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Indian Hotels Company Ltd
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Ladies and gentlemen, good day, and welcome to the Indian Hotels Company Limited Earnings Call Q2 FY 2022, '23. 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 hand over the conference over to Mr. Puneet Chhatwal. Thank you, and over to you, sir.
Good morning, everyone. Thank you for joining so early. It is our pleasure to walk you through our responsible profitable growth continuation and the journey, presenting the second quarter results. Firstly, this is the best ever second quarter that we have had when we went and checked more than a decade of the results that have been presented. Our revenue came in at INR 1,258 crores, which is a 22% increase over the same quarter last year or I would say, pre-COVID level, with an EBITDA of INR 319 crores, another 76% increase and an EBITDA margin of 25.4%.
Profit after tax of INR 122 crores, strong free cash flows, and we were net cash positive with approximately INR 388 crores. Our journey of margin expansion in flowthrough continues. As you can see, when we embarked on giving this kind of guidance way back in 2018 on the journey of Aspiration 2022, our guidance and our aim was to get to 25% margin. And Q2 being the weakest of the 4 quarters, we've been able to deliver that 25% already in this following a very strong Q1 at 31%. And the same thing is on our PBT. Our PBT is positive for the first time in the last 11 years.
And the PAT is also at a healthy level of INR 122 crores. Further, what is making all this happen, of course, we have an upswing, which is happening, business is coming back to normal, especially on the domestic front. There is still a lot of expectation in terms of international arrivals going back to pre-COVID level as of early '23. If we see the tourism breaking news this morning that was stated that the expectation is as of Jan, the international incoming will go back to the pre-pandemic level. But also, there are other activities at the international front, we are expecting more conference, meetings, incentives to follow.
The second reason that we have witnessed is a very strong revenue growth index, our RGI, in most of our key markets is already above 30%. That means we're performing 30% better than the comp set. And in certain markets like Rajasthan, Goa, Kerala, it's almost double. Our not like-for-like growth is also assisting us with the change in the business model. Our signings have seen a very strong momentum. Even this year, we have here to date at 16 new signed contracts added to the pipeline. In 9 openings have happened, we expect 9 more hotels to open. And our pipeline today is more than 8,000 rooms. So the pipeline with the total -- of the total portfolio corresponds to 30%.
And if you were to look at as a percentage of the number of rooms in operation, we're getting close to 40%. So it's a very strong pipeline. And even if there was some washout which there always is, we are still looking at a very healthy growth momentum going forward based on a fee-based driven model so that we are in line with the guidance that we've given on an AHVAAN 2025 of having a balanced portfolio of 50% coming through owned and leased and 50% through to fee-based business. Some of our recent openings include the Sawai Man Mahal on the grounds of Rambagh and other palace which was opened, the Taj Wayanad in Kerala. Vivanta in Shillong and also Vivanta in Ahmedabad. We also have a true state-of-the-art ginger properties that open in 2 very strategic locations. One is Ginger in Ahmedabad and the other one is in Mumbai Ginger in Goregaon.
In order to strengthen our brands further, we have been continuously innovating with new concepts and also polishing and upgrading our legacy brands like the Chambers, which we have mentioned. But of the new launches, we recently launched our new Indian concept called Loya. It has launched at Taj Palace in Delhi. It will be followed by West End, Taj Mahal Palace in Colaba and Taj Lands End over the next 9 to 12 months.
Another partnership we had entered into just pre-pandemic with Paper Moon from Italy has also opened up at the Fort
Aguada. And we are very excited to bring this Italian concept, which complements our very well-established trattoria, in Mumbai, which we are also planning to expand in the next quarters. All of our new businesses, this is how we have assisted our traditional businesses and we will keep sharing more and more about our new F&B concepts, new launches as we move into the third quarter related to our backbone, which is our Taj brand or our traditional portfolio under selections and Vivanta. But under the new businesses, our Qmin is beginning to be nicely established and positioned brand, which has moved from not just home delivery, not just trucks but the humanization of Ginger, which we said 8 of those restaurants have been completed.
We expect now that the portfolio has reached 25 QSR outlets, 11 which we took over from Tata Cha, 8 in the Ginger, the others in the [indiscernible] Delhi, the ambassador, the President of Taj Wellington Mews, the one in Guwahati taking the total to 25 and then the Qmin business has already crossed a GMV of INR 125 crores since we started. So we are very pleased with the contribution of Qmin and the way it has evolved. And in these new businesses, we would also like to mention Ama, our home stay has now crossed the portfolio of 100 home stays with 57 in operation.
The others in various stages of development in the stages of getting the licenses. And some of very beautiful home stays and got added to the portfolio, especially one in the Lonavala area and another one, a new 1 in Goa in [indiscernible]. Also very pleased in the new businesses we call Ginger. Ginger had a very good quarter and a very good H1. If we looked at Ginger from an H1 perspective, we've had a revenue of INR 143 crores, an EBITDA of INR 56 crores and a margin of 39%, and Ginger has been PBT positive for each of the 6 months of the first half of the year.
