Indian Hotels Company Ltd

NSE:INDHOTEL

Earnings Call Transcript 2024-Q1

[Operator]

Ladies and gentlemen, good day, and welcome to the Indian Hotels Company Limited Earnings Conference Call for Q1 FY 2023-'24.

On the call, we have with us 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. I now hand the conference over to Mr. Puneet Chhatwal. Thank you, and over to you, sir.

[Puneet Chhatwal, executive]

Good evening, everyone, and thank you for joining our global conference call for Q1 '23-'24. To begin with, we are extremely delighted to inform you that Taj has once again being recognized as India's strongest brand across all sectors for the third time by Brand Finance in the last 4 years. This achievement is a testament to our commitment to excellence, customer centricity and innovation. We are grateful to all our patrons and our colleagues who have made this possible. Also, Rambagh Palace Jaipur has been rated by TripAdvisor as the world's #1 hotel in the 2023 Travelers' Choice Awards.

On this call, I would like to just present to you 7 key takeaways from the quarter that has gone by. So let me start with the macro on the India story being the #1. As you all must have read, IMF has recently raised India's growth forecast from 5.9% to 6.1%, side robust growth driven by domestic investment. India's per capita GDP is expected to more than double in the next 10 years, leading to a surge in disposable income, driving higher discretionary spends, which will directly benefit the travel and tourism sector. Government's focus on developing infrastructure and destinations in mission mode is yet another key positive for our industry. With more than [ 80 ] new airports expected in the next 5 years, connectivity and thus tourism is bound to significantly improve.

Hospitality up cycle continues with hotel demand growth continuing to outpace supply. And we believe that this is a trend that is going to stay with us at least for a few more years. India hotels with industry-leading growth, profitability, balance sheet strength and brand scale is well positioned to benefit from the macro and industry tailwinds.

On the number 2 takeaway, Indian Hotels delivers best ever Q1. We are very pleased to share that our record performance has continued in Q1, making this the fifth consecutive quarter of best-ever performance for IHCL. Our consolidated revenue grew 17% year-on-year to INR 1,516 crores. I mean we always report as a listed company, our consolidated, we don't report like other global majors system-wide or what you call enterprise revenue, if we had to say that, then the growth would be north of 20%.

EBITDA grew 13% year-on-year to INR 459 crores, yielding EBITDA margin of 30.3%. More importantly, our PAT grew by 31% to INR 222 crores. We delivered robust performance across all our brands and demonstrated RevPAR growth year-on-year across our brands in 15% to 16% range. The

third key takeaway for us is our portfolio growth. Our growth momentum continued during the quarter. In Q1 '23-'24, we signed 11 new hotels and opened 5 new hotels. Of the 11 hotels signed almost 7 are conversions or [ brownfield ], so that you can expect these to open within a period of maximum of 24 months. Our endeavor to maintain the space as well as the guidance that we have given of opening 20 plus hotels in this financial year, '23-'24 stays as communicated in the past during our Capital Market Day.

We continue to envelop India and are present in 125 plus locations across 31 states and union territories. Our diverse brand scape enables us to be present in every geography, in every segment and at every price point, thus giving us greater degrees of freedom as well as resilience.

The fourth point that I want to take up one of the favorites of my colleague, Giridhar Sanjeevi, CFO, is the diversification of top line. With our new brands and businesses as well as our asset-light growth, we have embarked on a journey of diversification of top line. Our asset-light businesses have doubled in top line from pre-COVID times, and we remain focused on scaling up the new brands. TajSATS has been a great success story for us. The company has recorded its best-ever Q1 performance with revenues of INR 205 crores in an industry-leading EBITDA margin of close to 25%, which comes on the back of 10 percentage point margin expansion over the last year. With 59% market share, TajSATS continues to lead the Indian airline catering segment, which we also call Hospitality in the Skies. Our [ Human ] and AMA brands have established a strong customer connect and continue to scale up. And as communicated on various occasions in the past, this year, we are going to put a lot of emphasis in scaling up these businesses and we expect that trend to continue over the next year also.

Ginger's enterprise revenue crossed INR 100 crores in Q1. This is also the first time and the Lean Luxe journey of Ginger yielding results. With a proven and profitable business model, Ginger is very well geared to scale up at a fast pace, and we maintain our guidance of opening the flagship Ginger inside the crews in this calendar year. So the expectation is anywhere between first October to first of November, depending on how long the rains and the monsoon period last. And we are very much looking forward to opening this property for our portfolio.

Number 5 is our investment in our brands, assets and capabilities. In line with our objective of long-term value creation for all stakeholders. As I just now said, we continue to invest in our brands, assets and capabilities. To aid the Lean Luxe journey of Ginger, we are investing in the renovation of 7 hotels which will take the Lean Luxe portfolio to 70% from the total portfolio by the end of this financial year. We have launched J Wellness Circle which used to be previously called [ JVA ] as our holistic wellness brand and the reimagined value proposition aims to capitalize on the wellness mega trend.

We have also reimagined and scaled up our food and beverage brands. Examples include House of Ming and St. James' Court in London. [ Rick ] and Taj Mahal Hotel New Delhi, and we are also reimagining our Taj Club proposition.

In addition to brand building, we continue to invest in our assets, which will result in not like-for-like growth. We have multiple hotels coming back online post renovations, including Taj Mahal New Delhi, which has been fully renovated on, let's say, 95% renovated a part of the facade and 1 outlet is left, and this is also happened actually in early May. So April, it was not the case, we got the rooms inventory back in the month of May. And then we would have fully renovated Taj Usha Kiran Palace in Gwalior, which will formally open in the second half of this year.

