Indian Hotels Company Ltd

NSE:INDHOTEL

Earnings Call Transcript 2023-Q1

[Operator]

Good day, and welcome to the Indian Hotels Company Limited Quarter 1 Financial Year 2022/'23 Results. Call being hosted by Mr. Puneet Chhatwal, Managing Director and CEO, IHCL; and Mr. Giridhar Sanjeevi, EVP and CFO, IHCL. [Operator Instructions] Please note that this conference is being recorded.

At this time, I would like to turn the conference over to Mr. Puneet Chhatwal, please go ahead, sir.

[Puneet Chhatwal, executive]

Good afternoon, everyone, and welcome to our Q1 earnings call. Let me start with -- especially those of you who would have downloaded the presentation or have gone through it, every now and then I'll refer to one of the other slide. But let me start with sharing with you that the dual honor of world's strongest hotel brand for second year in a row, coupled with India's strongest brand across all sectors as for brand finance, make it a very special year for us. Also within India, in the last 3 years, twice we have been rated the strongest and once the second strongest. So it's almost a continuation of 3 years, which makes us feel very happy and pleased.

When it comes to the Q1 performance across key financial metrics, we have exceeded the pre-COVID performance on all the metrics. The revenue was up comparing it to pre-COVID numbers by 22%. EBITDA is up by 92%, EBITDA margin by 11.4 points. Profit after tax of INR 170 crores against only INR 6 crores in '19/'20. Strong free cash flows, almost INR 200 crores, and net cash positive of INR 269 crores.

This is the best ever Q1 performance. We only went back to '10/'11. But as you can see from the revenue figures in those years, including if you would have a possibility to see Slide 4, a company or as a business until '19/'20, which was our best financial year, the pre-COVID one, we achieved a margin of 19.9%. We are up to 31.3%. And before '19/'20, the best we achieved was in year '11/'12, a margin of 13.8%. So it's a very strong swing, which is the fundamental proof of our change in business model, our focus on new businesses, our investments in our iconic assets to reposition them and also the kind of mix of properties that we have had.

We finished with a robust performance across all brands. All the parameters were up. There's only one which shows the occupancy dip in Ginger that is on purpose because the rate increase is significant, close to 34%. But when it comes to total revenue per available home, which means it includes room revenue plus other revenues, we are looking at Taj at around 18% increase in total revenue, and in SeleQtions and Vivanta as well as Ginger around 30% increase.

One thing which we have been very careful on in the last few years is the premiumization of our portfolio. So any business that we entered in, new all the ones previously, we want that our offering is perceived at premium level in their relative positioning. So if it's a Qmin QSR or Qmin home delivery, it must be perceived as the best offering. If it's a home stay, it is not only experiential, it also has to be perceived as a premium offering. Same thing for Vivanta and other brands because the backbone of the company was, is, and in foreseeable future remains the Taj. And we want that all of our brands, which are associated directly or indirectly with Taj, are perceived as premium brands in their respective segments.

We have had industry-leading growth on average rates, up by 31% and our occupancy up by 9% and the RevPAR up by almost 42%. These figures are on the domestic front and based on same store. As we are a high-growth company, some of the new properties definitely dilute the amount that we show as absolute amounts. But that is a consequence of high growth, especially in some of the markets, which take time to stabilize.

Very good news on Mumbai, Bangalore and Delhi. They are back. They are the 3 most important metros in India. And if we look at all India, I think there is -- the trend is very, very positive. On the domestic front, IHCL has outperformed the industry in almost every market, except for a marginal lag in Rajasthan by 2 points, but Goa is as high as 167% compared to pre-COVID level and all India is up 142%. But more importantly, Mumbai at 133% followed by Bangalore at 122% and Delhi NCR 120%.

And these metros are important for us also because we have owned or licensed assets here. We account for those revenues and a change in the revenue numbers there has a significant impact on our portfolio and on our performance. Also, we are continuing to build capabilities. We continue to invest in digital projects. Our new website is underway. Our new mobile app is underway and we have undertaken a very large CRM project. And this CRM project became even more relevant because of what you must have heard or seen the Tata Neu Integration which has enabled us to get 1 million new members in already 4 months' time and 50% growth in our loyalty base.

Our marketing campaigns are very strong and have been very successful, the most successful one being the 4D campaign. The campaign on Taj being the strongest brand, the campaign on She Remains The Taj as well as Dekho Apna Desh. And also I think we will be launching a series of new campaigns as of tomorrow or day after, which you will see as a marketing drive towards the independence day and towards propelling growth in all our businesses, especially in the months of August and September.

There is a robust growth in signings, openings and pipeline. Managing the pipeline is very, very important to us. And our pipeline today of almost 8,100 rooms represents 28% of the total portfolio and almost 40% of the operational inventory. That is the industry-leading pipeline in terms of percentage. And we have had 10 signings already in Q1. We expect that we will sign another 15 million for the remainder of the year. And we have also announced in our press release that we have got the letter of awards for 4 projects, 2 in Lakshadweep, 2 in Diu. And we have opened 4 hotels and the openings are more towards the second half. So will open another hotel this month.

