The Indian Hotels Company Limited (500850) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Indian Hotels Company Limited Third Quarter Full Year 2022 Earnings Call being hosted by Mr. Puneet Chhatwal, Managing Director and CEO, IHCL; and Mr. Giridhar Sanjeevi, EVP and CFO, IHCL. [Operator Instructions] Please note that this conference is recorded. At this time, I would like to turn the conference over to Mr. Puneet Chhatwal. Please go ahead, sir.

Good morning, ladies and gentlemen. Welcome to IHCL's Global Earnings Call for Q3 and 9 months of 2021 and 2022. Let me start with some good news. We were fortunate to receive multiple recognitions on the global stage at the Hospitality Awards 2021 in Paris. These included award for Best Iconic Asset for our flagship Taj Mahal Palace; Best Team Achievement award for our newly launched Qmin business; Best Team Achievement Award for the IHCL Goa team; and last but not the least, the Best Wellness Experience Award for our Jiva INNERgise campaign. Now getting on to business. If we look at the macroeconomic scenario today, there is an expected slowdown in global recovery. However, India is expected to perform better. IMF and its latest economic outlook has reduced its projections for the world as well as most major economies, albeit marginally. However, they increased the forecast for India from 8.5% to 9% and even the latest economic survey from the Indian government pegs India's growth in the current financial year at 9.2%, in the next financial year FY '22/'23 at 8% to 8.5%. This will mean India will continue to be the fastest-growing major economy in the world. The Indian hospitality industry has also demonstrated tremendous resilience. And if we look at the Indian hospitality industry's RevPAR in the last 2 years, the sector has always bounced back despite being beaten down multiple times. In Q3 '21/'22, the industry RevPAR recovered to 79% of pre-COVID levels. Now moving on to the performance highlights of IHCL, specifically on some of the key metrics. We saw a robust recovery in our rates, occupancies and RevPARs and outperformed the market across all 3 parameters. Just to take an example, IHCL's domestic Q3 RevPAR recovery stood at 89% versus pre-COVID in comparison with the 79% RevPAR recovery showcased by the industry. It is also heartening to note that the average rates in our domestic portfolio bounced back to 95% of pre-COVID levels and the occupancies were also around 94% recovery. We also saw RevPAR outperformance versus the industry in most major markets. However, the cities of Bengaluru, Mumbai and Delhi NCR are yet to fully bounce back. And recovery in these locations will significantly boost the sector's recovery performance. We think at least Mumbai already is on a good [ rate ] since the order came out yesterday for certain relaxations, have been offered due to the decrease in the COVID cases by more than 90%. IHCL's rate premium versus the industry has grown in the last 2 years. This is reflective of the trust our customers have in our service philosophy, which we call Tajness and in our brands. Our portfolio mixed together with smart product renovations -- innovations have also enabled this growth. We have continued on our growth path. And today, I'm happy to report that IHCL is present operationally or under development in 29 states and union territories out of the 36 in India. The only ones missing being Chattisgarh, a few states in the Northeast, namely Manipur, Mizoram and Nagaland and the union territories of Dadra and Nagar Haveli and Daman and Diu, Ladakh and Lakshadweep. We are present across 97 locations in the country with 210-plus hotels in the portfolio in India. This is far higher than any other hospitality company on the Indian subcontinent. We continued our momentum on hotel signings with 17 new hotels signed in the 2021 calendar year. Please note, it is calendar year for the 17 new hotels and this is across 16 cities. All were in asset-light model with 65% of the new signings being pure management contracts and 35% being leases in our lean luxe Ginger brand. We have always given the guidance that Ginger is going to rely mainly on lease-based model as doing management contracts for Ginger does not help in our strategy of the growth in margins. Today, we have a strong pipeline of over 60 hotels, totaling approximately 8,000 keys. The pipeline is predominantly managed at 74% and mostly in India. This pipeline positions IHCL well to deliver on our promise of opening a hotel a month. In fact, in calendar year 2022, we are optimistic of exceeding the target and opening more than one hotel a month across our hotel brands of Taj, SeleQtions, Vivanta and Ginger. Our profitable growth in new and reimagined brands of Qmin, Ama and Ginger continues rapidly. Qmin has scaled to 20 cities and is expected to close this financial year at around INR 65 crores of gross merchandise value. Our aspiration is to take the brand to at least 25 cities and keep growing exponentially the GMV over the next 3 to 5 years. Similarly, our Ama brand has grown to 72 properties today. And our aspiration is to grow the portfolio, also exponentially like in Qmin to over 500 properties over the next 5 years. Our reimagined and repositioned Ginger brand has done extremely well in terms of growth and revenue recovery during COVID. Ginger's Q3 revenue was at 93% of pre-COVID levels. And the change and -- or what we call the switch to lean luxe has helped Ginger achieve a 600 basis point EBITDA margin expansion over pre-COVID levels in Q3. We continue on the growth path for Ginger, and we expect this portfolio both in operation as well as in pipeline also to grow at a rapid pace. On the cost front, we continue to be laser-sharp focused and also on structural optimization. There has been a reduction of 17% in total expenditure, 15% in fixed costs and 23% in our corporate overheads in the last quarter versus the same quarter at a pre-COVID level. If you look at these metrics on a year-to-date basis, the reduction in total expenditure stood at 27%, fixed costs came down by 19% and corporate overheads were at 20% below pre-COVID levels. Of course, some of the fixed costs have come back and as a matter of fact, this is mainly due to the furloughs we benefited from in countries like U.K., U.S. And this helped us in subsidizing some of the labor costs and also certain rent favors that we got in the first year of the pandemic. We would like to reinforce the management's focus on return on capital employed accretive operating model, enabled by asset-light growth, incremental capital allocation, focus on free cash flows and continued exploration of asset monetization. I will now provide some highlights of our financial performance, post which I will hand over to my colleague, Giridhar Sanjeevi, our EVP and CFO, to speak on the details of these highlights. We delivered a good performance in Q3 with a revenue growth of 85% and EBITDA growth of over 800% versus the previous quarter. We are pleased to report that Q3 PAT was at INR 76 crores, which meant around INR 200 crores growth over the corresponding quarter of the last financial year. Our 9 months performance also saw improvement over the last year with the doubling of revenues and growth in EBITDA by close to INR 600 crores. If we look at the performance of the last dozen years, the EBITDA margin in Q3 this year has been second only to '19/'20 figure despite decline in revenues on account of COVID. This is a clear result of the efforts on spend optimization and creation of margin-enhancing revenue streams. Having said that, I will now hand over to my colleague, Giridhar Sanjeevi.