We are expecting a lot of hotels to open under Ginger before the end of the financial year. As I mentioned earlier, we are expecting to open 9 more and of these 9, we expect 5 properties to be branded as Ginger branded properties. While we also call responsible profitable growth because responsible business is at the core of anything that we do as a part of good company. And our 2030 goals just for the sake of a reminder to all of us is 100% waste water recycling 100,000 youth to be scaled for livelihood.
These 100,000 youths will have at least 25% women. This is the target we have set for us, 50% energy from renewable sources, 100% hotels EarthCheck certified, 100% hotels grow beyond single-use plastic and 100% adoption of UNESCO's intangible cultural heritage projects in geographies that we operate in and 100% business meetings and conferences to go green, and we are following these energized green meeting.
Some of the projects that are underway is you must have read about it is whether it's a collaboration with Tata Power to have EV charging points which is now 225 plus, and the cloud keeps increasing every day. Our renewable energy, sustainable cooling projects with IFC from Washington, are preserving cultural heritage of strong 10 projects underway, the latest 1 being in Orica, our traditional 1 being in Madhya Pradesh and Chhindwara. Also, our focus remains on what the camp industry did, which we call, She Remains The Taj, in the diversification on women referral program on skills for women, and we have also collaborated recently with the Orica government in Bhubaneswar and in an Assam to build a skilling center, and we are currently having 13 skilling center and 1,200 students being trained. We started a new newsletter internally to just infiltrate deeply embed the whole thinking in the whole way of doing business under our Paathya. That's what we call the program, and we are calling it at Paathya vani.
Moving on to some of the key trends that are emerging, I think let me just give you a brief on that before we open up for questions. [indiscernible] came off recently with the Q3 outlook of demand outpacing the supply, but we said the demand on a RevPAR level should have a double-digit increase from whatever we have seen over the last 6 weeks in this quarter, we can confirm that we are witnessing a similar trend, which is very critical because Q3 is the strongest quarter. And if we have that growth, and if it's mainly driven through average room rates, then the flow through would be higher. So that's one. And if we turn the clock back to almost 10 years ago, the number of branded hotel supply in operation almost equaled the number of branded hotel supply under development, under construction or in pipeline.
That number has come down significantly and is currently at 40% of the number of branded rooms in operation. So that should be -- the second key trend on the demand generators is air passenger traffic is expected to reach pre-pandemic level with very strong growth. The -- which is also coupled, it's aided, it's getting help from both recovery in corporate travel as well as domestic leisure, which continues to be strong and international travel has also picked up strongly. We can all see on the cost of tickets that the demand there is also very strong.
Further, as of the middle of this month, we expect a very strong wedding season this time to kick in, which will also be further assisted by India taking over the Presidency in G20 and we expect more and more delegations, more and more events happening, which should help the sector, not Indian hotels, rather the entire sector should benefit from it.
Yes, we still maintain our guidance of Ahvaan 2025 based on all these trends to achieve what we have guided on a 300-plus hotel portfolio, a balanced portfolio, 50% owned and leased and 50% driven to fee-based business, a 33% margin at the end of the cycle and no corporate debt, 0 debt at corporate level in terms of running business.
And all in all, I would say, is the journey is exciting because it seems we are at the beginning of an upswing in the cyclicality of our business and the way we are positioned with the operating leverage of the owned and leased portfolio, coupled with now the ever-increasing size of our asset-light growth together with the new businesses, which are high-margin driven businesses, we feel confident in achieving the guidance that we have provided unless anything like a COVID-19 or any other event comes in the way. But even there, the management will continue to navigate as we have done in the past.
With that, I would like to open up for questions unless Giri want to add something?
No, no, sir. I think let's do the questions because of the time constraints.
[Operator Instructions]
The first question is from the line of Sumant Kumar from Motilal Oswal.
My question is regarding the occupancy for U.S., U.K., Delhi -- Delhi and NCR and Rajasthan is still lower than the pre-pandemic levels. So any thoughts on that?
U.K. and U.S., the occupancy -- or let's put it this way, the RevPAR in U.K. and U.S. is that 92% and 96%, respectively, compared to pre-COVID. And we expect that as of this quarter, we will get to almost 100% and in terms of Delhi NCR, as I said before, with the government delegations and the G20 picking up, that should recover fully. The challenge in Delhi is also every year with the weather situation. And I think that does not mean that the demand goes away. It only gets displaced to a later month or later weeks. So I do expect demand to pick up in Delhi, the occupancies must rise. And for us, Mansingh renovation is also having an impact. If anybody who's Delhi based, will go and see that half of the facade has become very beautiful but that means half of the facade is without windows, and we are not able to sell those rooms. And this renovation is expected to be completed at the end of this quarter and it will be repositioned.