As I already mentioned, the Ginger hotel at Mumbai Santacruz will open also in the third quarter of this financial year, and we are taking various asset management initiatives in [ Taj Western in Taj Western ] which will further augment the not like-for-like revenues. Our new spa in [ Lenzing ] with another pool and at the roof should open within the next 1 week. And the new chambers as a heritage block will open in [ Taj Western ] our food beverage brand, Loya, will open its second destination also in [ Taj Western ] in the next 3 to 4 weeks. All this should further augment the not like-for-like revenues.

Simultaneously, we continue to build capabilities, as said brands, assets and capabilities. So simultaneously, we build capabilities to drive direct-to-customer business. Tata Neu has now become a strong pillar when it comes to customer loyalty, with total member base of 4.6 million and 3x growth in active members since the program went live in April 2022. Our direct-to-customer contribution stood at a healthy 70% in Q1 '23-'24.

With that, I come to point number 6 or the sixth key takeaway that we have had to inform because of the [ LODR ] is the Pamodzi and Frankfurt transactions. I would like to highlight here that we have not signed or acquired either any asset or signed a contract for a lease but under the new obligations, which have come into 4 since 15th of July, our key principle agreement with at the Board level mix it mandatory on us to declare and that's a declaration we have given. We will advise as and when we would be finalizing these deals and if they all get finalized. But yes, it's the preliminary step towards getting this done.

Also, I would like to highlight that Pamodzi is a hotel that is managed by us for almost 4 decades, and we know and understand the P&L and the value proposition of this hotel quite well. Finally, Paathya, our ESG+ program recently completed 1 year, and we have achieved significant milestones so far. With our core ecos of doing business to responsible way. We are on track to deliver our 2030 ESG targets. Finally, we continue to stay focused on executing our 2025 strategy. Thank you so much for your attention, and we now open the floor for questions.

[Operator]

[Operator Instructions]. The first question is from the line of Sumant Kumar from Motilal Oswal.

[Sumant Kumar, analyst]

So in Q1 occupancy is [ 74.7% ], it seems we are in the peak season. And we have seen in the past pre-pandemic, 75% occupancy always comes in the Q3 and Q4. So can you talk about the kind of demand momentum we have in the current quarter and the coming quarter, what is the level of occupancy we can see in Q3 and Q4?

[Puneet Chhatwal, executive]

I think we are seeing very good momentum, including in the month of July till date. I would not like to make what occupancy level we will reach. All I can say is in light of the demand outpacing supply, which was one of the key takeaway I mentioned, and further demand boosting factors like G20, like [ B20 ], like Miss World Beauty Contests like World Cup cricket and the expectation in general of the tourism sector that the international inbound arrivals will start slowly getting closer to the pre-COVID level it's been far behind that level. As of October and November, we do believe that occupancy should stay stable and the rates should not only hold actually even increase further in the months that will come. And as you yourself said, that this kind of figures we were used to more in Q3, I think there is a general change in the hospitality landscape in the thinking also of the travelers and India slowly becoming more a 365-day destination, then a destination from October to March, that was the traditional way of looking at it.

[Sumant Kumar, analyst]

Okay. Now coming to other expense side, it has increased significantly. Can you talk about when we compare to Q4 or maybe the previous year -- previous year same quarter. What are the key changes? What are the key cost component we have seen a higher increase? And is this momentum is going to be there for the coming quarter also, the other expense side and also employee cost side? Any other exceptional item also in the other [ expenses ]?

[Puneet Chhatwal, executive]

Sumant, as we said during the Capital Market Day, when people wanted us to -- the questions that came were asked always on the guidance on the margin. I would like to go back to that and said the management said we'd rather increase the top line. and have a 33% under [ Ama ] 2025 of a larger top line. And having increased the top line on an enterprise level, as I mentioned, to not [ of 20 ] because our management fee business is rapidly scaling up, but not all of that benefit comes when we report consolidated. And at the same time, we're also on a consolidated basis seeing a 17% increase in revenue and getting us cross INR 1,500 crores of consolidated revenue in first quarter, which never happened in the history already last year was the highest and this year has even beaten that by 17%. I think we are in a very good space. And with all the factors that I mentioned before, unless there is a [ Blackstone ] event, anything that is beyond the reasonable control of the sector of Indian Hotels, we don't see any reason why this buoyancy should change.

[Operator]

We have the next question from the line of Prateek Kumar from Jefferies.

[Prateek Kumar, analyst]

Question was so occupancies during this quarter, both at domestic enterprise level as well as [ CMA ] level as we see like are stable and very strong. But the pricing for the reasons of seasonality probably has slipped by 20%, 25%. But -- but why -- I mean while we understand the seasonality is both in occupancy and pricing. But normally, this is because the occupancies have remained well, why should the pricing drop by such a sharp number on a Q-on-Q basis?