Thank you. Moving on to some of the details of the performance. In Q3, we saw stand-alone performance at INR 771 crores. And what we are very gratified to see is that the revenue recovery was 87% in stand-alone as compared to the pre-pandemic period, and EBITDA margin came in at 37.7% for stand-alone. Similarly, on consolidated, we saw an 80% recovery as compared to the pre-pandemic period and EBITDA margin at 30.4%. For the 9-month period, I think I will just say that this INR 2,257 crores that we achieved in the 9-month period exceeded the revenue for the last year in the month of November itself. And I think -- and the margins also look consistent in terms of 19% in stand-alone and 14.1% in consolidated. And with this Omicron kind of going away hopefully now, I think this quarter should see improved recovery. In terms of the performance, what we have seen is that on a consolidated basis, EBITDA has been positive since July 2021, and PAT was positive in Q3 after about 20 months or so. Similarly on standalone, the same pattern continues in terms of EBITDA positive and PAT positive. At an enterprise level, what we've seen is that the same-store recovery has been at 85% across the enterprise which is 11% better than Q2. In the domestic businesses, we were at 89% recovery. In international hotels, the recovery was 74%. In key cities, our recovery has been very good, driven by the leisure markets of Goa, Rajasthan and others. Bombay, Delhi and Bangalore have done well, but these are the cities which, as we said earlier, with its improvement, the whole industry and our performance also will improve. In terms of international cities, we saw a strong performance from Dubai and Maldives. U.S.A. came up to about 50% in Q3 as compared to '19, and U.K. came up to 80% as compared to '19. One very interesting statistic as we look at leisure versus non-leisure. The occupancy recovery both for leisure and non-leisure was about 66% in the -- in both leisure and non-leisure. And in ARR, the leisure had a INR 16,400 of ARR and non-leisure was about INR 7,500, showing the power of leisure. And with our network of properties, which is balanced between business hotels and in leisure hotels, we have clearly been able to benefit. On the international geographies also, we saw some very strong recoveries in occupancy and ARR across the market section. In terms of key revenue drivers, I think basically, I think occupancy has been strong at 51%. ADR was plus 41% during this period. RevPAR was -- the RevPAR more than doubled in the 9-month period actually. In terms of asset-light growth, as we said, we have built a strong portfolio, and we are on track to open 1 hotel a month. Management fees at INR 158 crores were more than 80% in terms of the recovery actually. The [ new and reimagined ] business of Ginger, Qmin and Ama continued to do well. In terms of the new businesses, I think Ginger had a Q3 revenue of 93%, occupancy of 62% and ARR of INR 2,300. Chambers did very well, we have 2,450 members. The 9-month revenue is INR 60 crores, which means that we're doing more than INR 5 crores a month in terms of recoveries actually. And in terms of new members, in management contract fees, as I said, has been INR 158 crores for the 9 months as compared to the '19/'20 number of INR 213 crores. Qmin and Ama continued to do very well. On cost management, I think we've continued to focus on operating leverage. And what we saw in the 9 months is that while the revenue went up by 127%, the cost increase was only 39%. And similarly, in stand-alone, it was 111% on revenues and 36% on cost increases, thereby supporting the leverage. This cost management came through with corporate overheads with a 23% reduction. Overall fixed cost reduction was about 19%, and manpower rationalizations continue to be our area of focus, and we will have to redeploy about 361 people. International hotels continued their recovery path with U.S.A. and U.K. continuing -- doing well on the revenue side and continuing to focus strongly on cost with overall international markets showing a positive EBITDA for this period. Similarly, if I look at the different subsidiaries, all of them have kind of recovered well in terms of performance. On the debt position, we completed the rights issue of INR 2,000 crores in the month of December. We were able to pay down debt. And as we speak, the net debt in stand-alone is about INR 1,000 crores and consolidated is about INR 1,900 crores. In terms of -- I think that is the key highlights in terms of the -- continuing to see strong recovery of business. And in Q4, recovery is coming back in the month of February, and we hope to do well in this quarter as well. Open to questions.

[Operator Instructions] We will now take our first question.

This is Vikas from Antique. I have few questions. The first one is looking at the southern market, we are doing much better than peers. On overall portfolio also, we are doing, but they are -- the difference is much higher, especially in Bangalore, where RevPAR is back at 77% versus 50% for the industry. What led to this performance. And most of your peers are struggling because of no international travel despite recalled hiring by the tech companies. Can you explain from where this outperformance is coming?