It is almost already repositioned as the flagship property like we always had, and the rates almost have doubled there, but on a very lower base. So we are expecting another 100-plus rooms to come into operation in the next 4 to 6 weeks. Rajasthan is very strong. We are not going for any and every kind of business, especially in our palaces. Yes, you can get a lot of getting difference that short term, our strategy is to be most iconic and with most iconic thing, we are trying to manage it in a very good way. And the rates are very robust. The performance is very good and Jaipur is at its best ever. Udaipur has also shown a lot of resilience, and the rest will follow to them. It's not something to be worried about in the short term. Both Rajasthan and Delhi will be very strong for us.
So can you say U.S. and U.K., we are focusing more on pricing and not on opportunity.
Yes. I think that is not just us. If you look at the global trend, the rates in the U.S. have gone up significantly. And the U.K. has its own challenges, some months become very strong, like when we had the sad news about the Queen, those 3 weeks were very strong and in the recent political turbulences make it a little weak. But all in all, London is very strong, especially for us. We are investing in London further. And we are taking our iconic House of Ming from Taj Mansingh to London, and it will open there also by -- it will be open Chambers there. We opened a new All Day Dining there, but we are also opening the Chinese, it's already under construction.
Can you talk about the cost trajectory, particularly the former employee cost and other expenses for the coming quarters?
Even if you look at our results in detail, you will see on the employee and employee benefits, we are very much at the same level as we were before. And that is mainly because of the efficiency that we have drawn in through our change in business model. So I think the fixed -- the fixed cost pre-pandemic were at -- in quarter 2 were at 276 in the variable, on the employee side at 89 totaling 365. And in Q2 2023, it's at 372 with 6 going down to 243 and a 3 is in variable to 129. So I think if you look at the total, its 376 versus 365 pre-pandemic, and that is very much in line with increase in business because our revenue levels are much higher than before in the size of the portfolio also.
Okay. So no, no, we are maintaining almost similar level of sales but our cost has increased. So is it related to the employee or other in some extent is for the upcoming business also for the Q2?
So every year, in the second quarter, we have increments and bonuses that are paid. So there is a change in Q2, which you don't see in Q3, Q4, it stabilizes. And again, the next change that you will see a little uptick. You will see in the Q2 of next year. So that's how it is done post the AGM and the board meetings that we have at that time of the year.
And if I may just add, Sumant, I think the point where the focus is on productivity. You have seen a total revenue growth of 22%, and the overall cost growth has been much lesser at 11% for the quarter and 8% for the year. I think you should -- and that is giving us the leverage and productivity continues to be strong if you look at the cost per top line percentages as we have seen. So that's the way to look at these costs actually.
The next question is from the line of Achal Kumar from HSBC.
Great set of numbers. And by the way well done about the presentation, about the pack. I see there is a lot of new wonderful information in the pack. So that's fabulous. Coming back on the questions. So first of all, on this HBS [ Enero ] forecast, which you talked about 8% to 10% increase in the ADRs, well, we don't know what assumptions have gone into that. But what are your thoughts on that? I mean how much international inbound recovery they are incorporating in that. But do you think this number is probably underrated or undervalued or underplayed. Do you think it could be -- it would be higher in case there is a strong recovery in inbound international tourism and where are we on that?
Second, on second, about the collaboration with the Tata Group. So have you started deepening your collaboration with the group? And what kind of benefits do you see there? And you have given INR 1,000 crores plus number from loyalty program, how much of it you will dedicate to Tata Neu?
And finally, the G20 summit, I think it's a big event. And then I guess, preparation must have been started. I'm not sure if you can convert some of your thoughts from qualitative to become more quantitative? Do you have something in mind something -- some calculations -- some numbers on that? That would be great.
Very good question. One, I would not like to speak on behalf of HBS and [indiscernible] was given as a reference what they have put into guidance. We said -- what they have said is what we are witnessing and the growth is mainly driven through rate. I can only repeat that, that is absolutely the case on the domestic front, which is almost more than 85% of our portfolio. Number two, we have a lot of new openings coming in. Despite the openings when we put the consolidated, you see that the rate is still showing an upward tick. Number three, the demand in both leisure and corporate remains strong. The sector has shown its resilience and it shows that we are in the beginning of the -- kind of a very strong Q3 from whatever we have seen in the last 6 weeks. It's what I said and I've repeated that. What HBS has factored in, I think you can check with them directly.
The second question you had was on Tata Neu and loyalty led revenue. Our loyalty led revenue is around INR 1,000 crores, of which what qualifies under that program where you own and won, earning or point is around INR 675 crores, of which another 5% of that number is directly attributable to app, which is the Tata Neu App. So namely, the loyalty program is what a significant boost. We have had a 50% increase in our loyalty members, which is only the 7 months because it was launched on the seventh of April. We are very excited because this whole cost of technology innovation, bringing so many grips together, getting to such a large loyalty potential has been made possible for us through the group synergies, and we are very well positioned to take advantage of it.
