Chalet Hotels Ltd

NSE:CHALET

Earnings Call Transcript 2021-Q2

[Sanjay Sethi, MD, CEO & Director]

Thank you so much. Good morning, everyone, and thank you for joining our quarterly earnings call for Q2 FY '21. I do sincerely hope that you and your dear ones are safe and in good health. It's been 9 months since the lockdown, and this is the third time that we are addressing you since the pandemic. The crisis has clearly impacted the world a lot harder and a lot longer than earlier anticipated. The news updates on vaccines being developed with the assurance of a cure in the next couple of quarters are encouraging and give us some sense of a time frame for normalcy to return with the potential ability to significantly accelerate business recovery next year. Another positive indicator is the progressive decrease in number of daily reported cases and mortality rate especially in the cities that we operate in, and we do hope these numbers will dip further. We believe the worst is behind us. However, we stay vigilant and there is no relaxation on the health protocols at our end. Since our last interaction, India has entered into air bubble agreements in 19 countries now, which has generated some international air traffic even as the Vande Bharat flights continue to operate. Quarantine restrictions have also been relaxed in most cities. All our hotels have been in operation since August of 2020. And with various restrictions across the states being lifted, we're making baby steps on a weekly basis towards recovery. In addition to Bengaluru and Hyderabad, Maharashtra government issued new guidelines along dine-in options for nonresident guests for food and beverage in October. The response has been very encouraging, including continued traction for food delivery and takeaways. I've also worked with the rest of the executive committees of trade bodies like CII Tourism, Hotel Association of India and HRAWI to push for relief for our industry. I'm happy to report that we've had some significant success especially in the state of Maharashtra on the following aspects. You would have heard that the public tax relief has been extended to hotels that were used for doctors' stay for 3 months by the municipal corporation, and the 2 big hotels of ours in Mumbai will get that benefit. We are pressing for a 6-month relief on this. Similarly, industry benefits, we were declared as an industry in 1999 in the state of Maharashtra. We didn't get the industry benefits on tariff or electricity, water, property tax, et cetera. This has now been announced that we will get those benefits starting April 1, 2021, in Mumbai hotels as well as in the Pune hotels. We are indeed grateful to the state government for this landmark breakthrough on a long sort industry ask. Opening out of restaurants, bars and banquet for nonresident guests was a push through the local bodies. And I think we've been successful in that and now have significant opening up of F&B in our hotels. There's also been significant reduction in state licenses and approvals in Maharashtra. I don't know how many of you got that, but the Maharashtra government has reduced 70 licenses to build a hotel down to 10 now, plus 7 self-certification. And another important thing is that these licenses will come with a 5-year validity, another commendable job by the state government on ease of doing business. On the operating front, our portfolio ADR compared to Q1 of this year has sequentially grown by 4% in Q2 to INR 4,030, whilst the occupancy has risen by 100 bps to 25% for the same period. I must highlight here that during the quarter 1, we had a significant inflow of Vande Bharat and doctors' stays that started adding off sometime in late August, early September. So September actually fell. July and early part of August, the occupancies were significantly higher. And that fall is now being replaced by more sustainable forms of segments. Compared to the previous year for the same quarter, the ADR is down by 48%. Occupancy contracted, as I said, to 25%. Last year, for the same period, we were at 74%. This -- I marked this. Just give me a moment, please. With the change of the mix, our ADR for September was higher by 8% as compared to August. October also saw an uptick in occupancies to 26% sequentially and, as a result, in RevPAR improvement of 28%. All our properties have excellent staycation and vacation offers and are getting strong traction. We have continued to focus on tapping all business opportunities, including new revenue-generating segments and special purpose groups like seafarers group, cargo, airline crew, BCP rooms and continue to explore more. Our operating partners have made significant inroads in garnering business or project-based travel from domestic and multinational companies, and we see these converting to occupancy buildup in the coming quarter. On the cost front, we've executed the centralization of finance function for the 5 Marriott-managed properties at Chalet. That team now will sit out of Mumbai and manage all hotels with significant reduction in number of people. We are working towards centralizing the human resource function. We have also centralized laundry for our Mumbai hotels and exploring outsourcing laundry for Pune. We continue to