[Puneet Chhatwal, executive]

I think you're looking sequential and not comparing the same quarter last year because if you were to compare the same quarter last year, there is a double-digit growth in average room rate. And the stronger brands in our portfolio have up to 15%, 16%. So room revenue has definitely increased. The total room revenue has increased by 15% to 16%, and it's largely driven by average room rate. But if you compare Q4 with Q1, that's -- or Q3 with Q1, that will not work because the pricing power is the highest in Q3, second highest in Q4 and third highest in Q1. Although this year, it is quite possible that Q2 would also be very buoyant because of these one-off events which start peaking in the month of -- middle of August to go into September. So I think we should not compare Q3 or Q4 with the Q1 and Q2, we should only compare Q1 with Q1 of last year. So if I looked at the Taj brand, the average rate increase versus Q1 of last year is 10%. The average rate increase in SeleQtions and Vivanta combined is 17%. And the RevPAR increase in all these 3 major brands is -- or all 4 is 15%, 16%. So 15% for Taj, 16 for SeleQtions and Vivanta and 15% for Ginger.

[Prateek Kumar, analyst]

Right. That I understand, sir. But just my question was nice because -- has been used by industry to induce demand, that's the case because the demand is otherwise remaining stable, why should the -- I mean, again, is the...

[Puneet Chhatwal, executive]

I think it's the channel, what kind of business you are getting the different quality of business that comes in the month of November and December. It is much higher paying, whether it's because of Christmas or it is because of New Year or it is because of some special weddings, because that's the time you have those, especially on the Hindu calendar, the dates for the wedding, that's a very different level of business, whether it's for us or it's for buying jewelry or it's for other disposable income or consumption, I would call it, in general, is a very different level. And this year, some of those rates have been missing in the first quarter.

[Prateek Kumar, analyst]

All right. And just a follow-up question on -- like I call it slightly higher than double-digit utilize

[Puneet Chhatwal, executive]

Prateek, we are losing you again. I don't know it's not coming clear to your voice.

[Prateek Kumar, analyst]

So I was asking in the Analyst Day, we talked about double-digit kind of RevPAR growth for FY '24, maybe a low double digit. Would we maintain that in terms of expectation for FY '24?

[Giridhar Sanjeevi, executive]

No, I think so. Because if you see what we've always guided is that in the month of -- as we guided in the Capital Market Day, the RevPAR increase in this quarter has been [indiscernible] and if you see what happens in Q2, we have the G20 starting in September. So we expect Q2 also to show good performance. And thereafter, we have the G20, the World Cup and all of those coming through. And historically, we have always seen between Q2 to Q3, there has been about a 30% increase in terms of how the RevPAR goes. So I don't see a reason why the rates should not go up. And so I think it is totally possible that the RevPAR growth will be about -- will be at double-digit growth actually.

[Puneet Chhatwal, executive]

Also important for us, Prateek, is we are a high-growth company today when hotels open then you don't achieve the same amount of RevPAR as you have with stabilized properties. So we have opened 5 hotels now. Last year, we opened 13, we expect to open 20. So as a high-growth company, it will dilute a bit. So you have to look at it as a like-for-like and a not like-for-like growth. So maybe we will also, as of next time, start giving -- we have -- I think we have it on the presentation. You can see on the like-for-like is 12%. So which proves which is Slide #54, I think on the presentation. So you can take figures from there, which is higher than the reported RevPAR loss of [ true for ] what I just now said.

[Prateek Kumar, analyst]

Right. And one last question on your other cost as percentage of revenue. In your presentation, you have highlighted 2/3 of increases is variable. And you mentioned you are like-in-like license fees, [ coverage and supplies ] and that number as a percentage has gone from [ 26.9% ] to 28.5% on a year-on-year basis. So anything here? I mean just to understand it better, so percentage in this inflation particularly seen here?

[Puneet Chhatwal, executive]

Some is inflation, but some is again in line with guidance with our Capital Market Day. We are doing more marketing activities, especially with new businesses, both on the -- on the personnel side, we have created a new team for new businesses, and we will be aggressively marketing these businesses going forward. We have started with that already now. And I think it's the right thing to do. That's what we said in our Capital Market Day. We have to look at these businesses in 3 years from now, 5 years from now and maybe 10 years from now, what is the potential. And as you have all seen yourself, look at the journey of Ginger, where it was and where it is now, and where it is going with the opening of just, let's say, just 1 type of cruise is going to change a lot.

So continuous investment in these new businesses is important. And then we set humanization of Ginger, which means every Ginger will slowly get all-day dining and we're already at a score of 20 already dining, which is called human so that these brands complement each other. And a lot of those costs, whether we renovate or we do is not all capital expense. It's also other expenses, repairs and maintenance expense, whether you are painting a wall, you do not capitalize the paint, right? So there are such examples where we think it's the right thing to do, and it's the right time to do so that we are very well positioned from a hardware, software and people were perspective to take these brands, scale up these brands to the next level.

[Operator]

The next question is from the line of Achal Kumar from HSBC.

[Achal Kumar, analyst]

My first question is about the industry supply growth of 6.7%. I think as we discussed in the Capital Market Day, I'm not sure if it is possible for you to sort of break it into the greenfield, brownfield and the conversion. Also I'm not too sure if you can please break it into the further category-wise, like what was the growth in [ super category extra ]. That's the first question, please.

[Puneet Chhatwal, executive]

We'll have to call some industry consulting specialists because they track the industry-wide data. We can only give you from our own perspective on how our pipeline looks like. For example, as I just said in my opening remarks that out of the 11 contracts signed in the first quarter, 7 would definitely open within the next 2 years. And then I can tell you under which brands they would open. But it's very difficult. We don't track the entire sector. All I can say to you is what I've heard from some of these big consulting groups specializing in hospitality is 50% of the pipeline is not in the top 10 hotel cities for India, top 10 metros of India, which are important for the hotel sector. A lot of this supply is coming from Tier 2 and Tier 3 cities. And if you have the number, this statement was made today to me by [ Mr. Tata Horwarth ], please feel free to contact him and I have taken his commission to use his name. So you can call him and he's compiling this data. But there are others also other consulting groups. They will give you a similar story. There is another one who came out with a monthly newsletter on what's happening. So they come out every month on it. But we, as Indian hotels would not keep track of the entire hotel supply in India.