Vikas, thank you.The reason for the increase in market share, as we have said quarter-on-quarter basis is really the power of our brands and our focus on strategic growth and strategic renovation. So I think it's not just in those markets. As we have shown in the presentation, in most of the markets or almost all important major markets, we are having a higher revenue growth index versus the peers. So we do attribute it really to our marketing efforts, but mainly the power of the brands.

Okay, okay. Sure. I think the difference in...

See, there is -- Vikas, if I may add, actually, see what happens is that, especially during COVID, the business has shifted to more and very strong domestic focus. And so globally, also, you are seeing that it does not matter which brand is in which market. As long as it is strong on the domestic front, it is just getting premiums, whether it's a Germany-based brand or a U.K.-based brand or an India-based brands, I think in the short to medium term and if the brands position themselves well, then even in the long term, they are expected to outperform the other brands if they are very strong in the domestic market. And as we said in the presentation, we are present in 97 locations. And I think that helps in the pan-India footprint. It is not always the number of rooms that counts. It is how you cover the width and the depth of the market, which we also do regionally.

Sure. And also in your presentation in terms of RevPAR, you have showed we have already reached 89% of pre-COVID levels. Any rough time lines you would like to share on maybe when we can reach the pre-COVID level kind of a RevPAR number? And secondly, one question for Giri, sir. In terms of margins, historically, Q4 is always [ a shade ] lower than Q3. Plus Q4 is anyway is more corporate heavy. Do we think we can sustain these margins? Or we will see some kind of a dip in Q4, mainly because of maybe impact of Omicron or lack of corporate travel or I mean, if anything, there?

Okay. Before I hand over to Giri, I think your question was, when do you expect to come to 100% of pre-COVID. And I think if we need to adjust for inflation, we need to come to 105%, 107% to have a real like-for-like comparison. There are 3 key markets for us, that is Delhi, Mumbai and Bengaluru. They are still at a low level of performance, averaging around 70%, 75%. The day they get close to 95% or 100% of pre-COVID, definitely, for us, we would have crossed the pre-COVID revenue level. Even if the resort business adjusts itself a little bit at a negative growth level. So we have run that analysis. And we are very hopeful that with the bounce back in Delhi, Mumbai and Bengaluru, which should happen over the next months, this should help in getting to the pre-COVID level of revenue. If we get to that level of revenue, I think what I would say is you should do that incremental cost and incremental revenue analysis and then look at the flow-through. So the margins can be sustained with or without Omicron and with or without any of these things, if the incremental revenue starts coming in because your conversion or your flow-through becomes much higher after a certain cost level as we are very much present in that higher segment very strongly. And with the new Ginger, we are also driving margins in our new portfolio. So it's -- and I think Giri will add to it. It's a very big question mark in terms of as of when we will see business recovery in these 3 key metros.

I think building on that, Vikas, I think margins for us are driven by 3 factors. Number one is the recovery in the traditional business; number two is the cost reduction initiatives; and number three is the new narrative around the new businesses of Chambers and Qmin and Ama and Ginger actually. I think what we are now seeing even in the 9-month period -- in fact, what is happening is that if you look at the 30.4% EBITDA margin that we had, part of it is really coming from the new businesses actually. And given that -- so that is going to be a major factor, which will help us sustain the margin of 30% or better actually.

Sure. So I think -- so what you are saying is Q4, there is a good chance that we have being able to maintain these margins, is that...

Q4 January -- no, January will be impacted for sure because of the COVID. February and March, the recovery is strong. So therefore, to the extent that the traditional businesses have been impacted in January, there could be an impact. But what I'm trying to say is that there are 3 factors we need to consider, the recovery of the traditional business, the cost reduction and the impact of the new businesses. All the 3 you should take into account. And therefore, there are some compensating factors which are definitely kind of coming into play.

Sure. I just have one last question. And others, I'll take it off-line. So the last question is on the guidance. We have shared like it's going to be more than 1 hotel per month. Is it going to be a similar kind of a mix, which we have seen in calendar year '21 dominated by Ginger and management contract? And lastly, once this fundraising is over as in overall, are you looking for some acquisition as well or anything in the pipe? That's about it.

So Vikas, you're right, the mix would be more or less the same. But as we have mentioned since the last couple of years, we are hopeful of the completion of our absolute flagship for Ginger brand at Santa Cruz, where construction has already reached the first floor. Now whether it will be finished in December of this calendar year or January '23, that certainty will have in the next few months. But that's a very big one. As you know, that's 371 rooms. And it's from both a CapEx perspective, from an asset management perspective, in case we were to sell it and do a sale and manage back or a leaseback. All these are considerations which we will discuss with our Board over the next 3 to 6 months as and when the construction has reached both fourth or fifth floor and we have a certainty of the opening date. The way we look at opening dates is always 9 months prior to opening is the month of opening, 6 months prior to opening is the week of opening and 3 months prior to opening is the date of opening. So once we get to the week of opening, I think some of these considerations will play in. And we are really looking forward to the opening of that trophy assets. Besides many of the Taj properties, our second Taj branded property opening in Kolkata in March, we have a very nice lined up Ginger -- Ginger, I'm saying Vivanta, our branded properties also including in the Northeast. We're opening in Shillong, we're opening in [indiscernible] in [indiscernible]. So the mix will be more or less the same as you have seen, as there is not focus on one brand only. The idea is to grow the critical mass in all the brands. Giri, you want to? Hope this answers your question, Vikas.

Yes, sir. Yes, sir. The last one is on acquisition as you have imparted. Is there anything down the road?

