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Indian Hotels set to woo the world

April 09, 2007

It's checking into every gateway city around the world. And some exotic leisure destinations too. So whether it's in Sydney or Tahiti, Indian Hotels Company which runs the Taj, Gateway and Ginger hotel chains in India, wants to be there. Its latest acquisition overseas : the Campton Place, a 110 room luxury boutique hotel in San Francisco, which it has picked up for $60 million.

This is its third property in the US after the 273 room Ritz Carlton in Boston which it bought for $170 and the lease arrangement with The Pierre in New York for $5million a year. Managing Director and CEO Raymond Bickson says the company will build, buy or lease its way to becoming a worldwide hotel chain.

Says he, "The acquisition of Campton Place in San Francisco is in line with our game plan to be in key gateway city in the world. Besides, it strengthens our presence in the US, we're now on the west coast too.

Apart from the US, the other important markets for us would be along the rim of the Indian Ocean, Europe, West Asia, China, the Asean countries and Australia would be a natural extension."

That's pretty much the world. And it may seem a little strange that IHCL traversing the globe at a time when India's probably one of most sought after destinations both for business and tourism. For IHCL average room revenues in the local market are tipped to be higher by about 7-8 per cent in FY07.

However, analysts believe that over the long term a bigger presence overseas will help it manage the downturn better than in the past. Currently 80 per cent of FY06 consolidated revenues of Rs 1874.73 crore (Rs 18.74 billion) comes from international operations. In other words, it's a de-risking strategy. Bickson agrees.

Says he, "In about five years time  we should have  balanced portfolio. By then, or even sooner than that a third of our revenues should flow in from abroad."

At the same time, it's not that the company is growing overseas at the cost of home market. In the next three years, it will more than double capacity across all  segments--luxury five star, premium four star, full service and economy categories--from 9,000 rooms currently to around 19,000 rooms.

Unlike in India where IHCL is straddling several segments of the hotel industry, in the overseas market, it has decided to stick to the luxury positioning with the 'Taj' brand for all its properties.

To build its overseas business as quickly as possibly, IHCL's decided that where chances of buying properties are slim, it will build. Currently it has two greenfield projects in Cape Town and Phuket and Dubai and Doha are on the cards.

Originally, the strategy was to remain asset light overseas but Ajoy Misra, senior vice-president, sales and marketing, says there's no one overriding policy. The management, he explains, is more flexible now and open to either a lease arrangement or a total buyout.

Analysts are a little concerned  about the balance sheet getting stretched but what IHCL is trying to do, says Bickson, is to use the cash flows of the acquired property to pay off any interest or debt used for buying it. Says he, "We believe each hotel should be self-sufficient."

And with global tourism enjoying an unprecedented boom, that should not be difficult. Misra says occupancies at IHCL's St. James in London which had dropped after the bombings in 2006, are up again at around 78-80 per cent.

In Sydney too, where IHCL acquired the Blue Woolloomooloo in February 2006, occupancies which were around 65 per cent at the time are now hovering around 80 per cent, he adds.

And in New York, which is one of the largest hotel markets in the US, demand has been strong for the third consecutive year. With the upturn expected to continue for another couple of years, things can only get better for IHCL.