And going forward, it will increase to 1.5 to 2 openings for the remainder of the financial year. So in line with the guidance that we have given previously in other quarterly meetings. Very interesting for you would also be to note that we envelope India and we cover India and our presence in key strategic international destinations also. Today, in India, we have crossed more than 100 destinations that are covered through our portfolio. And if we were to include amã, then the number of destinations would reach almost 125. So our pan-India footprint is stronger and is getting even further stronger as each month and each quarter goes by through our aggressive asset-light growth strategy that has been in place.

The asset-light model is not only driving growth, but it is also helping us find the right balance, which is in line with our AHVAAN 2025 strategy, and that is about delivering profitable growth in a responsible fashion. So we call it the responsible profitable growth, and our management mix in terms of contracts from the total portfolio has went to 46%. Our management fee growth in the quarter 1 was 72% versus '19/'20. So we are not comparing it to the previous financial, we're going to the pre-COVID level, and there is a 72% increase, and that is a proof of our asset-light model.

Having said that, we are still investing smartly for long-term growth. Our strategic renovation is now 75% complete at the Taj Mahal Hotel, Delhi, also popularly known as Taj Mansingh, our second 7Rivers, the microbrewery together with the House of Nomad is about to open in the next 3 to 4 weeks at the Holiday Village in Goa. We continue to pioneer destinations at the Statue of Unity. We'll be doing a combo hotel with Vivanta and Ginger approximately 350 rooms, followed by investing in some of the bungalows. We will do wherever FSI is available towards like we have in Aguada, we'll be adding 3 home stays there.

We will see if we can get permission to add some in Exotica and we'll continue to invest in Chambers. We'll be launching Chambers very soon as we have guided before, over the next 2 years, both in our property in New York as well as at the West End in Bangalore. Further work has happened on the QSR, which we call the Qminization of Ginger. Each of the Gingers will have all-day dining and that will be branded as Qmin. The first one has already happened in Goa in the Panjim City and 10 more projects are underway, which should be completed when we do our Q2 investor call.

Obviously, our AHVAAN 2025 strategy has a very strong element of ESG plus, as I said, doing business the responsible way or delivering responsible, profitable growth and we get support from Paathya. And Paathya has those 6 pillars of excellence that guide us and we've started to work on 10 heritage sites with UNSECO. We have created 8 active skilling centers and we have 9 pilot projects, which have been undertaken also with IFC.

Our 29% energy is coming from renewable resources. 45 hotels have already installed EV chargers. That's a project we have undertaken in collaboration with Tata power. And even during the Assam flooding 57,000 meals under Qmin were delivered for the people who were needy in very remote areas like Silchar, et cetera.

Moving on to the guidance we have given under AHVAAN 2025 on performance criteria as we said, we will deliver over the business cycle, 33% EBITDA margin. We will do new businesses and try to achieve 35% or more EBITDA from new brands and management fees. We'll have a balanced portfolio of 50-50 at the end of the business cycle, and we will strive to remain a zero net debt company.

When it comes to the portfolio, the guidance that we have provided remains unchanged at 300-plus hotels portfolio over Taj selections, Vivanta and Ginger and 500-plus home stays. That makes us believe that AHVAAN 2025 will further our journey to reinforce our status or consolidate our status as South Asia's most iconic and profitable hospitality company built on the pillars of Taj, which is trust awareness, joy and the 5 core values of Tata Group with enablers like culture, organization, One Tata, digital excellence, sustainability and our 3 key initiatives of reimagining new businesses, reengineering traditional businesses, restructuring our portfolio. So I think we are on track and our financial performance on all these 3 metrics that I just mentioned to you will be discussed in detail and presented to you by my colleague, Giridhar Sanjeevi, who is our Chief Financial Officer.

[Giridhar Sanjeevi, executive]

Thank you. I think building on Mr. Chhatwal's presentation. I think -- fundamentally, I think, our strategy of reengineering margins, reimagining brandscape, and the restructured portfolio is a very good algorithm, which is enabling us to grow profitably and positions us very well in this AHVAAN's journey junction.

I think one of the things that we just want to touch upon, which keeps coming in questions is that ours being the different segment of recovery across the -- post the pandemic. We very clearly saw that the domestic leisure recovery was the earliest. Weddings and social events started next. Corporate and MICE recovery has started strongly in Q1, which is where you see -- and corporate FIT as well, which is where you see Mumbai, Delhi and Bangalore coming up. In addition, of course, the garment business in Delhi has also restarted. And international travel recovery is expected to start sometime in the Q3 of the current financial year once the visa situation and other things kind of ease up actually.

In terms of the key highlights, we are deliberately touching upon enterprise, consolidated and standalone. Enterprise is nothing but all the hotels, including management contracts, we did INR 2,420 crores in terms of top line, which represented a 137% growth. And I think with this trend, I think what we are trying to do is to see whether at an enterprise level, including management contracts, we could go to a INR 10,000 crore enterprise top line for the IHCL, which will be the highest ever actually. So that is our objective this year. EBITDA gain for the enterprise was INR 719 crores, which represents an EBITDA margin of 30% -- 29.5%, and a flow through of 62%.

On the consolidated, which is what we report to the -- externally, I think we had 122% growth with INR 1,293 crores top line. And as we said, this is the best ever top line in the last 10 years. And similarly on EBITDA, it is INR 405 crores of EBITDA. And the most important thing is the flow-through is 82%, which means for every change of INR 100 on the top line between '19/'20 and now INR 82 came through to EBITDA line. Free cash flow positive at INR 198 crores, this is also a very healthy sign. On standalone, it mirrors the consolidated with 130% growth in standalone with flow-through of around 79% and a strong free cash flow positive of INR 170 crores.