optimize our employee productivity while benchmarking ourselves with the global best. As of September 30, our hotels operated at a staff-to-room ratio of 0.75 per room. This was, I might remind you, our target about 9 months back to get to this target, as compared to 1.17 per room in February of this year. Consequentially, the payroll cost has come down by 42% for H1 this year compared to H1 last year. And by the end of October, the employee productivity ratio has further improved to 0.73 employees per room. All these initiatives, centralizing and outsource of operations, employee rightsizing, energy conservation, along with other natures, have resulted in rationalizing fixed costs, which will be value-accretive for the company P&L in the long run. The adoption of increased technology in the hospitality segment is expected to offer our guests the option of reduced human interface, a significant step in the new normal. Key areas that we are actively working on include keyless mobile room access, digital check-in/checkout using handheld devices, contactless service by digitizing our room directory, touchless attendance systems for employees, e-menus, e-ordering with integrated digital payments to name a few. We aim to have the keyless option, which is basically guests using their mobile phones for everything, in place for 100% of our hotels by end of the current financial year. Rentals for our commercial portfolio continue to be unaffected and support our cash flows. Retail operations have commenced in both Mumbai and Bangalore albeit at a cautious pace. On the positive side, the footfalls are picking up in Bangalore for the festive season, and spends per footfall have also been higher. The retail and commercial segment have contributed roughly INR 169 million in Q2 and INR 342 million in the first half of the year to EBITDA of the company. I'm happy to share that as in Q1, we've managed to stay in the black at EBITDA level for Q2 with consolidated EBITDA at INR 30 million, largely powered by the strategic mix of the asset portfolio and a very diligent effort towards cost management. A quick update on the project pipeline. In the current VUCA environment, it is critical to think and analyze on the go and form a strategic direction for the short and midterm. Keeping this in mind, the company has been evaluating market dynamics for our project pipeline, and we have decided to recommence construction at 2 of our commercial development sites. We've already started work at the commercial tower of 750,000 square foot of leasable space at the Powai complex, and we will shortly start work at the Bangalore Whitefield location for the commercial tower, which is roughly around 450,000 square foot of leasable space. That's a combination of multiplex and office. Our market assessment indicates strong demand for new, grade A office space in these locations over the next 12 to 13 months. Both projects are part of our well-defined, hotel-led, mixed-use asset development strategy. In the current market conditions, the commercial segment has proven to be resilient and a good cash flow hedge for the company. The lobby renovation underway at Renaissance is on track and will be completed by end of this calendar year. We will evaluate the start of balance renovation work at this hotel on an ongoing basis to right-time the brand upgrade. Our current estimate to commence operations in a new hotel in Hyderabad is beginning of quarter 3 of next year, which will require us to restart work on-site by Q1 of next year, probably April next year. We will review this decision based on demand dynamics in February again before we kick-start this work. Similarly, the need for commissioning additional 88 rooms in the hotel will be reviewed on an ongoing basis. However, the 2 proposed hotels, one, the W at Powai, and Hyatt at Airoli, Navi Mumbai, where the work was -- had not started as yet, they have been put on hold until we have more clarity on pace of demand before we commit capital to these projects. I cannot end without thanking my team at the hotels, retail assets, office assets and at the corporate office who've done a tremendous job of coping in trying -- very trying circumstances and coming out with flying colors. I'm pleased to share that we now have 6 young and dynamic lady colleagues out of our 11-member senior management at Chalet Hotels, in line with our gender diversity focus. This leadership team will now work towards driving the diversity ratios at all levels of the company. We are further encouraged by being listed as one among India's best workplaces for women in 2020. Similarly, in the next few months, we are going to focus our efforts on additional areas of ESG, like a path and time line to being carbon-neutral, and work on other initiatives also. We've utilized the time well in the last 8 to 9 months. We will continue to do so and make sure we come out as one of the leading companies on an integrated reporting front. Now allow me to introduce our interim CFO, Milind Wadekar. Some of you have already interacted with him. He's been with Chalet Hotels for over a decade now and has played an instrumental role in its success, handling the finance function as the Vice President of Finance and Accounts. Over to you, Milind.