And more -- we will see more in this quarter because at the end of November, Ginger will also -- we needed to do some technology upgrades and Ginger was not linked to the app,so when Ginger get linked together with big basket 1 MG in all these kinds of businesses, the trend is coming online, then it will be in that kind of segment to benefit further.
Finally, on the G20, I like the way you question how we can turn the qualitative into quantitative. We can give also more guidance off-line or a little later because as we speak, a lot is being finalized, it is not in the hands of the hotel sector. It has a lot to do with all the different collaborations happening at different bureaucratic levels through other positions that we have in CII or Hotel Association of India, we do get to know a lot.
But all I can say is Taj and other hotel groups are strongly collaborating with the government, and we've done a lot on the rates and the rooms and certain bookings whether it is with [indiscernible] office on the G20 [indiscernible] Office or its Ministry of Commerce or it is our Invest India as CEO.
So a lot of these things are happening as we speak. -- and there'll be more and more clarity later for the end of this month. And then we can turn it into quantitative. Then we will give you what approximate -- actually, we will not need to do it. The government expense will be publishing how many events will happen in how many destinations, what are those destinations? It will not only be Delhi or Mumbai centered from whatever I know, and I've heard is there will be more than 50 destinations, which will be covered across India. And with over 100-plus presence in 100-plus destinations that IHCL is present, I think we are well positioned to get our fair share of that business.
It. Sorry if I may take liberty to ask 1 more question. That's last, by promise. Any update -- do you have any update on Sea Rock Hotel and the use of that INR 4,000 crore of investment platform with GIC line unused at the moment?
Giri, would you like to take that?
Yes. No, I think the Sea Rock discussions continue. I think from what we understand, but government is trying to prioritize the breeding of iconic kind of projects in Bombay. And we have clearly been working with designers to get some preliminary thinking in terms of what we want to do. I think from an NC's verifying perspective, I think, hopefully, things are very clear. So there is progress, but we need, of course, the file to move on and get all the other clearances.
But overall, I would say that given the discussions with the government, things look much more positive at this point of time. It's probably a few months more where we'll get better clarity on this resolution. As, that is number one. As far as the GIC platform is concerned, yes, I think we keep looking out for what you say, acquisition opportunities for sure. I think the running away or what you say the ending of the moratoriums and all that, and we continuously keep evaluating, but we don't have any deals to report at this point of time actually.
The next question is from the line of Deepika Mundra from JPMorgan.
Sir, if you can just talk a little bit on the occupancy front. You're already seeing peak level type of occupancies as compared to we have in the past. So from sure on would RevPAR be more -- is there scope for occupancy to go up further? Or is all going to be rates?
It's difficult that's a trade-off. You have to look at it. There are certain -- depends what is the source of occupancies. If it's a wedding business, then we also are doing food and beverage, same thing on events and meetings. On FITs or transient customers. We always try to get a higher rate and try to get them directly to you instead of having via via via? So but I personally see that what we have witnessed in the last 6 months that the rates will continue to increase. They have increased globally, and I see no reason why they will not increase in India with the constraints in supply, independent of peaking of the occupancy.
Okay. But if you had to put -- Is there a cap to occupancy level given weekday versus weekend demand and the type of demand profile that we have in India, which is second more on the corporate side. So is this the best occupancy that you think is doable?
No. The best is always a 100%. Even more than 100%. If we are in an airport location, it could even sometimes send good employees. And we are far away from that as a sector, but only seeing 70. So the best is when it's 100% on 100% like. With the best possible rate. But we are still away from it. Very strong markets with very strong demands have demonstrated the ability to grow 85%, 90% occupancy at the peak level, London, Paris, New York, the 3 largest lodging markets of the world. And for us, let's say, Mumbai in the month when we had IPL in April and May, was a very strong occupancy, Goa, the largest one in December. So there is -- you cannot cap that we will not go beyond 75%, 80%, 85%. You have to sell every room because when you go to a hotel school, you are taught a room not sold today cannot be sold to month.
Right. And sir, on the manpower numbers, we feel that we've been a steady slight climb up in terms of number of employees per room. Obviously, that is probably to do with the demand pickup as well. Are we sure, again, would you continue to see a rising trend, which in line with how the occupancy is improving? Or do you think you're at a fairly steady state right now?
We are at a fairly steady state. But if the demand continues to grow, we will have to have more people that we need. And our strategy has always been to be the most iconic. We don't want to cut corners, especially on our palaces business, on our very iconic assets. So there is a certain level of service that has to be maintained. And that's how business has been done, especially if Taj is what Taj is, it was of that consistency for almost 120 urgent business. So when the Ginger, of course, it's always been a very lean model. That's why we call it lean-luxe, with Vivanta also, it is very much a given. We know how many employees exactly it will have. But with the Safaris, with the palaces, with the business hotels , that Taj brand has, and the location it has, that number will keep evolving.