If I look at the different key entities, which is the subsidiaries, I think you will see that USA has generated actually a cash profit. While business was at 85% in terms of recovery, we generated a cash profit this year early into this quarter. St. James Court has a very strong recovery, 111%, with an EBITDA margin of 37.5%, with a strong free cash flow positive.

If you move to the next, which is PIEM hotels, which has the iconic President and Blue Diamond in Lucknow and others, we had 127% growth in the top line and an EBITDA margin of 28%. Roots Corporation is a very strong story in terms of the transformation. If you notice, in the year 2019/'20, the EBITDA of 11% on a top line of 50% translates around 22%, that has now gone up to INR 27 crores on a top line of INR 70 crores, which represents an EBITDA margin of 41%. This reflects the efforts that we have taken in terms of integrating Ginger operations with Indian Hotel operations. And the most important thing is it is PBT and PAT cash positive and free cash flow positive.

Benares Hotels has generated one of the highest EBITDA of 46% with 169% growth in business and is also being free cash flow positive.

While we have not given the associate companies in this presentation, I can only tell you that the associate companies have also driven strong growth with free cash flow positive. Now the important thing is with all of the focus on new businesses, we have now seen the revenue contribution from the new businesses as compared to the pre-pandemic business has gone up from 9% to 14% and the EBITDA contribution has gone up from 18% to 22%.

A very strong focus on costs continue. The fixed cost as a percentage of revenue has come down as compared to the pre-pandemic period. So while the business has come back to 122% of the pre-pandemic level. In fact, earlier conversations, if you all recollect, we were talking about business coming back to the pre-pandemic levels and us to continue saving costs. Here despite business coming back to 122% of the pre-pandemic levels, it continued to drive cost focus in terms of fixed costs. Variable costs, again, have sort of come down. Fundamentally, what the message here is that despite inflation, we have been able to take price increases on F&B and therefore, make sure that the variable cost as a percentage of revenue is kind of maintained.

Corporate overheads as a percentage of revenue has also been strongly maintained at 5.5% in the current quarter, down from 7.8%. In terms of the productivity initiatives, I think if you look at payroll expenses, it is 27.8% of the revenue versus 35.1% in the pre-COVID level. So payroll expenses are definitely been kind of controlled. The raw material costs, as I just explained, lower as a percentage of F&B despite inflation, we have been able to take the price increases. Fuel power and light, we have continued to work in terms of renewable sourcing and also energy efficiency in terms of consumption of the hotels. So both are helping us to manage the fuel, power and light. Overhead efficiencies we just saw has been significant in terms of corporate overheads as a percentage of revenue.

Marketing effectiveness, this time the marketing spends have gone up rightly so in terms of the growth in business, but we are smartly working on effectiveness.

In terms of the consolidated P&L movement, this is just a waterfall chart. The detailed charts are at the end, which are there in annexures for you to look at. We had INR 1,293 crores. And I think what is the core message in this slide is that the EBITDA -- the bottom chart shows the difference between the variance from 2019, '20. The EBITDA at INR 194 crores represents 11.4% improvement and an 80% plus flow-through. The PBT at INR 203 crores is an increase -- is the increase as compared to the pre-pandemic level of about INR 27 crores. So the PAT at INR 164 crores is a significant improvement growth as compared to the INR 6 crores in the pre-pandemic period. So all in all, a very strong improvement in terms of consolidated performance.

Similarly, in terms of the EBITDA margins, you will see the improvement across same-store, which has been significant and if you see the new hotels, Ginger, Qmin, amã, the Chambers, all of these are meaningfully now contributing to the growth in EBITDA actually.

In terms of free cash flow generation, this continues to be a very strong focus area, INR 198 crores of free cash flow generation. We began with INR 2,082 crores of cash. The cash from operations was positive at INR 350 crores nearly. We repaid debt of INR 964 crores and a closing balance at a consolidated level of INR 1,276 crores with a free cash flow of INR 198 crores.

Similarly, in stand-alone performance, it mirrors the consolidated performance with INR 142 crores of EBITDA, a 12.5% improvement in EBITDA with the 75% plus flow-through and a PAT of INR 147, which represents INR 125 crores improvement over the pre-pandemic period.

So we come to the end of this presentation. There's a lot of data on the annexure, which you can look at. So if you have data questions, our suggestion is that you can look at the annexure. If there is anything else, we will see what we can answer. Otherwise, feel free to reach out to us after the call. We are open for questions now.

[Operator]

[Operator Instructions] We will take our first question.

[Nihal Jham, analyst]

Yes, this is Nihal Jham from Edelweiss and congratulations for the strong performance. Sir, 3 questions from my side. Starting off with the first one is, just wanted to get a sense that the kind of strong trends that we've seen in the first quarter where we've even exceeded the increase in Q3 quarter in general, are they continuing at such a strong pace?

[Puneet Chhatwal, executive]

Yes, Nihal, they are continuing. You see -- and this is for you and anybody else listening here. Q3 has been traditionally the strongest quarter, and we see no change in that going forward. Q4 is the second strongest quarter. And Q1 has always been the third. So July/August/September quarter, which is the Q2, is always ranked #4 for us in the terms of revenue. But I think even if we look at it, it should come very close to the Q1 performance.