[Milind Wadekar]

Thank you, Sanjay. Good morning, ladies and gentlemen. I hope everyone is staying healthy and safe. Our presentation has been uploaded on the stock exchange and made available on our website. I hope you had a chance to go through the same. As mentioned by Sanjay, the current pandemic is taking longer than anyone had anticipated. Our focus continues to be gradually scaling up operations while managing cash flows and controlling cost. The performance comparison with the same period last year would not be justified given the current scenario. Hence, we would be highlighting our performance sequentially with the first quarter of the current year. For the quarter ended September 2020, the total income was at INR 641 million as compared to INR 2,405 million in the same quarter of previous year. On a sequential basis compared to Q1 FY '21, total income grew by 9%. As elaborated by Sanjay, the company continues to work on its cost structure. The total expenses were lower by 60% during the quarter as compared to Q2 FY '20 and were marginally up on a sequential basis as we operationalize all our properties and scale up services. As highlighted in Slide 14, our fixed cost continues to be rationalized, which is likely to have a longer-term benefit to the company. Resultantly, the EBITDA was at INR 30 million as compared to INR 3 million in quarter 1 of the current year. For the period of Q2 FY '20, our EBITDA was at INR 867 million. For the first half of the year, total income was at INR 1,231 million. Total expenses for the period were INR 1,198 million, a drop of 62% from the previous year same period. EBITDA was at INR 33 million for half year. Hospitality segment accounted for 56% of the revenue at INR 359 million in Q2 FY '21, a sequential growth of 15% over Q1 of the same year. In Q2 of the previous year, our revenue was at INR 2,046 million. Within the hospitality segment, room revenue accounted for 66%, F&B accounted for 26%, and 8% was from other services. The segmental loss before interest, depreciation and tax was at INR 107 million as compared to INR 145 million in quarter 1 of this year. On the cost front, power, light and fuel and payroll costs, which are traditionally majorly fixed in nature for our business, have been lower by 62% and 48%, respectively, in Q2 FY '21, as compared to -- as compared to previous year. Even sequentially compared to Q1 of this year, power, light and fuel costs have been lower by 7% and payroll has been lower by 17% as we continue to work on improving our cost structures, benchmarking with global standards without compromising guest experience. For the first half, revenue was at INR 673 million as compared to INR 4,244 million in the same period last year. The segmental loss before interest, depreciation and tax was at INR 251 million as compared to profit of INR 1,602 million in the same period of last year. The mixed use development under retail and commercial segment continues to show resilience. Commercial segment has seen steady receipt of rental revenue, while retail has shown signs of pickup in the last quarter. The revenue for the quarter were at INR 229 million as compared to INR 213 million in the preceding quarter same year -- I mean in the year FY '21. Adjusted for SLM, the revenue grew from INR 176 million to INR 192 million as returns for the same period. For the half year, this segment had revenue of INR 442 million and EBITDA of INR 342 million. On treasury front, we have sequentially reduced cost of debt to 8.74% as compared to 9.38% as of March 2020. Our gross debt stands at INR 1,802 crores as against INR 1,791 crores as on March '20. Our net debt has increased to INR 1,757 crores as compared to INR 1,657 crores at March '20, an increase of INR 100 crores. This is taking into consideration CapEx spend of INR 34 crores in the first half of the financial year. Our cash burn, that is EBITDA less finance cost and repayment of term loans, for Q2 and H1 have been at INR 85 crores and INR 172 crores, respectively. This clearly signifies prudent cash flow and working capital management. As of today, we have INR 195 crores undrawn lines of credit for general corporate purpose and liquidity of around INR 45 crores. We have recommenced construction work of commercial project at Powai and shortly expected to commence work on our Bengaluru Fort project. The estimated return on investment on -- or the estimated ROI on incremental investment shall be in high teens. The promoters have continued to subscribe to 0% nonconvertible redeemable preference share for funding the outflow relating to residential project at Koramangala, and the reduction is contingent on surplus from the project. The total value of subscription is INR 1,250 million as of today. With this, we now open the floor to questions.

[Operator]

[Operator Instructions] We have a first question from the line of Aditya Bagul from Axis Capital.

[Aditya Bagul, Assistant Vice President of Midcaps]

So I have 3 questions. First question is essentially on our mix when it comes to the losses in the hospitality segment, I am referring to Slide #12. What I see is that Bangalore Marriott is now at breakeven. So I just wanted to understand what is it that we're doing so well [ in revenue ]. The losses in Bangalore Marriott are close to negligible. Or actually, it's slight positive as well. So that's question number one. The question number two, Milind, sir, is to you. Can you just explain a little more in terms of this EBITDA cash flow? And I think I missed out some of those numbers. You said INR 172 crores. Sir, if you can highlight a little more. And in the same breath, if you can advise us what is the kind of principal repayments that we've got stacked up towards H2 of this year and full year of FY '22.

[Sanjay Sethi, MD, CEO & Director]