[Achal Kumar, analyst]

Sure. That's fine. Absolutely fair. My other question was or what kind of -- I mean, not sure if you can disclose sort of the kind of contribution in -- from G20 meetings in this quarter, and have you got some kind of advanced bookings or at least the discussions with the ICC regarding the bookings for the World Cup yet. Any thoughts, any color on that, please?

[Puneet Chhatwal, executive]

ICC, I would not say anything because there is a lot of things going on in the newspaper, people writing I don't know whatever they're writing. What I will say is that I think what is very good for the country, what is very good for our sector and what is very good for Indian hotels is that we are having these 2 major events happening and they are definitely boosting demand, whether in Q1 or Q2 because it's not just the G20, there is also a B20 and there was a tourism summit in Q1 in Goa of the B20. So there is a lot of activity which is happening and not restricted to just big G20 under that, there are many other things that are taking place, and it is driving demand, and it is driving the positioning of India from a tourism perspective and all these pictures are shown in the rest of the world. So I think these events should help in marketing India as a destination on a longer term and not just this year.

[Achal Kumar, analyst]

Right. Fair enough. In terms of TajSATS , I mean you're at 59% market share. Clearly, you're a market leader there. Do you have any targets going forward? I mean how far can you go? I mean your EBITDA margin 74.5% so do you think with that kind of market share, do you think that's kind of a gap now or you can grow further? And if yes, I mean what is the best in the field -- what are the best margins in the airline catering industry?

[Puneet Chhatwal, executive]

See in airline catering business, this is very high margin. This is maybe the highest I have seen in my career. The reason we are sharing this information is to show that TajSATS alone in Q1 performance is doing what possibly traditionally we would have done in a month of a quarter on an EBITDA basis. So as the entire [ NCL ], if you go back 10 years into history. So I think from that perspective, it is nice to see that not just a Taj brand but also a Ginger or TajSATS. Everyone is contributing towards the journey which we commenced in 2018 where we said we'll grow our margins by 800 basis points to 25%, and then we went to 1 to 33, how each of these businesses is contributing. So it's the operating leverage in our iconic traditional assets and the fee-based business and our share of profitability in businesses like TajSATS, the combination of the whole is creating the sustainable, profitable growth that we have guided all of you on.

[Achal Kumar, analyst]

Right. So you mean you think that this is sustainable and it to grow further, right?

[Puneet Chhatwal, executive]

Yes, absolutely.

[Giridhar Sanjeevi, executive]

We may just build on in touch. I think if you look at the TajSATS business, I think what are the drivers of profitability. So number 1 is we get more international customers in the airlines that level of profitability. That's number one. Number 2 is that places like TajSATS, there's a lot of [ charter ] businesses in places like Goa and these data businesses have been slow because of the pandemic and now they're coming back. That's the second one. Third is the synergies that we are trying to develop with [ TajSATS ] and are in terms of supply basis is the third one. The fourth is the intense nonairline business, which is getting developed actually. And the fifth, I would say is that the concept is changing internationally in terms of central kitchens, which kind of go to sort of supply [indiscernible] as an example, to the different kitchens, which has just been reprocessed before [ supply industry ]. So these are all things which are anyway happening in industry. And also, of course, the entire areas of synergies with Air India and [ Vivanta ] and all of those summing in, to be honest, actually, and so there is a number of trends which look very positive for the airline sector at for the industry.

[Puneet Chhatwal, executive]

A non-aviation [ catering ]. I mean a lot of institutional catering is an opportunity.

[Achal Kumar, analyst]

Right. Fair enough. Next question is about the Slide 14. So that attracted by -- I mean that attractively at looks very interesting. What exactly -- what message are you giving on Slide 14? I mean, for example, ARRs are up sharply in your Taj SeleQtion brand. I mean, the occupancy level also up while the growth was slightly lower in Ginger, I mean does that indicate that ARR occupancy levels were low Q1 last year and hence, a sharp increase in this? Or do you think there has been a shift in the passengers in the customer space and they are very higher for even though I'll give you..

[Puneet Chhatwal, executive]

I understood your question, sorry to interrupt you. But when we had this quarter last year, every quarter, people said it's pent-up demand. The message we are giving is if that was pent up demand, it still is a little bit pent-up because it's still going up. And we always said that the best is yet to come. We are still in the luxury sector. I was talking to someone yesterday, our iconic assets average rates are maybe 10% to 20% of rates in Paris or London or New York or Boston. You can go that online and verify it. So we provide better service. We have better quality assets. We may never have 1:1. We may never get to 100% of those rates. But we should have the ability to charge 30%, 40%, 50%, and we are not even at 10%, 20%. So I think that is the messaging here is that there is still a way up. And Ginger is a bit weak because I just now mentioned that we are converting almost 70% of our portfolio will get into Lean Luxe. So when rooms are out of order, it has an impact on both occupancy as well as rate. But as and when they keep finishing, we will keep seeing this growth, although there is still a strong growth on RevPAR.