We have always opened to looking at any opportunity that comes. I think our growth of -- or our addition to our pipeline and our current pipeline is a testimony to that in terms of our aggressive growth plans and our growth -- profitable growth strategy. So if anything comes up, which is a compelling proposition, I think we would be very well positioned to take advantage of it.

We'll now move on to our next question. [Operator Instructions]

Yes, I'm an individual investor. My name is [ Adithya Podar ], am I audible?

Yes. [ Adithya ], you're audible.

Okay. I wanted to know with the takeover of Air India by the Tata Group, what kind of business can be expected from Air India? Because currently, Air India is being served on the flight kitchen by various other companies. And also the staff stays at various hotels maybe including Taj Group, IHCL Group. So just wanted to know what are the synergies, what kind of businesses you guys can expect? That's all.

I think it's a very good question, Adithya actually. I think we are quite excited at the acquisition. And I think the impact on Tata actually is immediate actually in terms of better consolidation. And you're right that the crew stays also would -- some of the crew stays also, we will get an opportunity to participate. And hence -- and also our ability to do multiple things vis-a-vis around our own customers, actually. We have tried different things at AirAsia as example, as you know, fully -- the packages with AirAsia and all we have done in the past, our ability to do this goes up [ for share ] actually. So I think overall, it's very, very positive both the Indian Hotels as well as [ Tata ] actually. And we will hopefully get the benefit of both stays as well as the catering businesses.

We'll move on to the next question. [Operator Instructions]

This is [indiscernible] here from ICICI Securities. I had a few questions. The first question is on the industry supply side. So in context of the successive waves of COVID, so where do you see the industry supply growth trending now, especially in the 4-star and 5-star category? And considering that, when do you see any significant growth or any pricing power coming back into our room rates and at around what occupancy levels? If you could just give us your views on that.

The supply is being very constrained. And in fact, it even shrunk in some of the markets. And that has helped the rates. As we have mentioned, we ourselves got to a very high recovery percentage on the rate front. The rates in resorts are definitely outperforming the rates of pre-COVID level. And as mentioned in an answer earlier, the day we start seeing 90% to 95% recovery of rooms revenue and total revenue in the key metros of Delhi, Bangalore and Mumbai, I think the rates should bounce back. Definitely, supply will remain constrained for a few more years because a lot of -- the industry has struggled in the last few years. And getting loans to build new hotels is very highly unlikely unless there is such a big boom coming in the business. But that we will know over the next 3, 4 quarters as things stand today, demand will definitely outpace supply after a very long time.

Okay, okay. Sir, that's helpful. The second question is on our new brands and businesses. If you just help us understand for the 9 months for this year, what would be the EBITDA margin flow-through for all the businesses combined? The India Chambers, management contracts of Qmin, Ama. Could you share a broad number?

I would say that yes, about 50% plus, yes. 50% plus, yes. I think Chambers will be much higher because I think Chambers, the flow through is about 80%. Qmin and Ama will be about 50% and Ginger as well. So that is a very good kind of plan.

Okay. And...

Ginger for the new portfolio -- I would just like to add, Ginger for the new portfolio, yes, getting close to 40% to 50%. But we are still carrying some of the whole portfolio, which still has to be renovated, et cetera, and repositioned. There, the margins are lower because also of old contracts. So a lot of improvement is driven by Ginger and the aspiration is to get to that 50% plus. And hopefully, we'll keep seeing that recovery. And this segment is also more resilient that's why it achieved 93% of the pre-COVID revenue in the quarter.

Okay, okay. And just my final question is a follow-up to an earlier question actually. So if you are to understand it correctly, you're saying that when our revenues get back and the RevPAR comes to pre-COVID levels, but EBITDA I understand should be sustainable at around 30% at an entity level, is that a correct understanding?

So the 9-month numbers were 30% plus. Q4 may be impacted because of the way the January Omicron has impacted. But I think overall, if you ask me, sustainable at 30%, next year absolutely.

Okay. And just any further delta beyond this 30% would be driven largely by the ARR growth and occupancy, that is the understanding, right, over and above this?

See it could be anything. If the restrictions are lifted on food and beverage, like just now it was lifted that, yes, weddings will be allowed, but 25%, but no more than 200 persons, right? You start doing weddings again of 700, 1,000, 1,500 people, then there is a lot of margin in that kind of business. So -- and it's a very important part of business in -- on the Indian subcontinent. So some of these areas, we are beginning to get optimistic with the continuous decrease from the peak of this third wave and a rapid decrease. So as and when that comes back, yes, it will be accretive. And a lot of these margins will be driven by our aggressive focus on profitable growth, whether it is new businesses or new contracts or the repositioning of the old. Like, for example, 2 years ago, we repositioned 19 of the properties back into the Taj brand, like the Aguada in Goa, the Holiday Village, the Fisherman's Cove, the [indiscernible] in Jaipur, the Grand Hotel in [indiscernible], the [indiscernible]. So it's a combination of all this. That's why when we started on our journey of Aspiration 2022, we were at 17% margin. And then we gave a formal guidance of 800 basis point increase. We have not stopped there. We'll continue to focus on this journey of profitable growth. And I think when we are able to host the next Capital Markets Day, we'll give exact guidance on what kind of margin we are targeting.

We'll now take our next question. [Operator Instructions]

Sumant Kumar from Motilal Oswal. So my question is regarding our leisure business' ARR sustainability, and we have seen a significant improvement in ARR of our leisure business and particularly Goa and other destination also. So assuming there will be an outbound starting maybe in 6 months, so do we think the ARR is going to sustain at this level in next year of the leisure business?