Aditya, this is Sanjay here. I'll -- let me address the first question of yours. On the Bangalore side, we have the benefit of a long-term contract with Accenture on their learning center, so the 67 rooms that are occupied by them on a perpetual basis for a 7-year period. We also have some public areas leased out to them. And I think the team has done a fabulous job on the cost management side. In fact, if you were to look at the various cities and the numbers in terms of operating performance, overall, Bangalore is probably the worst-performing city in the country today. And I think we felt that impact with regular sustainable business at our Whitefield hotel also. But the combination of the Accenture learning center, the cost management have helped us scale through. We've also had significant success on food and beverage there. Bangalore and Hyderabad, as you probably know, opened out their F&B to nonresidents almost about 3 or 4 months back. And the benefit of that has been with our Sunday brunches, our dine-in options, our bar sales and, very importantly, delivery sales. They are all a big part of the F&B increase that we're having. We're seeing similar trends in Hyderabad. In fact, Hyderabad, in the last 6 weeks or so, F&B has been going through the roof over there. We were there in Hyderabad on Thursday and Friday last week. And the restaurant is packed. There were people waiting to get into the restaurant and eat for a Friday lunch. Similarly, our bar over there, the rooftop, is doing extremely well. And our Sunday brunches are doing very well. Just to give you an example, our Diwali hampers have become a key part of revenues at this time of the year. We expect to hit almost, what, INR 50 lakhs of revenue from Hyderabad alone, from Diwali hampers alone. So Hyderabad is a mixed bag of ALC and cost management. The regular occupancy is still to be picked up. As it picks up, I think our numbers will start looking rapidly better. Milind, do you want to comment on the EBITDA part?

[Milind Wadekar]

Aditya, our cash burn for Q1 -- sorry, Q2 was INR 85 crores and for half year was INR 172 crores. Our EBITDA for half year is INR 33 million. That is INR 3.3 crores. Our interest debit for half year is around INR 80 crores, and repayment was INR 95 crores, please. That's how it adds up to INR 172 crores cash burn for H1. Now for H2, we have repayment obligations of around INR 85 crores. And our finance costs, we expect to be in the same range.

[Aditya Bagul, Assistant Vice President of Midcaps]

To be around INR 80 crores?

[Milind Wadekar]

Yes.

[Aditya Bagul, Assistant Vice President of Midcaps]

Okay. And Milind, sir, if you can advise us what is the number likely to be in terms of principal repayment for FY '22.

[Milind Wadekar]

FY '22, it will be around INR 240 crores also.

[Aditya Bagul, Assistant Vice President of Midcaps]

INR 240 crores. Okay. So...

[Sanjay Sethi, MD, CEO & Director]

I think -- Aditya, it's important to highlight that we do have conversations in play to make sure that we don't have a cash flow challenge at all in the foreseeable or midterm future.

[Milind Wadekar]

Aditya, as we have mentioned, I mean we have undrawn lines of rate of around INR 195 crores as of today. And we have cash on hand of around INR 45 crores. So we are very comfortable with our cash position for short term as well as medium term.

[Aditya Bagul, Assistant Vice President of Midcaps]

Yes. Sure. That makes a lot of sense. One last question, Sanjay, to you is -- I mean, it is -- it shows a lot of conviction on our part that we've resumed some of our commercial construction activities once again. So just wanted to understand from you how is it -- how is the response from WPP and Accenture, the 2 large customers who house a commercial property. So what have they got to say about this? And how does that link into our manufacturing of -- construction pipeline project?

[Sanjay Sethi, MD, CEO & Director]

So Aditya, both of these companies are large companies. They are not going to take a knee-jerk reaction by a couple of quarters or 2 chief quarters of lockdown. We've had rentals coming in on time for both the companies in the first 6 months. We had given some relief on parking charges and CAM charges, but then that was because on CAM, we reduced our costs. So we passed on that cost saving to WPP. And similarly, now we might pass on some savings that we've been able to do to Accenture on their building. But yes, we haven't had a challenge getting -- we're getting our rents on time. Relationship is strong. And the reason for starting the 2 projects is that the markets seem to be right with the timing that we have in mind. We're looking at roughly around 20 months for the Powai project and less than that for Bangalore, and the demand for new, grade A office spaces of good quality in both locations is very high.

[Operator]

We have next question from the line of Amandeep Singh from Ambit Capital.

[Amandeep Singh Grover]

So sir, your investor presentation talks about significant increase in domestic contract negotiations. So can you help us understand the customer profile, like SMEs or even large corporates, the micro markets and the ADRs for these contracts?

[Sanjay Sethi, MD, CEO & Director]

So Amandeep, I may not be able to give you the ADRs. Let me break it up into 2 sections. One is the RFP accounts, which are global accounts. On the RFP accounts, we've done a rollover of 2020 rates into '21. So -- and all our RFP accounts have accepted them and said, "When we start travel, we'll come back to your hotels at the same rate as 2020." So we don't see a challenge or contraction of rates from the RFP global accounts. The area that we didn't have too much of traction in the past -- it was there but not so strong, was in the local companies, domestic companies. And that's where the last 9 months have been spent in building relationships and tying up what we call LNR, or locally negotiated rates, with these domestic companies. These accounts will probably come at a slightly lower rate than the RFP accounts. And that's okay. Right now, our focus is to make sure that we fill up our rooms and get the business running and picking up momentum there. So with that in mind, I think we'll have a strong traction of the domestic accounts to begin with for the next couple of quarters before large-scale international travel really starts on the business travel side. We've also -- but not all is lost. I mean I was quite surprised myself when I looked at the numbers. 19% of our guests in our hotels in the last quarter are still foreigners. And most people thought that they have vanished. That's not the absolute case. And therefore, we are confident this will come back at some point of time.