The next question is from the line of Shaleen from UBS.
Puneet, Giri, congratulations on good set of numbers and great operating metric. So a bunch of questions from my side. If I recollect, I think this is the time when you get into negotiations to your corporates on the rate. So any color on what kind of ARR increase we can see on the corporate side?
No, I think the corporate negotiations have gone well. In fact, I think what we have tried to do on the corporate side this time is to sort of make sure that the rate increases are there. I think the rate increases are more than 10% in terms of corporate rate increases. Number 2 is that we're also very careful in terms of differential rates which are given through the season. So I think that has changed in terms of making sure that there is a certain number of rooms which come at the negotiated rate.
But above it, it is all linked to par actually. So that is the way we've been doing it. And many of these mono corporate factories, we have -- I mean they are now -- many of them are actually more coming through the function route as opposed to the negotiated route actually. So I think -- so I would say, given the overall momentum and the level of business, all corporate negotiations, the rates have gone much higher. And overall, remember Shaleen, that for us, the corporate business in general, across the March is not more than 15% historically as well. So it is not the biggest part of our revenue line.
Absolute agree. But generally, that tends to be the lowest on the ARR increase. So if that is more than 10%, I assume every other segment is higher than that.
Yes, that is true.
And also, Shaleen, what is driving or has driven our rates on corporate and others is the upgradation of our assets. You will recall that -- unfortunately, the pandemic came. With pre-pandemic already, we had upgraded 17 of our assets back to March, whether it was Lucknow or it was the 2 hotels in Goa or Fisherman's Cove or Chennai. A lot of our properties were upgraded and thankfully so in time. So because the resort business benefited during the pandemic.
And we -- and we continue to do so. As I said in the presentation, we're opening, we have just opened the Italian in Aguada, we are opening a new pool in Aguada in Holiday Village. We are opening 30 new rooms in holiday village, after refurbishment. We're coming up with 2 new food & beverage concepts in holiday village, which was underutilized space or not utilized at all. Let me put it this way.
It's not replacing something that should open by the end of this month, collaboration with [ Diageo ] called House of Nomad and another 1 with AB InBev called Seven Rivers like we opened in [indiscernible]. So all in all, all these -- and that's been that part the of key of smart strategy. where we said asset management, this is how you're managing your assets that you own and continuously taking them to the higher level so that we get a larger share of the market and also able to retain the business and don't lose it to the competition.
Right, right, sir. And sir, didn't you mention that there is a bonuses being paid out in 2Q. So that's -- then I assume that that's largely a 2Q phenomena, right? That will not be in 3Q and 4Q, right?
No, I think I think what was stated earlier was that the increments kick in from Q2 and therefore, there is a little bump up because the annual increment will get kicked in, that's key, that's the only thing. As far as bonuses are concerned, for the year, we specifically provided to the end of the year. So that's more cash payout as opposed to, what do you say, P&L, whereas the increments are where the current P&L go up a little yes.
There is nothing like a onetime bump up in Q2 in the employee cost?
None. No, nothing -- no other thing. It is just the normal increment which come in which kind of increase the Q2 number.
So the employee cost would be at these level, unless you obviously increased employee headcount or maybe some bit of a variable pays.
Yes. No, I mean I think 1 thing I need to add to some of the wage settlements have happened across the hotel. And so what then happens is that because there's a pandemic and maybe we can speak offline in terms of some of the details there. I think some of the great settlements which have been postponed due to the pandemic, last period that is now coming. So there have been -- there is a certain element of onetime increase, which has come because of the catch up, which has happened. And I don't have the details as I speak selling, then we can speak separately on the number.
But getting principle, Shaleen, is right. What I also said earlier was we get this increase uptick every year at the same time because we do increments. But then unless we increase the head conducts of selling [indiscernible], unless the head count is increasing, the salaries and employee benefits stay the same, unless there is a new directive from the government to increase contribution on X or Y or something. But from what we know today, it will stay at a similar level.
The next question is from the line of Prateek Kumar from Jefferries.
On wedding season. So how do you see this time is expected to be like big fast wedding season for the industry. So how do you see that benefiting the business in that quarter?
We see the outlook very good, but I would like to correct you, it's not for fact, but it's for magical moments at the leading legacies of Taj with everlasting memories.
Sure. So generally, in second half of the year, we typically do a net of 20%, 25% growth in revenue versus first half. So from that perspective, are we in line with the trend like that for FY '23 as well or because for sharper effect, '23 was much stronger, so that second half versus first half growth, maybe slightly differ?
As I mentioned, the first 6 weeks gave us reasons to believe that the trend continues, especially in Q3, it's very important because this being the strongest quarter. We are starting -- base is very high. from a pre-COVID level, right? In the pre-COVID, the November was an outstanding month in 2019. Despite that, we said that we can confirm that we are seeing an uptick -- a strong double-digit uptick.