Sumant, thank you. Not only it will sustain, we expect ARRs to grow. See the occupancies grow and, of course, in leisure destinations is where people wanted to go to. But we are seeing a permanent shift in a certain percentage of the business where we had the term of bleisure, business plus leisure before, but it's actually going to be permanently there going forward because that's a segment which people have now got used to. And I'm not saying it will be a very big percentage of total business, but that will help drive ARR. And that portion of the business is not really leisure. It's driven by business. And so the leisure destinations would get that percentage level, which they were not getting previously. If they are previously 10, then that grows to maybe 18 or 20. And I think that is one reason the rate will be driven. The second is obviously the change in the supply and demand pattern as less and less supply will come in the market, and demand will start coming back. Also, all these leisure destinations, look at our portfolio of palaces, Lake Palace, Umaid Bhawan, they have been missing all these international travelers. And once they start coming back, all of our palaces should benefit. All of our safaris should benefit, all of our leisure destinations like Goa should benefit further because we have been totally reliant on domestic only. So I don't see that as a hindrance. On the contrary, if COVID gave us an opportunity to rationalize cost, it also gave us an opportunity to capture a larger portion of domestic travelers and our reach to them which was maybe not as focused at pre COVID level.

Okay. My next question is on the cost structure side, we have seen around still -- when we compare with the pre pandemic level Q3 '20, overall employee cost, we're still 20% lower. So if in any normal case scenario, the business is going to recover at the pre-pandemic level, how much cost, particularly in fixed cost side is going to increase? And whatever the cost structure we have, we have reported in Q3, what cost is going to increase from here? Or we are going to do maybe a 10% to 15% of more business from here without changing any cost structure?

Yes. No, I think margin, I think if I go back in the pre-pandemic period, we had a 28% savings in fixed costs in the year 2021. I think this year, 9 months we have seen a 19% increase or I say a reduction in fixed cost as compared to the pre-pandemic period. And there were 2 reasons why the 28 came down to 19. Number one was the end of lease waivers and the employee subsidies that we got in countries like U.K. and other places. That is one part of the reason. The other part of the reason is also that with activity going up, some level of costs have gone up actually. And even with full occupancy and this full business recovery, I think this continues to be an area of focus, especially the area of [ manpower plan ]. So productivity, to your second part of the question, is definitely going up actually. And our belief is that we -- it will not be less than 15% in terms of fixed cost reduction as compared to the pre-pandemic level which will be driven by redeployments, overall productivity improvements, corporate cost savings. I think all of those will come to us.

We'll take our next question. [Operator Instructions]

Yes, this is Nihal Jham from Edelweiss. First of all, congratulations on the good performance to the team. So 3 questions from my side. First, you've given the bifurcation of the ARR for leisure and non-leisure. Just for better understanding, could you give the recovery for both these segments versus pre-COVID levels?

Till we find the exact figures, let's put it this way, that recovery in leisure is, let's say, more than 120%, definitely, and we'll find the exact number for it. And on the corporate and business side is around 80% pre-COVID.

That is helpful, Mr. Chhatwal. The second question, I'll continue forward, is that if I look at the city-wise performance for your hotels, as we discussed versus industry, but just comparing Q2 to Q3 for some of the business destinations like Mumbai, Delhi, Bangalore and Chennai, there is a bit of divergence in terms of how they've recovered and then Rajasthan has seen a bit of a fall in the recovery. So anything specifically to highlight in terms of the performance in these cities, which happened in Q3?

No, it's just the opening up versus lockdown. See, the restrictions when they are lifted, the markets keep bouncing back. When the restrictions are imposed, then the markets behave accordingly. So especially, it's true for this Delhi, Mumbai and Bengaluru. As I said at the -- during my introduction speech that the latest order that has come in Maharashtra and for Mumbai, it is very encouraging, although it is not giving us everything we wanted and some clarity of sort. But it's a step in the positive direction. So if you will recall versus Q2 where restaurants were opened in Mumbai only till 4 p.m. then it was relaxed till 10 p.m. or 11p.m.. And then till 1 a.m., then it went back to again at 10:00 p.m. And then in Delhi, there was a curfew over the weekends. So all this has an impact on revenue, especially in these 2 big cities where we have large inventory and our flagship hotels and also in Bengaluru. I mean these 3 cities, we have a lot of IHCL properties. And the restrictions are different in each city, and they are different in different periods of time because this also the peaking of the virus does not take place at the same time in each of these places. So we are now hopeful that with the trend that we are seeing that this will subside pretty rapidly. And that is what makes the difference between quarter-to-quarter. So it becomes very difficult, except for the Q1, where we said because of the second wave, April, May, June was a washout. The rest of the quarter is like a different kind of an impact. I think more important, Nihal, is that it took the industry 6 to 9 months to recover post first wave. We were almost shut for 6 to 9 months, depending again on which state. In the second wave after April, May, June, it took us Q2 to start on the recovery mode. And Omicron, I would say, is like 6 weeks at the moment as we speak today, it seems like the 6 weeks. So the recovery period is becoming faster and the down period is becoming shorter.

Absolutely. I have my last question just related to that. So you mentioned that Jan obviously would have had the impact of Omicron. I just wanted to understand when you say look at the business on books and then how the bookings have currently been coming and from the let's say traffic, do you see that the recovery both for leisure as well as business is faster and this is let's say a delay of 1 month and things let's say back in Feb, where you would have expected in Jan had Omicron not happened? Or do you expect that maybe let's just take a slightly more time for things to come back to trend?

