In an exclusive interview, Shwetank Singh, vice president, development & asset management, InterGlobe Hotels speaks to Steena Joy about the emerging opportunities in Tier 2 and 3 cities and the company’s future growth trajectory
How has the mid-scale hotel segment evolved in India, where will it go from here and how does it compare with its worldwide counterpart?
In 2002, some 6,000 of the 26,000 branded rooms across India – less than 25 per cent – were mid-market ones. Since then, while the number of branded rooms has increased five times to 125,000, the size of the mid-market segment has increased about nine times to 53,200. The mid-market segment today accounts for 43 per cent of all branded rooms in the country, according to data from global hospitality advisory firm Horwath HTL.
Between March 2002 and March 2017, while the supply of chain-affiliated rooms grew at the rate of 11 per cent a year, the mid-priced segment expanded at a compound annual growth rate of over 15 per cent.
The mid-market hotel landscape in India has developed significantly during the past decade and this momentum is likely to continue in the years ahead as well. In fact, roughly 50 per cent of the future supply of branded hotels rooms in India will comprise of mid-market hotels. The build-cost efficiencies of these products allow for faster ramp-ups and therefore, increased proliferation of hotels in this space.
How has the InterGlobe Hotels portfolio grown in the past year? What CAGR did the company achieve? What has been the growth in revenues?
IGH today has 17 hotels across 14 cities as of now, with more than 3,000 rooms. We have recently launched a new property in Kolkata in January this year which consists of 189 rooms. Ibis Kolkata Rajarhat is the first “New Gen ibis” hotel featuring newly designed rooms and bathrooms, vibrant public areas with art works influenced by local flavours, large meeting spaces and upgraded gym and BOH areas. At the same time, we currently have another seven hotels that are under various stages of development and planning. While this current pipeline takes us to 23 hotels with more than 4,000 rooms by 2022, we remain on the constant lookout to add new projects to our portfolio. Since our inception, InterGlobe Hotels has tracked a fast-paced growth and has grown at a CAGR of 31 per cent making it as one of the fastest growing portfolios in the country and it is our desire to maintain this growth curve. This has enabled us to have a CAGR growth of 26 per cent in revenues in the last five years. Our belief in the segment not only continues to remain strong but in fact, our performance has only strengthened our resolve. Most of the micro-markets in India have shown an upturn in hotel performance in recent quarters and that is reflected in the performance of our portfolio. We expect to close more than 70 per cent occupancy on a portfolio level (for stable hotels) this year.
Any new revenue streams the company is looking at?
We are continuously looking at adding more meeting space in our ibis hotels. Our new ibis at Rajarhat Kolkata has meeting space for as many as 200 guests. Larger meeting spaces enable us to benefit from additional revenue through meetings, events and banqueting. They also result in increased room demand due to residential conferences and social functions.
You have only one ibis Styles in Goa. Any more in the pipeline?
We have already acquired land in 2017 for a 133 room ibis Styles in Vagator for which we will soon start construction. Goa remains a key strategic market for us and we continue to look for new land opportunities for more hotels.
Has GST impacted growth?
The immediate impact of GST on construction cost of a hotel has been prohibitive, as there is no GST input which can be recovered immediately by the hotel developer. Hotel developers can only recover part of GST spent on construction cost and that too only when the hotel becomes operational.
This has had a direct impact of increase in construction and interest cost for a hotel developer by as high as 10–15 per cent and thus further reducing ROI from hotel projects.
The emerging opportunities in Tier II and III cities of India?
Our primary growth strategy is to continue our focus on Tier I locations across the country. While we have hotels across most top cities in India, our endeavour is to have a presence in all micro-markets across these cities, including but not limited to Gurgaon, Mumbai, Pune, Bengaluru, Hyderabad and Delhi.
We are simultaneously looking at high-growth Tier II cities as well especially keeping our ibis Styles product in mind, the product profile for which enables building slightly larger meeting spaces than a standard ibis hotel. ARRs in Tier II cities tend to be softer and larger meeting spaces will enable us to benefit from additional revenue through meetings, events and banqueting. Tier II cities we are targeting include Baroda, Bhubaneswar, Vizag, Ahmedabad, Nagpur and Bhopal.
We are open to acquiring new sites via greenfield or existing hotels or under construction projects. Greenfield projects allow us to have direct control over the investment enterprise which includes control over product quality and time-to-build. These investments enable us to be consistent with the quality we deliver. It is cost effective as we get to be innovative in developing these properties.
Existing hotels or under construction sites require careful consideration especially from an ibis product standpoint. Our requirements are very unique and the project must meet certain fixed criteria from a design standpoint for us to move ahead. We can tend to be a little flexible while considering the project for an ibis Styles development; however, the nature of the product, its location and demand supply dynamics have to compelling enough for us to move ahead with this option.
The future trajectory for the company?
Our latest hotel in Kolkata will be opening very shortly with 189 rooms on offer. At the same time, we currently have another 6 hotels are under various stages of development and planning. Some of our new additions will be in city centre Bengaluru, Hebbal in Bengaluru, Vikhroli in Mumbai, Thane, North Goa, etc.
While this current pipeline takes us to 23 hotels with more than 4,000 rooms by 2022, we remain on the constant lookout to add new projects to our portfolio. Currently, we are in advanced stages to close two land deals, one each in Bengaluru Whitefield and Kharadi Pune.
The JV has already invested more than Rs 2,000 cr in the portfolio and a further Rs 700 cr is committed for under-construction projects. IGH has allocated additional funds for acquiring new land parcels for fueling its growth appetite.