[Achal Kumar, analyst]

Right. My last final question is about the Ginger. I mean, how do you compare your Ginger brand alone versus [ Lemont ] hotels? I mean do you think you can reach [ 3 ] so how do you compare yourself?

[Puneet Chhatwal, executive]

It depends. I think [ Lemon Tree ] is positioned a bit higher than Ginger and it's not appropriate for me to talk about another listed company on our call. All I can say is that Ginger growth is going to be something which you should all watch and see. And last year was a good proof of it. And going forward, we are very excited with the opening of Ginger Santacruz, which should revolutionize this kind of positioning of the brand from budget or see how it started at INR 999 to a smart property or a Lean Luxury kind of a property and a very like kind of a happening place with the human all-day dining. So that's the journey we commenced or embarked on and we are almost hopeful by end of this year to get 70% into it in our total portfolio. And hopefully, by end of next year, 100%, and then let's see what the results show.

[Giridhar Sanjeevi, executive]

And it's a perfect brand, Achal, in terms of the overall growth in the economy and the consumption because the [ March ] travel will benefit the -- general benefit from the mass travel. And so we are quite excited on this.

[Operator]

The next question is from the line of Aishwarya Agarwal from Nippon India Mutual Fund.

[Aishwarya Agrawal, analyst]

Yes. Mr. Chhatwal and team for the call. Just want to understand the challenges associated with the ramp-up in the managed room. So we are going to add up more than [ 1,000 ] rooms every year rather even more than that. So where do you see the challenges? Is it the easy thing? And how is the profitability on a per room basis and how that profitability can be improved?

[Giridhar Sanjeevi, executive]

No. I think -- no, I think as far as the managed property growth is concerned that the they will continue to happen. And I think as we have said, we've already signed about 11 contracts in this quarter and opened 5 hotels. So we will be planning to put about 20 hotels. So we have -- we don't see a challenge in terms of signing new contracts. I think I would sort of say that do not look at it in terms of managed fee per room because it's coming across different brands. I think you need to look at -- we have given a detailed brand-wise split in terms of how the rooms are opening. So managed fee per room is probably not the way to look at it because it's not in a single brand. If this is something if you want more details, we can talk offline in terms of talking about it.

[Puneet Chhatwal, executive]

At a high level, we can say versus a couple of years ago, management fee income total is going up by 2.5x. It used to be around INR 215 crores. And even in Q1 FY '20 the management fee was INR 47, INR 47 crores. And in Q1 FY '24, it's [ 1 to 98 ], which is more than double. I think that's something which we are very pleased about. And as we said, Q1 and Q2 are not the strongest quarters is Q3 and Q4. So if you look at it that way, then it should increased by 2.5x versus 2, 3 years ago.

[Aishwarya Agrawal, analyst]

So in this context, sir, I mean what can -- what potentially stops us to ramp up even faster these kind of rooms you have the strong cash flows and low capital investments.

[Puneet Chhatwal, executive]

Well, nothing stops us, we would have gone faster, but there was a lockdown and there were construction stops and there was bad weather in [ New Delhi ] mandatory stops were there. And then obviously, people who are investing may not have been only hotel investors, they may have had other businesses which were impacted. So there is some delay, but -- we have given a guidance of 20 hotels a year in opening, it's more than like 1.6 hotels a month. So we have to also see the company never did more than 1 hotel a year or maximum 2 in its history till 5 years ago. So that's almost a 10x increase.

[Operator]

The next question is from the line of Shaleen from UBS.

[Shaleen Kumar, analyst]

Okay, sir. So buying [ spot ] in Zambia and taking the other one on [ Lean ] Germany. Are you thinking about expanding internationally? What's the thought process?

[Puneet Chhatwal, executive]

Yes. So Shaleen, in this Q1, we signed 2 management contracts in [ DakanfoAtaj ] and one for Vivanta. Vivanta is only for Indian subcontinent. So very much in line with our strategy. Having strong presence with Taj brand in Indian subcontinent has been a part of our strategy. Pamodzi is just like we acquired at that time, 100% shareholding in Cape Town, which we were managing, which has turned very beneficial to us, and we paid down the debt and it was a U.S. dollar debt. and we were having market-to-market issues. So now it has become profitable. We feel a similar opportunity exists with Pamodzi, where we also have a management contract. We don't have a shareholding. And these are in principle approval, we know the property inside out every wall, every bathroom every this thing because, as I said, almost 4 decades, we have been running that property. We are very well established with that. And it's always a question at what terms you agreed to think. And we have in principle agreement to explore that, and we are in the process of doing so.

On Frankfurt, we always guided yourself and everybody else that we are not going to do single asset acquisitions worth $50 million, $100 million elsewhere in the world. That is not a part of our strategy, and we want to straight through to that. The institutional capital available in [ Luxe ] comes at a very different yield at 5%, 6%, 7% maximum. And it makes no sense to use your own capital, especially if you're debt-free. And that's why we would enter into a lease if, as I said, if in principle approval actually leads us that far to actually signing an agreement. So we've taken in principle approval, it's an ideal fit the asset with our portfolio. And I think it's time that we added a hotel in U.K. or another part of Europe. And somewhere in Southeast Asia because you cannot be one of the strongest hotel brand in the world or India's strongest brand and missed some of these markets where almost everyone flies through for a connection to U.S., so you have Air India flying daily and you have Vistara flying 3, 4 times a week. So there is a lot of opportunity out there. Had a very strong Indian business presence in growing presence of Indian businesses in Germany, unlike in the past.