There will not be a very big variance for what we know today from the month that has gone by, that is the month of July and the performance till 8th of August versus -- and also the pickup and the business on the books. So definitely, the trend continues despite the fact that some of these months are very strong holiday periods, and also that there is less business activity versus in Q1, we had the IPL, we had many other things happening, opening up of the air traffic after the end of March. So there was a certain momentum, but we are not seeing any change or drop in momentum.

[Nihal Jham, analyst]

The second question was related to that, if we bifurcate the business as you've also given between business and leisure, and there has been a strong improvement in rates versus pre-COVID. So how has the absorption been? And how do you see this continuing? Because that, in a way, becomes critical for our occupancies also to sustain specifically, if I say look at the leisure segment, I think our rates are 60% higher than pre-COVID. So does a comparison with other international destinations, as things are opening up, maybe put a stop to this rate sustaining? And similarly, for the business segment, how do you see this absorption being taken by the corporates and the transient customers in general?

[Puneet Chhatwal, executive]

I have a different -- we have a different opinion here. I think very important and critical, as I mentioned in my comments in the presentation was that for us, Delhi, Mumbai, Bangalore is very important, and we said it in the last investor call for Q4 or the full year results was the day these 3 metros come back, you will see a significant swing in business.

So I think, yes, there is a strong occupancy improvement in the business segment. And up till now, the business segment has been much -- more or less very strongly driven by occupancy versus rate. And when I say this, I'm comparing it to the pre-COVID. So maybe for us, it's a difference of 12% or 13% over a 2-year period, that's not a big increase. It's a very nominal and normal increase.

I think critical is the leisure segment. In leisure, the rates have gone up. Now having an analogy saying that when other destinations and international things open up, then leisure will go down, I don't think that is correct. I think there is a change that happens whenever the world goes through any kind of significant event. And I think the demand for leisure that whatever you want to do, do it now and don't leave it for like, I'll go on a holiday 2 years from now, 3 years from now, extended vacations, they have not happened.

Further, I mentioned to some of your colleagues, and I'll mention here also, all these results that you are seeing is also without much international traffic. That segment in terms of inbound tourism is still more or less missing. And that for us has been a very important segment, especially for our leisure and palaces and Safari. So those properties are not yet benefiting from the inbound tourism coming from other countries as well as towards the end of this calendar year, December onwards, there will be the G20, which will start. And I think that should further give a boost to the room nights and also to the rates going forward.

[Nihal Jham, analyst]

That's very helpful, sir. Just one last question that on Ginger, would you say -- could you highlight that other than the rate improvement, any other initiatives that have led to this significant improvement in profitability? And if it's possible for you to give the AHVAAN target even for Ginger?

[Puneet Chhatwal, executive]

Well, we have not yet done that, giving separate targets for different brands in hotels. We have given only for the portfolio. So we have said Ginger will have 125 hotels and home stays, for example, will have 500 and Taj will cross the 100 hotel portfolio. So that is what we have given, but not a target broken down by brand. But it would be fair to assume that in key metro cities, Ginger would definitely perform EBITDA margins of 55% plus. And in others, it would be around 40% to 45%.

As we continue to enhance that portfolio, that Reimagine Ginger, as we continue to add Qmin QSR restaurants, I think the total revenue per available room in Gingers should improve and also in the positioning of the brand. It will get a lot of help with the combination and the combined power of Ginger and Qmin.

[Operator]

We will take our next question.

[Achal Kumar, analyst]

Sorry, this is Achal from HSBC. So I had a couple of questions actually. So first of all, just wanted to understand this impact from high pricey air ticket. So air tickets have become very expensive, and that has actually halted the air traffic growth. Do you think that could be a kind of a potential challenge for you? Or do you think that could be a boon for your earnings, assuming people would start spending less on the hotel -- less on the planes and then more in the hotels and that would actually push earnings for you. So how -- what do you think?

[Puneet Chhatwal, executive]

It's a very interesting question, Achal. It makes me smile and it makes me also think. So it's a different kind of analogy. We never thought like that. I think what we have seen, because of our diverse portfolio and the needs and demands of the job, we end up traveling a lot. Despite the increase in air travels, on a domestic front, all flights have been full. And we are seeing the same thing on international routes, even though there are challenges in getting the baggage and the baggage delivery and every day, you read something new from Australia till Heathrow to Amsterdam to Frankfurt on what all is happening.

So I think travel remains a fundamental need and other people spend on travel or staying in hotels or -- is also a fundamental business need. You cannot do all business virtually because at some point, you have to build the relationship capital. So I personally feel I don't think increase in costs of airline tickets is going to reduce the spending in hotels or because of that, people will not travel and the additional disposable income will be consumed in hotels. But some of it in a very small fraction might even be true. That's why it made me smile.

[Achal Kumar, analyst]

Yes. No, I mean you are right, Puneet. I mean it's an interesting question. But I mean, from the corporate side, of course, I don't see any impact because the corporate people are least price-sensitive or they don't share if the ticket is INR 10,000 or INR 20,000. It is more to do with the leisure demand because if I'm a leisure traveler, of course, and I have a budget in hand, so if I used to spend like INR 50,000 on the flight and INR 50,000 on the hotel, now if I need to spend same -- I need to choose the same destination, probably I end up spending INR 75,000 on flight and then and left out with very less for the hotel. So that was my question on the leisure side, would it be...