I would say the last 1 week or so, we have seen strong pickup in the business, but we can discuss this off-line in another week from now as there are 2 schools of thought. One school of thought says, it will take another 3 to 4 weeks for recovery. And the other school of thought says, at the speed the cancellations came at an even a higher speed, the new bookings will come in. So let's hand that over to Giri or myself in a week from now, then we will have the data because there were some holiday period in between because of the Republic Day. So we don't even have the full week, which was -- I was going to call it operational. I mean, a full working week. So this is the first full working week. And at the end of this week or early next week, we will have a better idea.

[Operator Instructions] We'll now move on to our next question. [Operator Instructions]

This is Amit Agarwal from Nirmal Bang. A couple of questions from my side. My first question is that when I look at leisure or non-leisure, your occupancy on a quarter-on-quarter basis is going up to probably about roughly 8% to 10% to 12%, but the growth in ARR is a lot more. So can I assume that you get the pricing power back around about early 60? Or what is driving a higher growth in ARR relative to a lower growth in occupancy? That's my first question. Secondly, is there a change in mix of clientele which you have? And have corporate and MICE started coming back? So -- and once that change in mix happens, will that lead to a further raise in the rates? I mean, what I'm referring to is probably because of staycation/vacation right now, the rates still would be discounted. But it's gone up on a quarter-on-quarter basis, on a year-on-year basis also. Just wanted to know your current operational rooms divided into owned/leisure and management contracts? These are 2 questions.

Yes, we'll take the last question offline in terms of the operational rooms separately. But I think you're right that the ARRs have been going up. And I think that is very conscious. I think number one, as Puneet said in the beginning, the trust in the brand and people coming and staying with us. Number two is the revenue management that we do. Like for instance, there was an earlier question in terms of what happens if Air India comes in. Fundamentally, some of those things help also in terms of base occupancies and revenue kind of have the ability to charge better rates actually. And third, in terms of our strategy, in terms of market share as well as RevPAR leadership that we want, I think that continues to be a very strong hotels at every hotel strategy at every hotel actually. All these continue to ensure that we maintain better market shares, maintain rates and therefore, have been able to focus. I mean ARR recovery has been a very strong focus from our side because that is what gives us the flow-through.

Sure. And the second question regarding the mix of clientele. Is it still staycation/vacation primarily or any business as a business in a MICE caliber [ pleasing ]?

So we did see for instance, weddings in Q3. Business travel, as we have said in the beginning of the presentation, I think Bombay, Delhi and Bangalore we still need to see the business travel recovery come back. Actually, we still need to see that coming back. In terms of mix of business, the transient business, the way we look at business, of course, is that the transient business is the non negotiated business is the key. And that has definitely gone up actually in terms of -- and that is very important because the transient business helps us to improve ARR actually. Our corporate business has been down, of course. It has been about 7%. Historically, also, it's not been a big percentage for us. It's been about 15%. MICE did come back because of the weddings, which came back actually. Long stay with places like Wellington Mews and other places continues to do well. Leisure also has been a big driver in terms of things. So therefore, from a mix perspective, I would say that the increasing transient business and the recovery in MICE and leisure would be the reason for better ARR actually.

Sure. One last question from my side. What will be the CapEx spend divided into maintenance or, let's say, FY '22, which includes the fourth quarter and FY '23, possibly if you could, maintenance and other building and construction.

No. I think total CapEx in renovations, I would say, would be around INR 400 crores this year for consolidated and about INR 200 crores as of stand-alone. I think that's a combination of all the numbers actually. I think we can give you further breakup if you want separately.

And for FY '23 plan, is it possible to get the number?

FY '23 plan, we are in the process of doing our budgets. And I think these are focused renovation plans that we have. I think as we said, the key renovations were rating this time on Taj Mahal Delhi and the Ginger Bombay, the Chambers London and the U.S. Banquet actually. So these were the 4 -- and now we are finalizing our thinking for next year. So I think we should be able to better answer this question in the next quarter actually in terms of what the CapEx spend next year is.

We'll move on to our next question.

Yes, this is Achal from HSBC. So I had a couple of questions. First of all, I wanted to understand about your plan on asset monetization. I mean, do you really think that the asset prices have come up and that gives you an opportunity to monetize some of the properties. However, if that is not the case, and you see the property prices still remain under pressure, and that means property owners, which are not able to run their properties probably agreed to hand over their properties at favorable terms for you guys, for hotel operators. So then do you see in that case, do you see an opportunity for you to grab the asset at much attractive prices? And linked to that, if the property prices are low, do you think you'll be in a position to utilize some of the GIC platform like INR 40 million, which is [ in line with that ]? So if you could please help on this.

So Mr. Achal, the GIC platform we have renewed it as our initial contract was badly hit by the COVID for 2 years. So the platform is there to take benefit of any opportunities that might come up. On the asset monetization, we are not in this thing to just sell assets. What we have said is what we will sell is noncore, nonstrategic whether they are with us or in our subsidiaries or associates. Noncore is like in the '70s, we bought a lot of flats. No people like to buy their own flat. So we've been getting into the flat sales or we had piece of land, which we monetized and communicated to the market in Pune, which was in the cantonment area, which we could not do much with because the area evolved differently. Similarly, we have a piece of maybe laundry land with us for 20 years in one of the cities where we are not going to build laundries anymore, it does not makes sense. So things -- activities like this will go on. On the nonstrategic sale, we work -- nonstrategic assets, we were able to monetize, for example, in our subsidiary with this Oriental Hotels in Visakhapatnam or in Trivandrum, where there was hardly any return and we were able to sell and bring down the debt and either secure a management contract for a new property or entered into a term with the buyer to renovate the asset and give it back to us on the management contract. So those efforts will continue in nonstrategic locations where it does not make sense to either stay as an owner or stay invested in, which was the case maybe 30 years ago because we are coming from that background of owner operator. Today, we are still owner operator, but owner and operator of, let's say, parks, lands in which we own, we will keep and we will operate for as far as I can think. We will not monetize on those kinds of assets because they are strategic, they are value-enhancing. And they help you in building your brand and helps you to control the brand. Otherwise, for whatever reason, you tend to lose the asset when you also lose the contract. So that was our strategy, and we are straight through to it, and we'll continue to do that going forward.