Sir, lastly on other expense. So that has also like sort of increased 5%, so what has gone really on higher other expense during the quarter or like last quarter? How should we look at it going forward?
I think, Prateek, these costs are fundamentally increases in the sales and marketing expenditure because with the resumption of activity, clearly, we have kind of spent on that. But of course, in a very productive way. So I think -- and you should look at it as increasing in many activities which are happening.
Also give you the increase in license fees because of the revenue share in Delhi as more and more renovations complete in Taj Mansingh as well as in [indiscernible]. There is a linkage to that higher revenue share and that will be 1 of the consequences of the increase in revenue in these hotels.
So is there a one-off pent-up costs which was like of accounted earlier for the reason like renovation coming from which has life like part of coming this quarter, like some of the peers have also reported similar trend. So we have something which we have all witnessed?
Nothing. I mean, nothing to income with any significant one-offs actually, none.
There was something you might remember is some VAT and [indiscernible] we did in Mumbai properties. Very small, INR 1.5 crores, it was I think, but not such a big number, too.
The next question is from the line of Nihal Jham from Nuvama.
Congratulation on strong performance. A couple of questions from my side. First one is you highlighted about the foreign tourists expectation of full revival in Jan. This from our perspective, is the business on books from the foreign arrival similar to or it was pre-COVID, and is that giving us an additional lever to price higher?
International business on the books. Is that your question?
Yes. That's my question. And if that can give us a better lever to price higher in this peak season?
I think the demand in the last rolling 12 months, domestic has been so strong. That is where the price hike has been coming from. If international picks up the way this morning, tourism breaking as you said as of Q4 goes back to the pre-pandemic level. Then the price hike could be higher. Otherwise, when it comes to international business, in our international properties, we are almost in line as of this month to the pre-COVID level. As I said before, like 92%, 96%, Cape Town should see an uptick. Dubai was performing very strong, 30-plus percent higher than pre-pandemic. Maldives has been strong. Of course, Srilanka has been weak. It is at 50% of pre-pandemic.
For our domestic properties, how would that look like?
For the domestic properties, I think because of the constraints in supply, whether it comes through international or domestic, the rates should remain robust and should keep increasing.
Sure. That is a ...
The other thing you should note, Nihal, is that if you see our slides, which is on margin expansion, I think 1 of the things which is just beyond rates and occupancies is the way we look at asset management. And if you look at the graph, which shows the waterfall between 17.7% pre-pandemic to 35.4%, we have a block with safe key hotels of 3.8%. These essentially represent significantly the asset management activities, which we do in terms of driving greater revenues, optimal cost and therefore, driving margins so 3.8% of the increase of 8% is coming through such strong supply and inactivity actually.
And we have spoken about marking in the past. We're doing some stuff in management so hotels, I would tell, we are kind of working in terms of driving through. So therefore, our whole profitability profile of hotels is driven not just between occupancy and rate, but also a whole bunch of asset management activities.
That is a -- the second question was on our mines business. So in the rates part, we've obviously seen a strong [indiscernible] which is visible in the room revenue that we are getting. Now will there be a peak quarter for both mines and specifically for marriages, is it that we're expecting that the business comes to pre-COVID in terms of say the number of weddings or conferences, or is there a significant repricing in these events also which can drive a strong improvement in this [indiscernible].
I think do you want to answer that is in terms of wedding? so I think the wedding business has come back quite very strongly, actually and the rates that we have gone up significantly. And therefore, I think not just in terms of number of reasons but also in terms of the rate, there is a significant increase, that is helping and even in corporate mines, you see corporates coming back in terms of number of reasons, plus the [indiscernible] business is that, I think, as we spoke margins G20, a lot of time government business in terms of ministerial travels, all of that is helping in terms of driving the overall mines business.
So -- and it is helping us in the overall shape of business, plus, of course, [indiscernible] for kind of business from and some of the new players like Goa, where we have some very strong convention center facility. All of that is in the level of business plus our market share as well actually.
The next question is from the line of Vikas Ahuja from Antique Stockbroking.
So can you talk about the attrition position? Is it also at record level in line with what we are seeing on a positive side on the operating drivers.
And in terms of the wage hike, is it possible to give an impact on margins? And do you think this year, we may have to give a more wage hike maybe selectively to retain talent considering the overall wage inflation?
Vikas, no, there is -- attrition is a challenge for the sector, but I think -- and with the ethos of the Group of Taj, we have treated our people very well. So we are not in that kind of a vulnerable position. And not sure where the second wage hike comes from -- I have not heard that from any 1 of my colleagues in the sector. So that is not relevant. Of course, there is pressure. If you are the world's strongest hotel brand with Taj, and you're doing well, your employees are sought after by -- and your associates and key managerial positions are sought of by other groups.