[Puneet Chhatwal, executive]

I understand. If you are a family of 4 and you've gone through COVID, you get used to sitting in the car and driving because that way that INR 75,000x4 becomes INR 3 lakhs, and you save on that INR 3 lakhs and you spend it on accommodation and dining, et cetera, and other kind of leisure options. But that is going to be a permanent trend. It's not going to replace the air travel rather complement it for additional extended weekends and breaks, which we are also witnessing.

What happened to be, let's say, in Mumbai, somebody driving off to Nashik or Lonavala or Mahabaleshwar on an extended weekend when everything was shut, it has now become a normal trend. So it's people doing it, and with the improvement and the spending the government is incurring on building better quality infrastructure is only going to increase the demand for this kind of vacations.

[Achal Kumar, analyst]

That's interesting. Second question, I wanted to understand about your relation with Tata Group in terms of Tata Neu as well as in terms of Tata's increasing airlines, aviation business. So what kind of relation are you building there? And what kind of benefits do we expect from your synergies with Tata groups?

[Puneet Chhatwal, executive]

Well, one of the big advantages of being part of such a conglomerate is to have synergies within the group companies. And Tata Neu, as we have shared, we were the first member to join this Tata Neu platform much before any other company decided to, and we are very happy with it. Of course, it's very new, and it was launched only on 7th of April. So it has to reach that maturity phase. It's in the infancy, start up phase, and I think at a mature level, the potential is significant. And we have a very good relationship.

And at the moment already, our source of revenue through the app platform of Tata Neu has almost doubled. We have reached -- 18% of our revenues are coming from that source. So all in all, we are very pleased. The same is collaboration with airlines. Of course, we already had a collaboration with AirAsia, Vistara, we do meals for them, the flight kitchen business. Only thing is it's going to get stronger and stronger as time goes by.

[Achal Kumar, analyst]

Right. My next question is, I wanted to understand about the inbound international tourism, which has been a significant, which has -- which used to generate significant amount of revenue for IHCL. Now of course, you are expecting the recovery by Q3. So with that, what kind of jump or improvement you are expecting to your occupancy levels and ARR? And which cities do you expect has a potential for further growth from that?

[Puneet Chhatwal, executive]

See, pre-COVID, let's say, 15% of our total business for the year was coming from inbound tourisms in the second half, a lot of that on some of our palaces, et cetera, we're getting more than 50% of the revenue was coming from international sources. We expect that to come back, and we'll have a change in the -- it's more like a channel shift from a domestic and from an OTA, you might have known through travel agents and through other sources of international business. So that's a channel shift that happens. It only helps you become more, let's put it this way, more solid, stable, less volatile in terms of the sources of business because you have so many more sources.

So at the moment, we are missing that. It's not -- it's very marginal. It's a very small amount that is there. It's not zero because it has started. However, we have a long way to go. And as my colleague, Mr. Sanjeevi was mentioning, we are expecting towards the middle of Q3 around November for this business to pick up. That's what we feel is the most likely outcome today. And this activity will pick up and it will actually help drive demand in a very solid way in places like the state of Rajasthan, Delhi NCR, Mumbai, Goa.

And some of the other spiritual and other destinations, because international is also having a significant share of people of Indian origin living abroad who come back to visit families who have not had a chance to see families for 2 years. But because their nationality has changed or their passport is different, they're also counted as international arrival. So I think we should start seeing a lot of that happening. I think Diwali is around end of October, 24th of October or so. From Diwali till -- from Diwali onwards, it should start.

[Achal Kumar, analyst]

Okay. My last question and a very small question. Do you have any update on Sea Rock you want to share, please?

[Giridhar Sanjeevi, executive]

Sea Rock, I think we are working on designs at this point of time so that we are ready with the design. In parallel, of course, conversations are going on in terms of accelerating the approvals. So I think we'll have to -- we will update as and when there is a better advice on this.

[Operator]

We will take our next question.

[Vikas Ahuja, analyst]

Congrats on strong earning. This is Vikas from Antique. Sir, my first question is on margin improvement of 11 to 12 percentage points compared to pre-COVID, which is largely explained by a reduction in payroll and other expenses. If possible, could you highlight what contributed to this sharp decline in other expenses. Maybe if you can give -- maybe if you can talk about the items here?

Also, looking at historically, the average margin of second half is normally double the margin in first half. And I do understand there is a strong center demand in first half this time, but directionally, do we expect margins in the second half to be much better this time as well? Or do you think that price and wage and as well inflation could challenge our second half?

[Puneet Chhatwal, executive]

Vikas, apologies, your call was very -- I mean, the line was very unclear. The only question which I have understood, I think maybe we can take it offline with you, is around margins in first half versus margins in second half. Of course, margins in second half should be theoretically higher than the first half. Why? Because the rates are higher, the activity is higher and it happens like that in Q3 and Q4. So say for any geopolitical tensions, any kind of new waves of COVID or anything like this, that is the likely outcome. And we think -- at this point of time, we don't see anything coming in that way.

[Giridhar Sanjeevi, executive]

And I think your first question was more around costs if I'm not mistaken as to how they have been coming. But that, as we have explained, I think we continue to focus. You've seen the focus on fixed cost. You've seen the -- I think variable cost is more a function of inflation and how we are able to pass on the price increases. And yes, payroll expenses continues to be a strong focus area. I think nothing -- I mean, the -- it's an ongoing effort in terms of making sure that we don't kind of relax the focus on this. I think nothing more than that, in fact.