[Amandeep Singh Grover]

Sure, sir. That's helpful. Sir, my next question is related to Hyderabad micro market. So whilst the city experienced amongst the highest grade office space absorption in the recent quarters, we note that hotel occupancy in 2Q was low at 9% for Westin Hyderabad. So sir, in that context, can you help us understand is it due to COVID-led, near-term headwinds or there has been some structural change in the outlook for the micro market?

[Sanjay Sethi, MD, CEO & Director]

No. I don't think there's any structural change. It is driven by COVID. And I think once the travel restarts, we'll be back to normal. What had happened Hyderabad is in Q1, we had a lot of BCP groups, business continuity plan, that a lot of companies have rolled out. I think Qualcomm and Bank of America were the 2 companies that stayed with us. And they gave us business for almost about eight weeks. And therefore, you see a sharp drop in Q2, which -- they weren't there for Q2. Hyderabad started picking up. I'm happy to report that in October, I think we hit 15%, 16% occupancies. November looks closer to 20%. So clearly, it's ramping up very rapidly now. The good part of Hyderabad is that whilst the foreign IT business traffic has still not started, we see project-based movement, we see wedding groups and we still see a lot of staycation here. As I mentioned earlier, even in Hyderabad, we saw the amount of activity in our restaurants quite phenomenal. I mean the team had to actually fight off guests to maintain social distancing and make sure that we don't occupy more tables than practical and safe. So therefore, there were people waiting in the lobby. And that's happening with our bar, too, in the evenings over there in an outdoor bar called Casbah, doing extremely well.

[Amandeep Singh Grover]

So that was really helpful. And sir, you highlighted about resumption of CapEx plans across commercial portfolio. So in that context, can you help us understand the CapEx outflow you are expecting for the same in FY '21 and '22? And will it be fair to assume this would be via fresh debt?

[Milind Wadekar]

Sanjay, I would...

[Sanjay Sethi, MD, CEO & Director]

I will let Milind answer that. Go ahead, Milind.

[Milind Wadekar]

Our CapEx -- estimated CapEx for H2 will be somewhere in the range of INR 115 crores. This will be primarily for commercial project. And for next year, our CapEx will be in the range of INR 550 crores or so, which includes some CapEx for hospitality projects. That is our Hyderabad project as well as rebranding of Renaissance hotel. So that will be revisited as we progress based on outlook of the business.

[Sanjay Sethi, MD, CEO & Director]

But Milind, maybe you want to add what is going to be a source of this capital.

[Milind Wadekar]

Yes. We have tied up funds, loans, and we are tying up for additional loan of around INR 600 crores, INR 650 crores for commercial projects.

[Sanjay Sethi, MD, CEO & Director]

And that, combined with the principal paybacks, will not take the overall debt to worrying levels.

[Milind Wadekar]

Yes.

[Amandeep Singh Grover]

Sure, sir. That was helpful. And sir, lastly, on retail, whilst you mentioned improving trends across the portfolio, will it be possible to quantify how would be the footfall and consumption trends versus pre-COVID levels?

[Sanjay Sethi, MD, CEO & Director]

I don't have that number with me. Milind, do you have something? Unfortunately, we're sitting in 2 different locations. Milind, do you have the numbers?

[Milind Wadekar]

So footfall and business transacted is at 20% to 25% as compared to pre-COVID level.

[Operator]

We have next question from the line of Nimish Patil from Escapedia.

[Nimish Patil]

Actually, I'm an independent investor. I have 2 questions. First is, when does the management expect the average revenue per room to return to pre-COVID levels? And my second question is when -- I mean considering the recent reforms by the government of India in the travel and tourism sector, how does Chalet Hotels -- I mean how would that benefit Chalet Hotels in the long run? Maybe some -- I heard something about the moratorium restructuring for travel and tourism or -- I'm not quite sure about other reforms, but how do the government policies impact Chalet Hotels? Two questions.