[Giridhar Sanjeevi, executive]

And the other thing to note, Shaleen said is that our hotel life in Frankfurt is just about 135 rooms. It's not a 500-room property. It's in a location where Vistara and Air India fly in any case have in Indian and bases, [indiscernible]. It's all there. So you have a situation where base occupancies will come from all of these factors and it's a legacy kind of a property perfect for a kind of a brand actually. So I think there's a lot going. It's not something, and it's not an acquisition. So hence, we -- it's kind of well thought through in terms of very low level of investment and a good size of property being manageable with good base occupancy. So that's the way to look at it, actually.

[Shaleen Kumar, analyst]

No, I completely agree, I actually do believe that you need to have a network of hotel properties if you really want customers to come back and use it -- that's what actually the [indiscernible] does, right? That like efficiency and the [ network gain this play ]. But that means that you will need to look at more such opportunity in Europe [ flight ] because that's a kind of a brand recall, not just for the Indian but even for the partners as well. You won't be able to stop this at the time the need to think about maybe something in the end.

[Puneet Chhatwal, executive]

Absolutely. Absolutely, that Indian thing we said for the base business, you have to have some form of base business, and there is enough of that available in Frankfurt or like you said yourself in Switzerland, but it will be one step at a time. It is not now that we -- this quarter, we announced Frankfurt, next quarter in Switzerland another quarter to [ 3 ] something else. That will not be the case. We are taking this step of entering into detailed negotiations after a very long time for an asset. And we said once we have our home front, our domestic front, absolutely firing on all cylinders, then we will take selective contracts as opportunity arises. But our focus was, is and will remain an India definitely in the short term.

[Shaleen Kumar, analyst]

Right. One question, on the cost side, right? So we can see some of the costs going up in form of until and as well as some of the other expenses. How should we think about it? It's largely we [ have reset ] the base or there's a component of discretionary angle to it because we are kind of putting it for other new businesses, which may kind of [ taper ] over some time? I think there's going to be a sustainable cost base for next 2, 3 years.

[Giridhar Sanjeevi, executive]

So I think as you saw, I think 2, 3 points, yes. So number 1 is that from a [ landmark ] perspective, yes, there has been an increase in [ my part ]. But if you look at it between this quarter and last year first quarter. Last year, first quarter, the ramp-up had not completely happened because we were recovering from [indiscernible]. So to that extent, there is a base adjustment which has happened between last year first quarter in this quarter. But [ manpower ] also includes, for instance, some of the wage settlements, which have come in. But if you look at some of the subsequent [ slides ] where we have given staff to room ratio. The staff room ratio is still below the pre-pandemic level, which is the focus on productivity continues actually. I think that is one.

On the other costs, where we have said 2/3 of the increase is largely variable cost, which is true. A licensing and [ NBFC ] goes up with the license revenue, as an example. So most of it is actually rising in line with the business actually and some of the discretionary spends that we will do. Some expenses we have to invest ahead and some expenses we have to pay as you go. And I think -- so some of these will be there. But nothing sort of will skew the numbers significantly. I think it will all be managed in a way where the overall cost increases are kind of under control. So that is the way you should look at it. Nothing which is going to be unusual to sort of proving out of the [indiscernible].

[Aishwarya Agrawal, analyst]

Got it. Understood.

[Giridhar Sanjeevi, executive]

And [ prove important thing ] actually the very important. I think that take [ corporate average ] as an example, I think the same network now kind of in the same corporate overhead levels are now managing a very big network as compared to, say, 4, 5 years ago, actually. So I think productivity focus is very clearly there.

[Shaleen Kumar, analyst]

Understood. Fair point. Lastly, any color on July, August, it if you wanted this.

[Puneet Chhatwal, executive]

Well, Shaleen said, it's not a question of July, August. It's a statement we have given in the press release, and basically, it is that the outlook remains strong. As I said in my comments, which was the comment number one, both India story with the growth in GDP corrected upwards as well as the hospitality up cycle continuing with the demand growth this should work well. And I think domestic consumption, global events, as we have said in the press release and revival of international arrivals should further boost demand growth in principle because that is what it should do. So I don't see any reason why it should not keep -- remain strong or keep getting stronger than to be the other way around.

[Operator]

We have the next question from the line of Nihal Jham from Nuvama.

[Nihal Jham, analyst]

Thank you Mr. Chhatwal. My first question was on this international operations process, clarify, this is a lease agreement and not a management contract. And just in terms of, say, future opportunities that you get, which of the 2 would be the preferred option to expire?

[Giridhar Sanjeevi, executive]

Also depends on the geography we have, for since inflation like Dubai [indiscernible] we have preferred to take management contracts. In Europe, as Puneet explained, there is institutional ownership of, what do you say, the real estate and their leasing works better because as an institutional holder, which could be a pension fund, they don't like to have people on their roles, actually. Unlike you have a management contract in India that people everything are on the road is the owner. In this case, I think in Europe, with institutional ownership, the lease is a better option. And so that's -- so it really depends on geography circumstances.

[Puneet Chhatwal, executive]

And cost of capital is very different for these funds. And also for us, if it works out well, in management contract, we're only consolidating management fees and this way, we get the benefit also of the top line, all we have to do is create a design and manage it so efficiently that we're also profitable.

[Nihal Jham, analyst]

Absolute is that looking at some of the historical examples, even the P&L volatility is something that is maybe a little more than what you say on domestic operations, so from that perspective [indiscernible].