[Vikas Ahuja, analyst]

Sure. Sir, I hope my line is clear now. I have taken out the headset.

[Puneet Chhatwal, executive]

Yes, yes. Now it is much clear.

[Vikas Ahuja, analyst]

Just coming back to margins. So what I was trying to say that pre-COVID and if you look at 5, 7 years history, second half margins are normally double of first half margins because second half being seasonally very, very strong. Now if directionally, we continue to think that margins are in second half is going to be better than first half. So we might end up achieving 33% AHVAAN target this year only. But is it fair to assume that this year margin has a lot of winter factor, and we may see some challenge in FY '24 and then we'll come back achieving our margins target in FY '25. Is it a fair assumption?

[Puneet Chhatwal, executive]

Not really. Not -- I don't think that is accurate because I think we can take it up in detail when you have time. You see we have a lot of increase, as we have shown, in the management fee income with the corporate overhead having gone down from 7.8% of total revenue to 5.5%, although the number of hotels in operation and the total portfolio has gone up. So that's one example of -- with so many management contracts that when you add, they add to the management fees. And our management fees compared to '19/'20 went up by 72%. So the flow through on that incremental thing is very high.

Same is on our new businesses that there is a strong impact because of those additions. And double is not the right way to calculate. I think the way the industry works was always, it's okay, if you don't do well in first half, the second half will make up for it. We have given up that, and we say every day, we have to work and stay focused, optimize the costs and increase the revenue and market share as much as possible.

So that -- those kind of assumptions that margin in first half is half of the margin in second half, that's gone. That will not be the case. There will be an improvement. Of course, there will be an increase, but it will not be the way it used to be because even for us, on an average, if we take out pre-COVID year, the '19/'20 and we took the 10 preceding years, our average margin was not even 13%.

So of course, you are right, that in Q3, Q4, it was 26%. But that's a change in the business model. That's the change in the way we invest. That's the change in the way we upgrade assets. That's a change in the way we have launched and introduced new brands. That's a change in thinking of doing food and beverage and Ginger, which we never did, which was outsourced. I hope that answers your question.

[Vikas Ahuja, analyst]

No. So it was very helpful. My second question, sir, I'm sorry, actually the last question is on, you highlighted in the presentation that except for Rajasthan, we did much better compared to the industry. But can you explain the stark different in southern cities like Hyderabad and Bangalore, where we have performed much better compared to the flat-ish kind of RevPAR growth for the industry. Hyderabad, we are up 40%. Was there any one-off kind of an event there? Or it's just the sheer outperformance because of these -- such a brand we have?

[Puneet Chhatwal, executive]

Vikas, you might have forgotten, but you asked the same question last call also. So I'm sure you are following up these cities for one or the other reason quite strongly, but it is good. You have a good point there. We have certain initiatives in place, and it's a very good example. The Fisherman's Cove in Chennai, the Taj Connemara in Chennai were upgraded and relaunched, but then came COVID. So the way they are driving business during COVID and now is very different than what the performance was before.

Hyderabad is the same thing. A lot of Taj Krishna has been renovated. So it has also gone up. But having said that, we did have certain movements, which was a good collaboration effort with Vistara in providing quarantine accommodation to workers, which were going to Singapore. And we had some of those movements and that will always keep happening as a one-off today in south of India, tomorrow in East or North, that's the power of collaboration and having strong partners.

[Operator]

We will take our next question.

[Amandeep Singh Grover, analyst]

This is Amandeep Singh Grover from AMBIT Capital. Sir firstly, on the management contract, since you have already reached 46% management mix in terms of overall portfolio versus again AHVAAN guidance of 50%. So in that context, can you help us just understand how many of these sign outs would you need to achieve that? And by when do you expect the sale? And consequently, do you also plan asset heavy expansion or there could be upgrades to be guided. We're just trying to understand the mix.

[Puneet Chhatwal, executive]

See, we said we will continue to invest smartly. So for every investment that we make, we will need 7 to 8 management contracts to find that balance. So if we did 5 or 6 company owned or leased hotels, or if we did, let's say, 10, we need another 40 management contracts at a minimum, but maybe up to even 60. So you find that balance in the portfolio. So I think that is an important messaging. So we should not stop investing completely because some of the destinations, which we have built as a company in the past have worked very well for us, you know Goa being one of the best examples, Kerala being the other one.

And again, we did a great job in Andamans in Havelock and then came COVID when we opened. So hopefully, once all this is over, that will take off. And now as we showed in the presentation or in our comments, management commentary, we're looking at the Statute of Unity, we are looking at Lakshadweep, which could be the most important leisure destinations in the world, whether it's pristine beaches and the kind of experience one can have there. But these things take time, it will be like a development over 3 to 4 years. And that's why our guidance also on AHVAAN 2025 is also 3 to 4 years' period. And in the end, all these parameters have to balance themselves.

[Giridhar Sanjeevi, executive]

And our guidance has also been largely 50, 50, if I remember.

[Amandeep Singh Grover, analyst]

This is really helpful. And just one on the international business. So key focus like USA still largely recovering in terms of RevPAR, but EBITDA contribution has been definitely better. So can you help us understand some initiatives there and here, and if this can be extended to say your overall hidden actual portfolio? And lastly, your view specifically on recovering occupancies for the U.S.?