And sorry, linked to this. So -- and what about the acquisition opportunities at the right price, whether it's on the management contract or whether it's leasing property. Do you see the property prices are really very attractive and that gives you an opportunity to grab the properties at the right sites?

Yes, we are continuously on the lookout, whether we buy it or somebody else buys it and gives it to us or somebody else finishes it, that question depends on the right dot on the map or the right strategic fit. So we have to be aware of that. But yes, what your question actually answers is something else. That activity in this area has just recently started as the gap between a seller's expectation and a buyer's willingness to pay has narrowed significantly. This gap was huge in the last 2 years. And that's why it was difficult to see any activity because it did not make sense. It's also assisted by some of the incentives which were good for the industry, like emergency credit line guarantee scheme and moratoriums, helping people survive. So I think as and when these schemes come to an end, you will see more and more activity coming in. And also the demand and supply situation begins to settle down and mature in the new normal or in a post-COVID world. So there's -- yes, there is more activity, more discussions, more offers on the market happening now.

Right. So moving away from this. The other thing I wanted to understand about the supply versus demand, I think you touched upon on this already. But according to the latest report from [indiscernible], the supply is expected to grow in the range of like 4% to 6% and not more than that while the demand could actually grow significantly, I mean, of course, on the suppressed levels. And then, of course, given that you're already at pre-COVID levels, the demand grows significantly, do you think or does that mean the demand could actually outpace the supply by a huge margin? So how do you see the supply demand situation developing over the next 1 year or 2 years?

We answered it before, also someone else had asked the question. The supply will remain constrained and it might even in certain markets shrink over the next few years. Whereas the demand will continue to grow. That is the best guess that hotel actually [indiscernible], Horwath, everyone has been telling all the feasibility specialists or the consulting groups are guiding. We are seeing a similar trend in different markets. So it gives us the belief that demand will be stronger and supply will be very constrained.

Okay. So other thing I want to understand about the -- about your plans around the plans around Sea Rock hotel. So where it is aligned now. Have you found any JV partner? Or what is -- I mean given the such a tightness in the liquidity front, do you -- what are your thoughts in case you're not -- you're unable to find any game banner? So what are your plan? Do you have any plan being there?

Yes. No, Achal. I think as we have said earlier, I think now we have completed the acquisition of 100% shareholding by December. So that is the first step done. Second is, we are, I think, progressing quite well in terms of some of the clearances that we have, whether it is environmental clearances or the court case. There is still an arbitration that we need to resolve actually. And we are -- so the regulatory aspect and the arbitration is still work in progress. But we continue to say what we have said earlier, which is to say that we don't want to put incremental money. And our belief is that the day the approvals all come in, this piece of land will be very valuable actually. So right now, there is no active work which is happening in terms of scouting for JV partners for the property, but it will come when the approvals happen. Just give us some time on this.

Okay. Perfect. My last question, I mean, I'll ask that base offline. But my last question is a bit of clarity. So basically, if I'm not wrong, you just said that the RevPAR recovery in the leisure market was about 120%. While in the non-leisure, it was about 80% of the pre-COVID level. And then that normally means the [ corporate dollars ]. And then if it is at 80% and yet your key markets, Bangalore, Delhi, Mumbai, the recovery remains at 60% to 70%, so where is the gap? Is it like -- so we recovered more than pre-COVID levels. Corporates are 80%, non-leisure 80%, and yet you have key markets, like 3 key markets are at 60% to 70%. So is it like -- is it international travel, which you're expecting? So why the recovery in these 3 markets is not looking as good as in other cities?

See, I'll let Giri answer a bit more. But let me just say, it depends on the portfolio mix that you have. No, we are not looking at a 50-50 mix. We have a large share of resort, but it is not more than 50% of our portfolio. Number two is we tend to forget there is also international in it. When we answered that for domestic, around 80% and north of 120% for leisure, that is domestic. But we do have a significant asset in London or in Capetown or in U.S., 2 of them in San Francisco and New York. They are all owned assets. And they also have -- they have suffered far more. We know that the Omicron was first discovered in South Africa so with all the restrictions in there. So there is an opportunity that they also recover fast. And when we talk domestic, we talk about Delhi, Mumbai and Bengaluru. So the numbers that we have given you are -- the guidance that we have given you is in the right direction. And some of the resorts have done even 180%. We just said 120%, 130% is because of the restrictions. We cannot take out -- if you look at this, you can't take out April, May, June impact where there was almost a complete lockdown again. So that is the average for the 9 months. And I think it's a good way to recovery now. If this wave goes away, the way we have seen the figures in the last 3, 4, 5 days.

Yes. I think we can maybe talk offline, Achal, on this actually. Let's do it offline.

[Operator Instructions] We'll now move on to next question.

This is [ Mischal Agarwal ] from [ BP Capital ] Kolkata.

Sorry, we didn't get your name, sorry, apologies.