[Puneet Chhatwal, executive]

Yes and no. It depends which countries you talk about. Those historical examples maybe of countries where volatility levels are very high. To see countries which are constantly low inflation, low interest rates, the volatility levels are not that dramatic. Might have happened like once in 50 years because of a Russia, Ukraine war for some time. But generally speaking, this is not -- these are not countries where you have huge ups and downs.

[Nihal Jham, analyst]

Sure. The second question was you mentioned about the prior...

[Puneet Chhatwal, executive]

Sorry. And if they have high volatilities, there would not be a lease. These markets are the ones which have no volatility.

[Nihal Jham, analyst]

That is helpful. Mr. Chhatwal, the second question was you mentioned about the events that are lined up, specific interest in just understanding about the World Cup. Why I'm asking that is that this time, it obviously comes in part of a peak season. So is it something that is beneficial if we lock up a lot of the rooms, assuming a lot of talents coming there? Or how we look at this event because it's not certain of how it would play out because unlike the last time not [ ores the off ] season this time is coming in the peak season for us.

[Puneet Chhatwal, executive]

It should help the rates, generally speaking, it should help both rates and occupancies, not only the players have to stay all the people who will travel to watch certain preferred matches and a lot of that is being written about already in the press. I think it should normally assist. It's not a derailer, it's an enabler.

[Giridhar Sanjeevi, executive]

And I think we all get businesses from different segments. So I think all good in all of this is good to look at.

[Nihal Jham, analyst]

Sure. So the contracted rooms wouldn't be at any kind of a rate which was in a way we had a significant discount.

[Puneet Chhatwal, executive]

No. I mean, why would no, we don't do these kind of things. Why would it be at a significantly discounted rate? I'm just trying to understand, so I can give you a more qualified and correct or accurate answer.

[Nihal Jham, analyst]

Absolutely. Where I was coming from was the fact that I believe there are certain associations that you would have had in contract rooms are let out, say, to players that there will be a certain discount to what they are in the peak season irrespective of the season. So that is where I was coming from that say, given we are largest brand and if, say, most of the stay happens, during the event in most of our properties, it is that it may take away a lot of the [ lucrative rooms ], which will be available at that time of the year.

[Giridhar Sanjeevi, executive]

No, no, Nihal. I think, don't make those assumptions. You know what's happening in Indo-Pak newspaper reports in terms in Indo-Pak match, rooms are going at one actually. So which means it is you don't look at it when the demand in general for match people are funding actually. So hence, I don't think these will be rate. Overall, it will not be negative at all. It will be positive actually.

[Operator]

The next question is from the line of Karan Khanna from AMBIT Capital.

[Karan Khanna, analyst]

Sir, firstly, earlier this week, the parent company of one of your nearest peers announced their plans to demerge the hotel business. In light of this development and with increased focus by the management team of this entity, how should one think about the competition increasing in the management contract business? And as a result, how should we think about take rates for the management contract business. Is it safe to assume that rates would be some compression?

[Giridhar Sanjeevi, executive]

No. rates do see. I think remember the management contract business is a 20-year relationship. I think when we talk of these long-term relationships, people don't enter into a relationship with the brands because somebody is offering a 1% cheaper kind of take rate actually. So I think remember that -- so we don't anticipate any take rate related challenges that [indiscernible]. That's number one.

And number two, I think if you look at the way management contract growth is happening, we have [ 125 ] [indiscernible] and towns. And I think -- so there is growth all over, actually. And it is not a winner-take-all market, which kind of leads to -- kind of leads to the rate compression that you talk about actually. I think there is enough opportunity for all players to be there. We have been leading, of course, in terms of our agility and in the way we are dealing with others. And we expect to continue reading with 35% market share in terms of what we have. So that will continue [indiscernible].

[Karan Khanna, analyst]

Second, talking about the international business, where United overseas continues to lag while [indiscernible] London has seen a significant improvement. So what are your expectations from these 2 businesses in terms of growth and margins? And as a pro [ Marriott ] has given a RevPAR growth guidance of around 6% to 11% for CY '23. Would you expect the same for your international portfolio as well?

[Giridhar Sanjeevi, executive]

I think if you look at international portfolio, I think 2 things. London obviously has -- London historically has done well, and it will continue to do well, especially with the product changes like House of Ming, the renovations. So we continue to do our best. So places like London will do very well.

As far as U.S. is concerned, we are currently in 2 markets, which is New York and San Francisco. San Francisco City has kind of struggled as you know, from public reports in terms of what's happening there. And therefore, our property is, at this point of time, been impacted because of this. But it's one of those key cities in the U.S. So we do expect that the bottoming out has probably taken place and therefore, we should improve. In any case, that's the smallest property. Historically, we had about $25 million around in terms of top line.

Now if you look at New York, New York is a very good market. We are seeing rate increases anyway happen there. And we continue to -- I mean, it's in the lease. And so overall, I think the U.S. market should do well, both from a domestic tourism perspective in the U.S. [ Bank West ] is very strong in peer in our property and the international tourism is also growing international business and tours going to pay also benefits. And the Indian also going to U.S. [ give us the status]. So longer term, I think we are quite happy in terms of long-term recovery.

[Karan Khanna, analyst]

Sure. Sir, last 2 questions from my side on the FDA recovery. In your FY '23 annual report, you spoke about FDA reaching 80% to 95% of pre-COVID levels CY '23. In that context and the [ fee that ] we are receiving is that the recovery has been studied in June and July. So what is the month-on-month trends you are seeing in terms of the actual bookings by international travelers and the travel agents?