[Puneet Chhatwal, executive]

Recovering occupancy in?

[Amandeep Singh Grover, analyst]

On U.S.?

[Puneet Chhatwal, executive]

So U.S., I think we have mentioned in the last few quarterly presentations, we used the COVID time to renegotiate our lease in New York. And also, we invested in a new hall, so we reduced the size of the large banqueting space in the U.S., and we have built in a new hall out there. We'll be adding also Chambers private membership club in Pierre. And by doing so, we were able to give a part of the area that we had leased separately from another landlord that was the adjoining building of Barneys. So that brought down our lease obligation, our number of employees, the cost of utilities, heating, lighting, all that stuff. So that is definitely something we did, which got us around $3 million. Now because the hall was not available as it was undergoing renovation, we lost some market share. We hope to recoup that and that's one thing in New York.

In San Francisco, we will be introducing the Bombay Brasserie instead of the current restaurant, which is there, it's a small property. It was profitable pre-COVID. And so that will take our Bombay Brasserie presence to San Francisco, Cape Town, Dubai and London. So I think that's our plan on the U.S., but we also expect positive news in Cape Town. This part of the year is -- it's off season for Cape Town. The summer and Cape Town starts as of October, October to March. It's the stronger period. And you'll recall also during COVID, we acquired 100% shareholding in Cape Town. And so now those revenues, et cetera, should start reflecting in our top line strongly as of Q3 of this year. We can take the next question.

[Operator]

We will take our next question.

[Unknown Analyst]

I have only one question. Sir, we have an associate company called Oriental Hotels. So is it not wise to merge that company into the Indian Hotels. It will be a win-win for all the stakeholders. What is the management team view on the subject?

[Giridhar Sanjeevi, executive]

I think it's an associated company. I think we have partnered in that company. I think we are not the only shareholders. I think we have, in general, stated that simplification of structure remains our key objective. So we'll see what happens. I think...

[Unknown Analyst]

Okay. And one small question on the Qmin. We have achieved INR 100 crores of revenue. So what is the potential of this business over the next 3 to 5 years, sir?

[Puneet Chhatwal, executive]

We are -- see, we expect if every Ginger hotel gets Qmin and Ginger goes to a portfolio of 125 and let's say, almost 90 hotel in operation plus already 10, 11 QSRs we have in Qmin, the Qmin QSR itself would be almost 100 restaurants. So there is a revenue at an enterprise level and at a consolidated level. At the consolidated level, we'll only get the fees from those restaurants and also the home delivery. So we are looking at enterprise revenue of Qmin going to INR 100 crore plus on an annual basis in 2 to 3 years from now.

[Operator]

We will take our next question.

[Sumant Kumar, analyst]

Sumant here from Motilal Oswal. So going by the data you have given in the PPT, the U.S. and U.K. market, we have seen occupancy -- a significant improvement in ARR, but occupancy is lower. So are we going towards our positioning for the higher ARR and lower occupancy?

[Puneet Chhatwal, executive]

Sumant, as we said, we missed out on some opportunities in the U.S. because of the renovation of the banquet hall, some of those events we could not host as it was before COVID. And also the trade-off on the rate side is important because some of the cost structures have changed. So we have to go for higher rate, higher margin business. In the U.K., it depends. Some of the events had shifted. Pre-COVID-19, there were some very big events happening in London, which also happened this year with the Queen centenary.

So July, I can tell you, in U.K. has been the strongest month ever in the history of that hotel. So we never reached the revenue level that we have reached in. So this is like a 3-month only 1 quarter. So sometimes things shift between June and July. But all in all, we can say that if we add July, then it looks very different. And if we add even July to our current first quarter results, the trajectory is in the same direction as was for what we have presented to you, for the overall as well as for U.K.

[Sumant Kumar, analyst]

Okay. Now going by the EBITDA of PIEM and Benares Hotel is 3 to 4x, when we see the stand-alone is 2x. So any other changes apart from cost side for Benares and Piem hotels?

[Giridhar Sanjeevi, executive]

I think, see, Benares, fundamentally, as you know, that the palace has been doing very well. And I think even the Taj Benares has been doing excellently well. I mean it's a small company, and so the cost management is very, very efficient in a small company. As far as PIEM is concerned, once again, I think, again, it's a well-managed small company. And I think you can see the key properties there are all kicking in. One is Lucknow, performance improvement significantly at the President. Nashik has done very well for pre-COVID as well as post-COVID. MG Road in Bangalore, in particular, has improved significantly after the 7 Rivers has opened up actually. Amritsar is now doing very well. So I think these are very property specific and these will continue.

[Operator]

We will take our next question.

[Bharat Sheth, analyst]

Congratulations on good set of numbers. This is Bharat Sheth from Quest, sorry. Sir, we said in presentation, we have shown 8,000 rooms in the pipeline. So can we have some kind of a breakup between owned, license and the brand-wise also?

[Giridhar Sanjeevi, executive]

Can we take that question offline, we have the data. So if you reach out to my colleague, Ashok or Rupesh, we should be able to give you that data, no problem.

[Bharat Sheth, analyst]

Okay, sure, sure. And next question, sir. In this new business, which are driving our margin expansion, so we have -- the top line has contributed 9% to 14% and EBITDA contribution has moved up from 18% to 22%. So how do we see over the next 3 years, this scenario in view of the -- whatever business we are driving and how much additional margin can it really contribute to the company?