[Sanjay Sethi, MD, CEO & Director]

Nimish, I'll answer your first question then go to the benefits part. On the RevPAR front, I think to hit 2019 numbers -- and I'm looking at calendar year '19, we are likely to go to calendar year '22 or maybe overlap a little bit into calendar year '23 to really hit and get back to the same RevPAR numbers that is a blend of occupancies and ADRs. So FY '23, it must -- sorry, in my view, especially the second half, will -- should be very, very close to FY '20 numbers in the second half.On your second question, there are various types of reliefs that have been given. One is the fiscal relief that have been given, a combination between the Finance Ministry, the RBI and the banks. On that front, whilst we studied the moratorium and the restructuring opportunities, we never needed to look at that because we were very comfortable on our balance sheet front. So we did not take the moratorium. We have no intention of restructuring our debt. We are well placed as things stand. There are other reliefs that have been announced by the government, which include things like industry status, industry benefit on electricity tariff that's the second largest cost in our -- operating cost in our business, property tax reliefs. All of that, that's happened and is most welcome. And obviously, Chalet gets to benefit extensively from it given that 60% of the portfolio for us -- almost 2/3 actually is in Maharashtra, between Pune and Mumbai, and the only state in the country to get industrial tariff on these things. We do look forward to these initiatives by the government and welcome it.

[Operator]

We have next question from the line of Sumant Kumar from Motilal Oswal.

[Sumant Kumar, Research Analyst]

So we have seen the overall improvement in October in occupancy side also and ADR. So can you discuss about the forward booking? How is the demand for the -- your upcoming November and December month?

[Sanjay Sethi, MD, CEO & Director]

So Sumant, this whole pandemic period has been extremely volatile, and it's been very difficult to forecast whilst the pandemic is still going on. The period of kick-in -- we call it kick-in, on pace of bookings has shortened significantly. Just to give you an example, we recently picked up some 5,000 rooms in 24 hours for one of our hotels so -- in 1 month. And our occupancy has doubled for that month [ for that ]. But those are sort of things that happened because this is all largely ad hoc group and large movement of groups' type of business. I can tell you the segments that are bringing in a lot of these large groups. One is the seafarers because we still see maritime employees going up and down, in and out of India on a regular basis. Second is the Vande Bharat flights still continue to come in and out. Third is the shooting units. We see a significant amount of activity happening on that. And finally, and that's the more recent one, we see a lot of companies getting back to rehiring and moving people for training purposes in large volumes. And from a safety perspective, staying in a five-star hotel makes the best sense for them to ensure that they are not -- there's no health risk to any of their new journeys and -- nor are they in any risk of being sued by anyone. So from all that perspective, we see good traction happening. And finally, I think the staycation part has been a solid sort of source of room bookings in our hotels in Pune, Hyderabad and Sahar, JW Marriott at Sahar. We see some traction happening at Powai also now.

[Sumant Kumar, Research Analyst]

So what percentage of demand, rough cut, is traditional currently?

[Sanjay Sethi, MD, CEO & Director]

So right now, it's mostly nontraditional demand. The more traditional demand of business traveler coming in for short stays and going out with higher rates, I think, is about a month or so away when the domestic kick-in will start. And then that will be followed by international travelers doing the same. However, long-stay, project-based business has already kicked in fairly well. So we've heard of companies like Samsung, Apple and all of them moving into towns -- and IKEA and taking that expensive room. So we clearly see that happening at our Four Points by Sheraton Vashi. See, the other thing is that we have very large box hotels in most cases. Now the Vashi hotel, which 150 rooms, which is typically the size of Indian five-star hotels in the country, is already talking about 45%, 46% occupancies. So that's the difference in your large boxes whilst -- during these times, you may see occupancy percentage is small, but the ability to bring down your costs, combined with potential ramp-up very quickly when things normalize, create a great future in the mid and long term.

[Sumant Kumar, Research Analyst]

How is the wedding inquiries?

[Sanjay Sethi, MD, CEO & Director]

Several, Sumant, surprisingly several. The only problem is that there are still restrictions on number of people that you can have. So therefore, they are small in size. Right now, the restriction for outdoors is 100 people. In those -- in Maharashtra, it's still 50. We're hoping that will go up to 100. But on a case-to-case basis, between the hotel and the wedding organizers, we do apply for larger approvals. And in some cases, we've been successful in having -- increasing the sizes to 150 and 200 also.

[Sumant Kumar, Research Analyst]

That is also comparatively -- compared to previous year, the overall demand of wedding is very strong for the coming couple of quarters?

[Sanjay Sethi, MD, CEO & Director]

Yes. Number of events are far higher. Our number of people per event is lower. But what we are doing is we have a minimum guarantee format in play in some of the key hotels that we have. So in terms of revenue, we have some form of protection of the downside -- against the downside, rather.