However, because we are a company with very strong growth, I think the opportunities for our people to grow with us are far higher than growing elsewhere, and that has already helped us in employee retention. On the contrary, we are spending a lot of money in building our people for the future. We're not only scaling 100,000 people, and we have taken initiatives with CII, but whether it is our top management people going for advance management programs or middle management or senior management or we have doubled almost our expense on learning and development to actually service the need of a growing portfolio where we need -- if you are opening 2 hotels a month, we need people, right? So we are working on a very different set of assumptions versus the question you asked.
That clarified. So there won't be any new bump ups in the wage cost, I understand.
The next question is [indiscernible] from the line BNP Paribas.
Good set of numbers. So my question is on the room demand or as you said, the supply constraint will continue to have a positive impact on the ARRs and even the demand is strong in the domestic market. But do you see inflation -- sustained inflation might act as a risk going ahead to the room demand? Or do you expect despite the inflation, the sentiments will be strong and it will continue to have a positive impact on the demand.
I personally feel that the inflation especially on the domestic front, people are used to a certain level of inflation. And this morning, I saw that the U.S. number has come in a very restrained name inflation which should help the rest of the world also. So there was a certain pent-up need for certain prices to go up and they've gone up. But it is all a function which is beyond our control. It's a function of oil prices it is a function of dollar exchange rate, but this morning, the dollar also looks not as strong as it took 2 days ago.
So there is a lot of things happening. Our job is to somehow manage and navigate through this, which we will do. But we don't see up till now any disturbances in business and variable cost, fixed cost, you have all the data with you. In terms of our -- as an example, our fixed cost as a percentage of revenue versus pre-COVID is down from 48% to 37%, our corporate overhead as a percentage of revenue is down from 8.1% to 6.7% in the second quarter.
So all in all, I do not see that kind of an impact as my colleague, Giri mentioned. We are looking more at efficiency without compromising quality and doing the right things and keep improving and innovating so that we can manage at the same time, optimize our revenues and also manage the costs, both fixed and variable in a healthy fashion.
So my second question is on the room innovation. So how many rooms you're planning to renovate within 12 to 18 months. And because of the situation, whether there is any increase in the cost of renovation per room, which we need to factor in?
Typically, we have budgeted and given the guidance, not the rooms renovation only, as Giri mentioned, all the other activities that we have. We are looking at a CapEx of 4% to 5% of our annual revenue. That is the way this business works globally, and we think we will be in line with that this year and next year also and the coming years also.
[Operator Instructions]
The next question is from the line of Jayesh Shah from OHM Portfolio Equi Research.
This is Jayesh Shah. Congratulations on a great set of numbers, and a big transformation in Indian hotels. Puneet, I have a broader question. But given that we are at the beginning of the hotel cycle, but we have seen a huge bump up in the first year itself because of COVID or pent-up demand. So how do next 2 years really pan out? Is it occupancy, growth, can it really go up and the rate hike, both can be 10% extra to give something like a 20% revenue. I'm not asking for guidance, but more qualitatively is to, which is the bigger trigger here, or is it the new initiative that you guys have, which will be a meaningful delta for next year or next 2 years? That's my question.
Right. So there are a few factors which need to be considered. One is the change in consumer behavior because of the pandemic. As an example, not many people were driving themselves pre-pandemic, as we are driving now and taking out, let's say, this week, Tuesday was a holiday of Guru Nanak's birthday. And you may take from Monday off and take Friday, Saturday, Sunday, Monday and Tuesday and actually drive yourself once given that the airfares are at a peak level. So this was not as obvious before. And with the government spend on infrastructure improving, let's say, the Delhi, Agra, Lucknow corridor, Karnataka, Goa, the Mumbai building on all these coastal road and all the structures coming in.
I think that has a direct correlation with hotel demand going forward. Something which was there, it is a latent demand, but was not satisfied because of whatever reason, nobody ventured out the way they ventured out because of the COVID.
And that is not going away because people now get used to that. And that has led to the evolution -- strong evolution of the Bleisure segment. When we see all major destinations are doing very well. It's because a lot of business is being done from leisure destinations like this call today. I can take it from London. I can take it from New York, I can take it from Goa. I'm taking it from Mumbai on the express tower of our office, but it could have been anywhere and still combine a few days -- tomorrow and day after being the weekend and combine that with the weekend.
So I think that is 1 significant change, which has been driving incremental demand, which was not there to that extent in a pre-COVID level. Second factor you have to consider is it varies from companies to companies. Being a strong growth company that we have become, we have a lot of not like-for-like growth. And that should also help us driving in terms of quality also, as we are not adding assets that create losses in the first few quarters, the first few years because still the reach for stabilization. Most of that is driven through management fee contracts or operating leases for the Ginger level. So I think that's the second thing that 1 has to consider going forward. Third is how much of our new businesses will be successful that and withstand the test of time.
This is the Qmin, and the Ama. They become large and successful businesses. Of course, the figures that we were mentioning are achievable from a top line perspective because they're all incremental. They have not displaced any previous revenue and then you have rebranded it as something else. So it's all adding to the base that we used to have.