[Puneet Chhatwal, executive]

I think we will be reporting on quarter-by-quarter progress. I think there was a strong echo. No, no, it's okay. So I think we should keep seeing improvement like you're seeing here from 9% to 14% or 18% to 22%, you can add similar numbers should be possible going forward, if not more.

[Bharat Sheth, analyst]

Over 3 years' time?

[Puneet Chhatwal, executive]

Yes, yes.

[Bharat Sheth, analyst]

And how much overall it can help us to improve our EBITDA for the company?

[Giridhar Sanjeevi, executive]

See, we have guided that the new business should have an EBITDA of more than 35% and that is the input into our EBITDA ambition of 33% that we have guided. So we do expect new businesses to do better than current ones.

[Operator]

We will take our next question.

[Kaustubh Pawaskar, analyst]

Congrats for good set of numbers, and again, thanks for the elaborated presentation. Sir, my question is, again, on the international properties. You just mentioned in one of your previous answers that in domestic market, you are not seeing any impact of increase in the airfare prices or the general inflationary environment, you are seeing good demand in the domestic market. On international front, what is your view? Because of this inflationary pressure in some of your global markets like U.S. and U.K., do you expect it will have any impact on the demand -- room demand? Or you expect that travel will continue and the occupancies will remain firm in the coming quarters?

[Giridhar Sanjeevi, executive]

No, I think -- see, as far as the international market is concerned, I think the factors which are now becoming important is not inflation. I think it's things like the airport difficulties in Heathrow is an example. I think those are the factors which will -- which kind of can impact in the short run places like in Europe actually. In the U.S., U.S., I think New York remains a very strong leisure market. There is -- you know this month, for instance, you have this -- September, we have this United Nations General Assembly happening.

So therefore, there will be -- New York has always been a very resilient market. And hence, I think I don't see inflation in particular to be a factor which will impact any of the international businesses actually. In fact, this is one of those businesses, which has some element of recession proof -- I mean, inflation proofing in it because of the ability to drive prices purely based on the demand supply.

[Kaustubh Pawaskar, analyst]

Right. This is Kaustubh from Sharekhan. My second question is on the supply front. So we are seeing opportunities in the domestic market. And we have seen that for last 2 years, the demand has been strong, especially after the COVID risk has receded. So in terms of supply, what is your view? Like should we expect the room supply considering the opportunities what have opened in the domestic market should improve in the coming years, and we should expect some of the brands to enter in collaboration with some of the domestic hotels in India? And this should lead to even supply of rooms to increase in the coming years?

[Giridhar Sanjeevi, executive]

So I think if you've seen our earlier presentations, I think what we have seen is that the growth in demand is going to be much better than growth in supply over the next 2, 3 years. In fact, industry estimate, if I remember the numbers right, has been about demand at around 6.5% and supply at around 5% or so. And therefore, I think -- so that position is likely to continue over the next 2, 3 years.

I think fundamentally, financing of individual stand-alone hotel projects still remain the challenge. And when you talk of 5% supply constraint, this is at an overall industry level. But if you take properties like the Taj category, then I think it could even be tighter actually. So I think over the next 2, 3 years, we do expect the supply situation to continue to be constrained, and that should help the industry.

And I think we'll take 1 more question. And thereafter, if others, if you have missed out or any other questions to be asked, I think do reach out to show Ashok, Rupesh, myself, Giridhar here, and then we can take on -- take your questions separately. So 1 last question, please.

[Operator]

Okay. We will take our next question.

[Unknown Analyst]

This is Nimish from [ Aspen Ventures ]. I just want to ask how you are looking for the amã Stays going forward? And what is the profitability or what is the EBITDA levels at present?

[Giridhar Sanjeevi, executive]

So I think as we have always guided, I think the amã business is an asset-light model where we charge 15% in terms of fees and 3% in terms of pass-through marketing. So it's an 18% cost. So of that 18%, if you take 3% off, which is your marketing cost, rest of it is amã. There are also -- our model of amãs are also close proximity to existing properties. So operating costs of management are very low actually. Hence, an amã business on the 18% cost, I would say that about 60%, 65% should be the flow-through that we should get. So that's the kind of margin that we're expecting on amãs on the 18% fees that we charge.

[Unknown Analyst]

Okay. One more thing is like the offices are now opening up and the things are opening up. So whether we are adding like, I think, 40 amã Stays now. So whether there is a demand of this or how you are looking for it?

[Giridhar Sanjeevi, executive]

So amãs continue to be in demand because I think -- fundamentally, I think as we have always stated, I think the pattern of holiday travel has changed. People are driving to destinations. The pandemic -- and domestic travel has gone up. The Indians have discovered India in terms of travel. And hence, I think the demand on amãs will not go down. So we expect, in fact, our ambition is to go to 500 amãs on the assumption that these are viable places in terms of travel. And hence, we expect the demand for amãs to continue to be robust. Of course, these amã businesses are not 365-day businesses, but I think we do expect demand for amãs to be growing.

Thank you. Thank you all for participating in the call today. Please don't hesitate to reach out to us for any further questions. Thank you very much for all your support.

[Operator]

This concludes today's call. Thank you for your participation. You may now disconnect.