[Sumant Kumar, Research Analyst]

So that is given overall the clarity and the -- or expectation of revenue, whatever we have in Q2, it's going to be far better in Q3 and Q4?

[Sanjay Sethi, MD, CEO & Director]

Yes. In fact, we've had some weddings in Q2 also. I must share that with you and -- but we expect that this will go up further in the subsequent quarters.

[Sumant Kumar, Research Analyst]

Okay. And one thing...

[Sanjay Sethi, MD, CEO & Director]

We can't really give out numbers at this stage but...

[Sumant Kumar, Research Analyst]

What's your view on corporate traveling in Q3, Q4? Or maybe what's the view on that?

[Sanjay Sethi, MD, CEO & Director]

So some amount of domestic corporate travel...

[Sumant Kumar, Research Analyst]

Large corporate.

[Sanjay Sethi, MD, CEO & Director]

Yes. Some amount of domestic corporate travel has started. We see that happening in some of our hotels, but it is not large. I do -- I was expecting that we'll have a larger kick-in post Diwali. Let's see how that pans out. But I think from January onwards, for sure, there should be some traction on corporate travel and the quarter after that for international travelers.

[Sumant Kumar, Research Analyst]

Say, Q4 onwards, you're talking about the international travel?

[Sanjay Sethi, MD, CEO & Director]

No, international travel will be Q1 next year.

[Operator]

[Operator Instructions] We have next question from the line of Venkat Samala from Tata Asset Management.

[Venkat Samala, Research Analyst]

Sir, if you could just highlight how the mix has changed from the COVID-centric segment like quarantine, doctors, medical staff, some of the institutional quarantine, et cetera, to the more regular demand based on the start of Q2 to October maybe, if that's possible.

[Sanjay Sethi, MD, CEO & Director]

So it's difficult for me to sort of give you an exact number of how it's changing, but it changes as a mix every month. For example, in -- till -- right till -- right up to August, early August at least, we had a lot of doctors staying with us. We had a lot of Vande Bharat people staying with us. And then we had seafarers come in and out then stop and then again -- start again. So it's been a bit erratic. And therefore, you see the variation in the occupancies. But I'll give you a reference point, right? The quarantine business or repat business in September for the portfolio, for example, is 1,200. It dropped in October to 383, but the project-based corporate business, which is 537-odd rooms, grew to 2,400 in October. Similarly, the retail business booked online, which was 1,235 rooms in September, jumped to 5,719 rooms in October. So we've seen a lot of fluctuation happen. The good part is that the -- in October, the movement towards project-based business, retail business and a couple of other things like crew are actually positive because they indicate more sustainable segments.

[Venkat Samala, Research Analyst]

Right, right, right. Sir, and if you could also highlight what are the rate at which these more regular sort of -- or the segments that you think are not sustainable -- will be coming at. Because the ADRs have not paced materially Q-on-Q, right? So that's the reason I'm asking. So how could the ADRs move hereon when the demand moves towards these normalized or sustainable segments?

[Sanjay Sethi, MD, CEO & Director]

So Venkat, that's going to happen only when the normal business starts coming in. Till then, most of the business that we pick up is going to be ad hoc in nature and will be negotiated across the table. And depending on how the need is for getting that bulk of business in that particular hotel, rates will be negotiated. So it's very difficult to put a number on it. The good part is that from an average of about INR 3,000, we've now crossed the INR 4,000 mark. At that pace, we should continue to grow on a fairly strong basis from here onwards. We were also dragged down largely by the doctors' rooms at Renaissance for several months. That's gone. We replaced it with a large shooting unit which is staying with us for a month but again at discounted rate but it brings in a serious amount of revenue. Both F&B, lawn rental, 100 rooms for 30 days, all of that helps.

[Venkat Samala, Research Analyst]

Right. So if we -- if you were to do a more like-for-like comparison at least because we have some transparency or some reference point at least for retail when we are selling through these OTAs, so if we compare to, say, last October and November, what would the rate be?

[Sanjay Sethi, MD, CEO & Director]

So -- see, the overall rates, as we mentioned, have dropped from INR 7,800 this -- last quarter -- I mean, sorry, last year same quarter to INR 4,030, right?

[Venkat Samala, Research Analyst]

Right.

[Sanjay Sethi, MD, CEO & Director]

On a segment-wise basis, because these are all ad hoc segments, therefore, each of them is negotiated on a very individual basis. And I'm not able to give you a segment-wise rate because the segments are new, and there's no comparison from the past year for these segments.

[Venkat Samala, Research Analyst]

Right, right, right. So I mean I completely get it because the mix has also changed and now the focus is more towards improvement of RevPAR. But what I'm trying to understand is that the rate, on a likewise basis, have also come up, I mean, for us and for the industry as a whole.