[ Mischal Agarwal ] from [ BP Capital ] Kolkata. I wanted to know the consolidated ARR occupancy across all your brands. I mean, [ occupancy ] management contract. Any figure you can give?

Sorry, consolidated? Consolidated?

Average real rate and occupancy across all your brands.

Yes, across all the brands that we see, the ARR on a same-store India has been about INR 9,800 and occupancy has been 62.7%.

So like what is the -- what do you think will the ARR increase going ahead, what time -- what is the time scale would that be?

So we answered that question in the beginning, I think in terms of ARR recoveries. And I think what we were really saying was that as the business travel comes back, I think we should be able to see the ARRs come back. I think -- I don't know. I mean, I don't know.

Okay, sir. My next question is -- you said you paid down debt payment around INR 950 crores of debt, the finance costs have increased quarter-on-quarter. So any reason for that?

Finance cost increased quarter-on-quarter. That's because the borrowings were there. I think with the rights issue, we have repaid down some of the debt. Yes, it happened only in the last week of December, actually. So...

Okay. Okay, sir. And sir, just one last question. The Sea Rock hotel that you purchased like the ELEL stake you purchased. That Sea Rock is a non or maybe a non-owned model, right?

Sea Rock the -- it's the property is on lease till 2069, and I think we will have to eventually build and then we are saying that we will not put any more capital to that property, and we will get partners to help us with the cost of consumption. If I may say the last 3, 4 minutes of questions -- maybe we'll take a couple of questions. Last 2 questions maybe.

We'll now move on to our next question.

This is Satin [indiscernible] from Credit Suisse. Am I audible?

Yes, yes, of course. Welcome back.

Yes. So I have a question on the management contract side. So of course, you have had some very commendable increase in the size of the management contract portfolio we have in the last few years. The number of properties and rooms have grown quite well. But the fees revenue from that has not seen a commensurate increase. And so does this only set us up for a much larger increase in fees revenue going ahead as occupancies rise and operating margins also at those properties rise and we start meeting the threshold requirements in the contracts for the incentive fees portion of the fees also? Or is there -- has there been some kind of a renegotiation downward on the fees during the last 2 years of COVID period?

Firstly, nice to have you back. You answered the question yourself. As and when the markets improve, the revenues go back up. So if you're trading on an average, if you look at last year at 40% of revenue, pre-COVID level, and this year, cumulative at around maybe 70% until the end of the year, then also those level of fees go down and especially when you open hotels, in kind of a lockdown situation. So we expect the fees on our fee business to rise exponentially over the next few years. And it's just we need some kind of a normalized situation without lockdowns. And it will have an impact on all kinds of sources of business, not only management fee business. The owned business, the leased business, the margins, everything is dependent on -- when you have a lockdown, things become -- in the first lockdown, we were confronted in many places with 0 revenue. So when the revenue becomes 0, the fees of 0 is also 0, right? And if there is a partial lockdown, then you're only getting a partial fee on the existing as well as on the new contracts that opened up. So I think it would be fair to say that I think it will become very interesting as of next financial year to look at this fee business that we have created.

Great. That's very encouraging to hear. And the second question, I know you have touched upon this in the rest of the call as well. But because one thing which still remains open is basically how well business travel will recover. So anything you have seen from -- any green shoots or any signs? Say, for example, in the fourth quarter of FY '21, which was far away from wave 1 or just now in October, November, before wave 3 hit, which kind of gives us an indication that even business travel can recover quite well on both business travel-related stays and as well as on the side of business-driven MICE events and bookings. So on both, have you seen anything which gives us confidence that this can also recover back to close to earlier normal?

For sure, [ Satin ], we saw that. And as we speak also, we have events booked. You must have watched on the television also some of the conclaves of various channels were kind of a hybrid event, where more than a few hundred people attending those, whether it was at touch pilots in Delhi or in [indiscernible] or even now this coming Saturday, it is a big event in Delhi that we are hosting. So Monday, there is another one which a competitor hotel is hosting in Delhi. So these are kind of things and activities that are happening or beginning to happen. Of course, what happens is between, let's say, 20th of December till 20th of Jan, it was only cancellations. So it starts to pick up again and people are beginning to go out and attend these meetings. The flights -- one of the very good way to follow this is follow the statistics of the domestic air travel. And I think that recovered quite well until the third wave came. So I think it will have some correlation with the air travel that we have, both on domestic front as well as, as and when they open international.

And we will now take our last question.

Shaleen Kumar from UBS and my congrats on a [indiscernible]. But I'd like to pick your mind on how should we see and project growth beyond FY '23, right? So is there any thought process, any broader guidance you can offer us over the medium to long term, what is on your mind, of all the levers that you have, say for next -- here on FY '23, for next 3 years or 2 years? And earlier, we were looking at margins of around 25%. But given the cost and all, should we -- is there aspiration to, at a consol level to go to a margin in the range of, let's say, 28%, 30%? So just one question, a two-in-one.

I don't know if you were just speaking on our mind beyond FY '23 or you were reading our minds because we just had a discussion that maybe in March, we should host our Capital Market Day again and start providing this form of guidance. So please allow us a few days, Shaleen, you're most welcome anytime. And we will make that announcement preferably in a physical event in March as we think by February and things should be back to normal. So we are very happy to provide that guidance. Thank you, everyone, for joining the call. Thank you for your questions. And also the ones with whom we have discussed offline meetings going forward in the next weeks. Thank you for your continued support and trust, and have a very good day.

Thank you.

Thank you. Ladies and gentlemen, this concludes today's call. Thank you for your participation. Stay safe and have a good year ahead. You may now disconnect.