[Giridhar Sanjeevi, executive]

I think the -- if you look at the overall mix of international travelers in India, I think it is still under 20% actually. So that is what is currently happening, at least from our hotels perspective. But I think the longer-term trends are still very -- medium and long-term trends are very positive because let's be very clear that the number of international passengers, [ FDAs ] in India are about $10 million or something like that, which is nothing. In fact, there was a recent CBRE report, which said that by 2030, it will more than double and by 2014, more than doubled from that level actually. And with all the focus in terms of the number of airports, the tourism infrastructure, the [ garment ] on trust and tourism. I think all of these age very positively actually. The numbers, as I said, are absolutely low. $10 million is absolutely nothing actually. So FDA things should come back in second half should see that. Second half should see that action.

[Karan Khanna, analyst]

Sure. And finally, if you talk about Slide #54, you've highlighted that Goa and Rajasthan are among cities or other states, which has seen the lowest ADR growth Y-o-Y. Are these indications of any softness that you're seeing in the leisure demand because that's [ also from objection ].

[Giridhar Sanjeevi, executive]

No. I think see, we have always indicated when people have asked us in terms of growth in ARR, we've always indicated that the scope for increase in business in ARR is much higher. [ And in a ship, ] it will go up but less than proportionately, and that is what we are seeing actually. But also bear in mind, there are other factors if you look at it, like Rajasthan will now benefit from the FDA who are coming in the second half and [ HPO ] number one. And number 2 places are also 4:45 between 365-day destinations actually. So there are some fundamental differences in terms of how these markets are panning out. I think -- so what you see a softness in -- is pretty much in line with our expectations actually.

[Operator]

We have the next question from the line of Nikhil Agarwal from VT Capital.

[Unknown Analyst]

My question was regarding the G20 and the Cricket World Cup again. Like any ballpark numbers like for the full year, what kind of revenue it could generate any percentage of the top line?

[Giridhar Sanjeevi, executive]

I think that's not the way to look at it. I think the way to look at it is that G20 is a platform where there is business, which comes in during the conference period, and there's business which follows. So that's the way to look at it.

[Unknown Analyst]

Okay. So till now, what has been -- the response has been very good, I believe, it's been generating quite a good portion of the revenue, right?

[Unknown Executive]

As Giridhar said, we cannot look at it just like that. So it creates extraordinary demand than in normal circumstances. That means the occupancies rise. When the occupancies rise, your ability to charge increases does not necessarily have to be every event, although we have been doing the majority of the events for G20 and we'll be doing so going forward for B20 also. But even if we were not doing an event for some reason because we were sold out and we didn't have the whole availability in the business went elsewhere. That creates high occupancy in another property. That means the other competitors or the other peers in the similar market will have the ability to sell the rooms that they have to other people who need the rooms at the same time or need the hall at the same time. And that saw creates, in general buoyancy through such events or it's cricket or it's whatever else is happening. We did last year this event, the Christian Dior collection launch at [ Gateway ] of India. And the way the Taj Mahal Palace were showcased with all that coverage of that event across the globe cannot just calculate only on the value of that event. Of course, after event party was with us, most of the models and the entire team was staying with us, but also it helped our other hotel, which is the President in Mumbai, right? And it also has other hotels, which are not ours from other companies because we were sold out.

So I think these events, whether they are happening with us or with any of our competitors or peers or severities, generally create a very high level of occupancy and the high level of occupancy then starts driving the rates and everybody tends to benefit from it.

[Giridhar Sanjeevi, executive]

And one other comment I will make is that you [indiscernible] Prime Minister inaugurating the probation, so with [ Prime Minister ] coming, the [ CDO ] Convention Center in BKC, I think India is now getting some really world-class large convention capacity which will help in terms of driving demand. And as you've always said, if you've got 2,000 additional rooms on top of your regular city demand, you don't have the hotels in terms of absorbing capacity actually. I think those factors also play a big role in terms of driving.

[Unknown Analyst]

Got the point, sir. And sir, just one more question. Like I wanted to know what is the average room rate difference between the normal Ginger hotels and the renovated Lean Luxe Ginger hotels and the Ginger Hotel of the Santacruz that is coming?

[Puneet Chhatwal, executive]

It's around 30%, the renovated and the Lean Luxe is 30% higher than the old Ginger that you know of.

[Unknown Analyst]

Okay. And what about the...

[Puneet Chhatwal, executive]

In certain markets, like you said, in Mumbai, it could even be 40%. But that's a one-off because Mumbai is very, very strong as a market in terms of occupancy and also that property will be absolute flagship.

[Unknown Analyst]

Any roundabout ARR number for that?

[Giridhar Sanjeevi, executive]

You look at the [ IBS ] Santacruz is possibly an indicator that such.

[Operator]

So no further questions, sir. You may go ahead with any closing comments.

[Puneet Chhatwal, executive]

Well, thank you very much, everyone, for joining. Thank you for your support and patience and also the questions that you have been asked, and we look forward to sharing information with you at the end of next quarter.

[Giridhar Sanjeevi, executive]

And in between, of course, the first part of this call. If you have any further questions, don't hesitate to reach out to our Investor Relations team. We'll be more than happy to clarify anything else that you may. Thank you.

[Operator]

Thank you. On behalf of the Indian Hotels Company Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lineHannover