That's very useful. Just an associated question, will cost on so down runs faster than in real, because earlier, there was COVID, maybe you postponed some [indiscernible]. So in 1 way, while you are saying that the growth is not front-ended, costing also not front-ended and move in tandem?
I don't think -- I think the cost or the cost of employment in wise, but the efficiencies will also improve because nother thing happened because of COVID is the acceleration of digitization and I think digitization helps you to reduce certain costs or become more efficient. And that we will continue to see -- we're seeing that already in our corporate overhead, we've added 100 hotels to our pipeline and as an absolute amount and as a percentage growth, the corporate overhead has gone down. And we are advertising more. We have more present in social media. We have more brands, in more this thing, but the absolute amount of cost is lower despite inflation, despite increments, despite in the wage settlements, whatever you want to call it.
Very, very impressive. And lastly, is there a challenge in getting new properties, acquisition?
Acquisitions is a different one that is when you want to buy. I think there is an ECLGS scheme, which is emergency credit line guarantee scheme, which is still valid and may or may not get extended. We don't know that. But I think that is good, or healthy for the sector so that they got some leasing space. But some who are the capital structure is not right, will not be able to manage whether it's a 2% or 3% of the total supply of 5 of that, whatever is relevant for us, we will have a look at it.
Sorry, I also meant in the form of greenfield. So in terms of getting properties on the right locations.
Not really because there is so much to do. India is also going to witness a lot of growth in Tier 2, Tier 3, Tier 4 cities, which is not yet happened given the life beyond Delhi, Mumbai, Bangalore, on the key matters. So we see a lot of emergence, look at just Northeast, I mean, beyond Guwahati, Dimapur and Itanagar will also need more supply. Similarly, newer states like Jharkhand, et cetera, they will also need more hotel supply than has been the case before. So I think there is a lot of our spiritual circuit. If you want to host today an event in the first university of the world in Nalanda, where do you make people stay.
So I think there will be a lot of growth happening and look at the Udaan scheme of the government with the 50 new airports that are coming or several new airports. They are in destinations, which will also need hotel supply to be added. So there will be a lot of activity which will happen on the supply side. So on the 1 hand, we say there is a supply increase, but that significant increase is not going to come only in the matters as used to happen in the past.
We will take the last question, which is from the line of Vikas Ahuja from Antique Stockbroking.
Sir, just 1 small clarification. I understand on the attrition question, obviously, attrition is going to be half of the industry or even lower. But compared to our own history, maybe 10 years, is attrition level is also at detailed high level? Is it a fair assumption? That's about it.
Giri, would you take that?
Yes, I can do that. No. I think while attrition has gone up because of the enough coaching which has happened. The reality of what happens with us is that the attrition is typically in the earlier with a carrier of pre-collection. After about a 7 or 8 years or 9 years, there is not too much an attrition for companies like IHCL, because by then I think we are completely loyal to the company.
So while attrition has gone up, I don't think it has created a problem for us in terms of [indiscernible]. So I think we are fine, we are absolutely fine. So it's not a factor which should be of any major concern for us. And the other thing what Puneet was talking about training, that we do upgrading on training. And the very narrative stuff [indiscernible] in the U.K., in the U.K., as you know, all hotel companies have been struggling with attrition actually. And one of the things we have done is to spend about 10 of people -- 10 or 15 of people, from India to [indiscernible] younger people with potential, which is part of their own area development in terms of working at an international location and also cracking the problem of low manpower, trouble of manpower in U.K. So some of these methods we are using which really are quite innovative and help us to deal with problems in very different ways, actually.
Okay. Okay. And sir, in terms of replacing those people, are we relying more on the lateral hiring or you are hiring freshers and just training them. And if they are hiring freshers, what is the training time or you put them at work, maybe as soon as you hire them?
So we have a very comprehensive recruitment and training program, which we recruit from the hotel management institutes. So there is always an annual influx of people, which happens through these programs. Lateral hiring is kind of minimal, but of course, with the growth in hotels, what we have seen is that we have taken lateral lads for instance, a General Manager and starting to buy as an example, a lateral lag. So we have taken some of those steps in some of the key hotels actually but they are not significant at this point in time. And where we need, we are certainly recruiters that are hiring. And that also reflects, for instance, when we hire international people in some of these international hotel is also to get a different kind of experience.
Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to Mr. Giridhar Sanjeevi for his closing comments.
Thank you. Thank you all for joining this early morning. I think as we described during the conference, I think the momentum of the business continues to be strong was Q2 -- Q1 and Q2 are historically the smaller quarters, and it is heartening to see that because Q1 and Q2 have been strong. And as we are in the middle of the strongest quarter and relative the fourth quarter, we expect the momentum to continue. So -- and thank you for your time, and we will anyway be in touch with the analysts and other fund managers over different meetings. So as we go forward. Thank you so much.
Thank you. On behalf of the Indian Hotels Company Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.