[Sanjay Sethi, MD, CEO & Director]

So quarter 1 to quarter 2, yes, we've seen that increase happen. And on a weekly basis, we see traction happening on rate movement northwards.

[Venkat Samala, Research Analyst]

Right, right, right. So at least hereon, it has evident -- there will be sequential improvement from here, right? I mean this [ disparity when ] moving northwards.

[Sanjay Sethi, MD, CEO & Director]

We see that happen, yes.

[Venkat Samala, Research Analyst]

Right, right, right. Sir, and also slightly more long-term perspective of what sort of savings can we have from the industry status, which has been given to the hospitality segment for us -- for the hospitality [ segment ].

[Sanjay Sethi, MD, CEO & Director]

So let me give you a reference point here. In Maharashtra, electricity rates for commercial establishment, that is what we are paying, are in the range of about INR 14.5. We had done third-party power agreements and we're able to bring it down to about INR 10, INR 10.5, INR 11 in through the mix of third-party power agreement versus state electricity board. But the state electricity board power in future will come at INR 7.5. So therefore, the INR 14.5 comes down to INR 7.5. And then you blend that with third-party power, which is we are hoping with the removal of electricity duty -- or reduction of electricity duty. That rate will also come down. So we expect a significant drop in our power target. Similarly, water, we'll be paying lower charges. But more importantly, property tax, which is a significant part of our fixed costs, will also come down. Just to give you a reference here, property tax for -- lowest is residential, followed by industry, followed by commercial, both office and shops. Shop setting is higher than the office or the other way around. And hotels was at the top end. Now hotels come down 3 levels below to industry. So there'll be still some amount of savings. This is only for Maharashtra hotels.

[Milind Wadekar]

Sanjay, let me comment. Venkat, to give you a reference, electricity duty for commercial establishment is 21%, which works out to around INR 3 per unit. And it will be reduced now to 9%. So that itself will give us per unit reduction of more than INR 1.50 -- plus, I mean. Industry tariffs are lower.

[Venkat Samala, Research Analyst]

Right, right, right. So as I understand, at least for these to 2, like property tax and the power expenditure, I mean, based on the Maharashtra properties, you could save 15%, 20%? Is that a fair assumption to make?

[Milind Wadekar]

Yes. I mean it could be a little higher than that. And since have had very effective open access arrangement, I mean, savings will be in the range of 15%, 20% for us.

[Operator]

[Operator Instructions] We have next question from the line of Amit Agarwal from Nirmal Bang Securities.

[Amit Agarwal, Research Analyst]

Sir, my question pertains to the current cash flow crunch, which you have cash burns, as you say. And going forward, when situation is improving -- probably it's improving a bit slowly, plus you have the CapEx for next year, which you said. Sir, is there any possibility that apart from taking money from the bank, which is in form of debt, you could be coming into the market to raise further money to help you? I suppose you have net debt to equity at least remain at certain level and the pressure on the cash flow because the interest doesn't become too much.

[Sanjay Sethi, MD, CEO & Director]

So Amit, where we stand today and the lines of credit as well as the potential debt rates that we're looking at, we should be comfortable and not need anymore, but we are not averse to maybe raising some capital from the equity markets. But that's something that is on the cards as things stand today.

[Operator]

We have next question from the line of Nimish Patil from Escapedia.

[Nimish Patil]

Sorry for another question. But my last question is, when does this company -- or in fact the entire hotel industry, expect to return back to quarterly profits?

[Sanjay Sethi, MD, CEO & Director]

I wish I was as good a soothsayer to answer that with some 100% confidence. But as I said, I mean our expectation is that the year FY '22, '23, we should be in a good space with yields as good as FY '20. And in our case, we've got to keep in mind that in another 1 or 2 years' time, we'll have those 2 new office assets also opening up. And when I say FY '22, '23, I'm talking about the hospitality part of the business. Add to that the 2 new office buildings that we are commissioning around that time, there should be a significant uptick in our operating numbers.

[Operator]

Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Sanjay Sethi for closing comments. Over to you, sir.

[Sanjay Sethi, MD, CEO & Director]

Thank you so much. Thank you for taking time off to attend our earnings call. And whilst we've gone through a difficult patch for the last 2 or 3 quarters, as I said, I think the worst is behind us. And we're looking forward with renewed energy for a bright future ahead for the company, the hotel, the industry in general and the people of the world. And I wish you all a very happy Diwali in advance. Stay well. Stay safe. Thank you.

[Operator]

Thank you very much, sir. Ladies and gentlemen, on [Audio Gap]