not be lower than upper upscale.

Understood. Also, there is a follow-up question to this, given that we are adding up a couple of inventories into our portfolio. So is it that the occupancy going to decline from what it is presently at the peak level? Or do you expect for new Cummins Hotel will have the same occupancy into place?

No, see, when whichever projects we are doing, it's not randomly picked up projects. These are well planned projects with proper focus on what we intend to do. Typically, hotel projects. Normally, they rationalize and they come to a model position in the third year. But we are quite aggressive on our marketing, et cetera, on the new properties because they are very chosen properties. And also the destinations, if you see really speaking, Goa, Rajgarh is one destination, of course, which is an offbeat destination, which probably falls into the category of what you were earlier calling as a Palace hotel. But apart from that, I think -- well, yes, this is exactly what I would say to reply to you.

Okay. Let's say, we have roughly around 8 to 9 deals under the pipeline. And if I have to compare your pipeline with that of Indian hotels, they are actually coming up around 8,400 to 8,500 keys, again into ultra luxury and luxury segment, but we are going very slow in terms of expansion. So why is it so and do we have any plan to scale up compared to that of...

Thank you for your question. But sorry, I would definitely not like to compare with anybody other than our group. We have a very clear idea on what we believe others are doing and why we do not want to follow that path. And it is not true that 8,000 rooms are getting added in ultra luxury and luxury segment. If you see at your numbers, I would just request you to revisit your numbers. There are definitely a large mix of budget hotels and other hotels and we are not going to operate in the budget category. That we are very clear.

Understood. So for clubbing, I guess you are also going to set up a club, how do you see that you're going to scale up the club segment from here on? Because I guess 1 or 2 club thing you're going to start up, right, in this financial year?

Yes, I think you're referring to the Bay Club.

Yes.

So Poonam, my request to you would be to view our organizers -- our groups slightly differently than what many players in the industry today are doing. So let me stick my neck out and say that what we believe as many others doing is commoditizing the business. We are not in the commodity business. So each of our hotels will be unique hotels. Even the club that you're talking about, I think you should wait for it. In fact, it has already been launched on the 18th of this month. And I would request you to visit the club to really see what kind of a club it is. It's a completely different club. Nothing of that sort has been ever seen in India and in many other places across the globe, right? So we are into niche operations. We are not into commoditizing. We are not into volume and talking about number of rooms, number of clubs. If we do 1 club, then that will be very unique and that will contribute. And we believe that, that way we are way more profitable than if we were to go the commodity route. That's our philosophy. So I would just request that while making -- of course, we are also into the listed space. So obviously, every analyst, every investor would compare that I completely agree. But while doing that, I would just request you to bear that in mind.

Sure. So there's this news article which have been floating for this year Wildflower cases. So I wanted your verdict on Wildflower cases. And I have heard that -- you know the property is getting converted from freehold to leasehold for 40 years. So is it something negative for the properties, your take on this?

No. We already answered this question on the last earnings call. It is actually not negative. Firstly, the property is not getting converted. It is the land that is getting converted from freehold to leasehold. That option was actually there for us 15 years back as well. But at that point of time, the profitability of the hotel was very different from what it is now. I mean, in the year of the pandemic, the Wildflower Hall was our most profitable hotel across the group with a 52% profitability, right? So the decisions that were taken in 2015 to contest the case versus the decision now not to contest the case are equally valid. So at that point of time, there were reasons why we decided to continue with that case. But today, as things stand, this verdict is based on an arbitration award that was given out in 2005. And based on that, as we look back 15 years later, I think the terms appear to be very favorable for us. And I don't see in any way. By the way, this 40-year lease that you're talking about, it is renewable for another period of 40 years, so it's actually 80 years and of course, the -- as for mutual negotiation between the 2 parties.

Also, is there any pending penalty from our side, which is supposed to be paid to the government since we have delayed the construction of the property and because...

That has already been taken into account in the last quarter.

Okay. So there's no...

I mean, I can't give any forward-looking statement. If there is anything new that comes up, then I don't know. But as of today, whatever liability has accrued from 2005 to 2022, has already been considered in our books. If you look at our exceptional items for quarter 2, you will find the figures there.

Yes, I understood. It would be really helpful if you could give the CapEx for your upcoming projects, say, over the next 2 to 3 years? Any ballpark number will also do.

It's a little difficult to give. See, our regular routine CapEx is between INR 40 crore to INR 50 crore. But I believe what you're asking is not the regular CapEx. I think what you're talking about is new projects.

Expansion. Yes.

Yes. So I see the ballpark numbers, you can put it up. You have the number of room keys and the year, which is mentioned in -- which we mentioned in our last earnings call and overall property anywhere, which is an overall branded property costs anywhere between INR 2 crore to INR 3 crore a key. And a Trident property costs anywhere between INR 1.4 crores, INR 1.75 crores a key. So -- and you also know which are the managed hotels and which are the own hotels. So I'm sure you can work out from there, Poonam, if you don't mind.

Yes, yes, I'll work out. No worries on that. And also, how is this RevPAR and you're seeing in October month compared to that of September? Is it better or like -- because September -- because June, July, I guess it got impacted due to seasonality wherein the corporate travel has been limited given that it's a rainy season, and there are a couple of holidays, which have fall into place. wherein corporate side of travel has been restricted. So if you could comment in third quarter, do you feel the seasonality will continue given that, again, there's this holiday season coming in?

Well, that's a plus as well as a minus. So holiday seasons are good for our leisure hotels and other times are better for our city hotels and we have a fair distribution between -- although 50% of our inventories in city hotels, that's true. But -- or more than that, right, really. So the RevPAR trend is in line with what we did in September. Well, in some cases, ARR is higher, occupancy is slightly lower. And as I said, that the focus is currently on ARR, because we believe that throughout the pandemic, we took that decision to really make sure that we are top of the line with our safety and security measures, et cetera. We continue to do our upkeep of properties, and we believe that our properties should fetch a premium in the market. So considering that, we are -- although occupancies are also quite good there. RevPAR is currently at similar levels as that of September, but that's only a trend, and I'll just request you to wait till the quarter gets over, because it's in the middle of the quarter, and I don't want to really make a forward-looking statement.

Sure. So I don't have any other question. Thanks for answering all of them. Hitesh, back to you.

Yeah. [Operator Instructions] So I think we don't have any more questions. So we'll just conclude this now. On behalf of Nirmal Bang Institutional Equities, I thank Mr. Kallol Kundu for joining us today with all his comments and answers and thank all the investors who joined in. Thank you, everybody, and have a good day.