JB Singh, President and CEO, InterGlobe Hotels speak about the growth and opportunities in the country and challenges which needs to be addressed for growth.
With a specific focus to build the Ibis brand in India, IGH currently operates 18 properties and has a pipeline of six more hotels.
How has the joint venture between InterGlobe Hotels and Accor fared over the years?
The partnership between IGH and Accor is currently the most successful joint venture running in the country. We have got multiple relationships with them and we remain committed. Now, we want to build more scale and to get even more efficient and disciplined. We are also working on bringing customer centric products. We have done a bit of that in Kolkata, with a new design. Now, the several other hotels in the pipeline under various stages of development and construction; already six of them will all have the new generation designs. We look at cautious scale, locations and all our locations are AAA locations.
As InterGlobe, we have other relations with Accor apart from Ibis. We have SPVs for Novotel, Pullman for other partners. But as InterGlobe Hotels we would remain committed with developing Ibis in India as India needs this product. There is a market for all segments in India, but the nation needs very high quality brand which is smart and provides value to the growing middle class. We have one Novotel in the portfolio, reason being we got AAA site and the area was near our Ibis in Bangalore and we felt that the properties will complement with each other. We may continue to play with a few more Novotel’s but that only depends on the future and broadly we will look at Ibis.
Do you feel Mid Scale hotels will witness the major chunk of demand?
India is driven by the mid scale brands as there has been a deep void. Industry has not focused on this segment much in the past. So a lot of ground needs to be covered. The upcoming middle class needs high quality hotels and Ibis is a brand which brings it in a right value. Products like ours have set new benchmark in the industry such as safety, hygiene, technology, sleep quality, f&b, etc. Today, sustainability is very important to any business, brands and products. IGH is very efficient on how we manage our resources. We need to build efficiently as land is at paucity in our country. We are environment friendly and low on land consumption.
Do you see any expansion plans outside India, especially in the subcontinent region?
Our arrangement takes us to other countries as well, but right now just the way India is shaping up we dedicate a lot of time to look for opportunities in India. I can’t say we won’t do it but given the opportunity we shall surely launch in other countries.
After all the new policies coming in, how much time does it take to build a hotel in India? Also to reduce the time, will you look at Brownfield projects?
It takes four to seven years for hoteliers to build hotel in India. At IGH, we have perfected this art and we can build hotel less than two years. We maximum take three years with licensing and other procedures and put a 160-170 room hotel ready for operations. We want to do Brownfield projects as it’s faster for us, but we are very focused on brand integrity. We have let projects go as it did not fit into our standards. Secondly, compliances keep us away from Brownfield.
The industry has witnessed significant demand, yet there has been no upward trend in terms of ARRs?
When markets grow there is always a greater demand which grows occupancies and that in turn should bring in more revenue. We have invested a lot in the revenue management systems and the way we sell. Our capacities have grown by 31 per cent, our revenue is growing by 27-28 per cent, and we are tracking a very satisfactory growth. We should get a much better return, the industry needs some demand drivers and products should be sold at the right price. The industry needs convention facilities, sporting events, and other events that boost cities revenue. This year, we will see better ARRs, as the demand seems to have solidified. ARRs should track a high single digit growth if not a double digit. The hotel industry should be brave enough to push the rates. Today, it’s such a hugely overcapitalised industry and the industry is not making money. We are in a good position though.
How is the current pipeline looking for IGH? Which are the regions you are majorly focusing on?
We have a very solid pipeline. Today, we have 19 Ibis in the country and we have six under development. We are constantly looking for new opportunities across the nation. Hopefully, we will start another 2-3 projects this year. We look at our areas in various ways, firstly we look at densification. If we are in Mumbai, we want to put more properties in Mumbai itself in AAA location. We have some 19 cities we look at in our drawing board. But, currently we are focused on the cities where we are present. Delhi, Gurgaon, Mumbai, Bangalore, and Goa they can take more Ibis properties. Out of the 19 places, a lot are Tier II & III locations.
Are the smaller cities performing well? Also, do you think the new Governmental schemes like UDAN and RCS are helping the industry grow?
A lot of the smaller cities are actually not performing well. Some of them do show acceptable numbers. We have come up with 19 cities to consider. A lot of things need to be done in these cities. Local Governments should boost development. Cities need to get decongested, they will happen for sure. But infrastructure takes time to be developed.
Currently what is the cost to build an Ibis in India?
On an average the way we build, including land building an Ibis in India takes INR 70 lakhs a key. If you want to take out the land, prior to GST we were averaging INR 34-35 lakhs a key, now it’s around INR 38 lakhs. We are very efficient; we are far lower than the industry. The industry at our style is around 30 per cent higher than us.
How has the implementation of GST impacted the industry?
Dynamics of the industry has changed to the negative side after implementation of GST. It has impacted the industry on two parts. It has impacted on the build side, now it will cost you 10 per cent more to build a hotel what used to cost us INR 34 lakhs, now costs INR 38 lakhs. We are not in the real estate business so we feel the pinch. Real Estate industry when they sell the property they get input credit. We can only create input credit on the movable items in the building which is a very small percentage. It has effected on the return of capital. On the operating side, GST is quite high on room. We are under the INR 7500 mark, so we are still better off, yet we are paying 18 per cent. Moreover, any major city has a city tax of 4-7 per cent. More importantly the consumption of these products is for the middle class who are the salaried class. We are trying to build efficiency; we have brought down the building cost by 30 per cent to be hit by a tax policy. The Government needs to look into this.