Indian Hotels Company Ltd (IHCL) has always been way ahead of its peers. While all other hotel companies had mainly concentrated on opening hotels in metro cities, this company thought way ahead of others. They were the first to open hotels in leisure destinations like in Goa and Rajasthan and also the first to introduce the concept of " business hotels", a rung lower than the upmarket luxury metro hotels.
IHCL, India's largest hotel chain reported an operating income of Rs 5,913 m in FY2000. It currently operates 48 hotels in India under the "Taj" brand. The company's operations have been regrouped under five strategic business units: Luxury Hotels Division, Business Hotels Division, Leisure Hotels Division, Air Catering Services and the International Operations Division.
For a developing country like India they realised years ago that secondary cities too would expand and leisure holidays would pick up, hence they were proactive in setting up hotels here. This strategy has paid off, as with room tariffs hitting the roof in metro city hotels travellers are looking for "value for money" alternatives.
The hotels set up in these destinations 15-20 years ago may not have been profitable for the company in the past. However as they have low capital costs, and demand is currently very strong for these segments these hotels could turn into profitable money spinners.
To further its presence in the business hotel segment the company has recently acquired hotels and entered into management tie-ups in Pune, Hyderabad and Ahmedabad. Its future strategy entails maximum expansion in this segment. For its luxury hotels in metro cities the company is undertaking a major refurbishment exercise. Through this they plan to give the hotels a new look and introduce trendy and innovative dining concepts. The company's thrust is also going to be on food and beverage in future. Though this business commands lower margins than room revenues, it protects the company's bottomline when occupancy rates are weak in metro hotels.
India's second largest hotel chain EIH Ltd too has started following in IHCL's footsteps. They too are planning to open business hotels in secondary cities and have also become aggressive on the leisure hotel market. However IHCL will continue to enjoy the benefits of lower capital costs, established brand and a larger hotel network across the country.
Occupancy rates are accepted to pick up in the current year due to improvement in the economic scenario and the political stability. Infact the trend for the last few months shows that occupancy rates are improving in the metro hotels.
IHCL will benefit from this and its bottomline is expected to show an improvement from the current year. On valuation terms, Indian Hotels Company Ltd is trading at a price to earnings multiple of 8.8x on FY2000 earnings. This is low as compared to multiples of 20x-25x it traded at few years ago and negativity's facing the hotel industry all seem to be in the price.