Indian Hotels Company Ltd

NSE:INDHOTEL

Earnings Call Transcript 2023-Q4

[Operator]

Ladies and gentlemen, good day, and welcome to the Indian Hotels Company Limited Earnings Conference Call for Q4 FY 2022-23. On the call, we have with us Mr. Puneet Chhatwal, Managing Director and CEO, IHCL; and Mr. Giridhar Sanjeevi, EVP and CFO, IHCL. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions]. At this time, I would like to hand over the conference call to Mr. Puneet Chhatwal. Thank you, and over to you, sir.

[Puneet Chhatwal, executive]

Thank you. Good morning, everyone, and thank you for joining this call. Let me give you basically 2 directions on this call. The first one being what the year meant for Indian Hotels, the year gone by and what is the outlook and what we can expect in this year to come and in the short term until 2025. On the year gone by, we have 4 pillars: performance, growth, brandscape and our ESG initiatives. And on performance, we have had a record year of performance. If we take the 3 best consecutive years in the history of Indian Hotels, which was 2006 to '8 followed by 2017 to '20. The combined performance of the 3 years is less than the financial performance of this year. And that is really driven by growth, which is industry leading. We have the highest pipeline of projects by our brandscape, which we reimagined almost 5 years ago and were derailed for a bit because of COVID. And during COVID also, we added a few other brands and services. And also adding brands which were adding high margins. So that resulted in an enterprise revenue of over INR 10,000 crores, close to INR 11,000 crores. Our reported revenue, as you know, is around INR 5,950 crores. But because we add asset-light business to our model, it's important to start articulating what the system-wide revenue or the enterprise level revenues. The PAT of INR 1,000 crores and a free cash flow exceeding INR 1,000 crores also. And very importantly, each of the quarters were the best quarters in history, the Q1 to Q2, the Q3, which was absolute highlight and also the Q4, exactly the same trend as is evident for the last 3 decades, the only distance being Q1 and Q2 were also very profitable and Q3 beat all possible estimates, followed by Q4, which was very, very good following in the footsteps of Q3. Our industry-leading margins of 32.7% on a consolidated level because in stand-alone, we come to almost 40% is almost doubling of margins where we are coming from historically, and this is here to stay as we have guided under our 1 2025 strategy. Important milestone was Taj is one of the exceptional luxury hotel brands in the world hits 100 hotels in operation or in development where 5 years ago, we had 31 hotels in operation and another 7 or 8 in development, which shows this is a 2.5x growth despite 2 years of COVID in the backbone of the company in the crown jewel of not just Indian Hotels but of the nation. Last year, we signed 36 new contracts. We were added to our pipeline, and we opened 16 hotels. So despite opening of 16 hotels, we still stay at a pipeline of almost 73 hotels which will open even if we stop signing anything going forward, which we are not going to do, but just as an example that we have a very robust pipeline. We have the industry-leading pipeline on the Indian subcontinent. And we expect to open more hotels than 16, and I will come to that when we go to the outlook part of it. I think also, we started making small moves on the international expansion again because of our focus for the last 5 years was India. Our 250th hotel was in Riyadh. And recently, we signed a twin a Taj and Vivanta in Dhaka, and we will be doing more on an asset-light basis on an operating lease or a management contract. We are not into acquisition of assets. That brings us to our portfolio of 263 hotels. And with Taj already having hit 100 and Ginger getting close to 100, we've been able to create critical mass in our key brands, and it will be nice to watch how Vivanta, SeleQtions and ama evolve over the next years. And also the balance portfolio guidance that we have given. So if we include hotels in development, then we are already at 50-50. And within the next 18 months, we expect that in operation also to come to a 50-50, a balanced portfolio, right mix of asset heavy where we have owned and leased portfolio, coupled with fee-driven business. This is important because the owned and leased portfolio is giving us the right operating leverage so that when we are witnessing an uptick in the cycle, these hotels add on the absolute amount and the management fee business is helping us drive margins in a very strong way. And our management fee business has almost doubled in the last year. So almost INR 400 crores of management fee, and this is only going up. And also in terms of unlocking the potential of most of our brands besides Taj being rated as the world's strongest hotel brand for 2 years in a row, other brands are really picking up and are getting to where they rightfully belong within their competitive set. So also Vivanta and SeleQtions together are almost 78 hotels. And very soon, we should get there also to a number of 100. We are very, very proud of the guidance that we have given under Ginger. And we embarked on this journey of reimagining Ginger 4, 5 years ago, the management there did a great job. And in the last year, Ginger reported a revenue of INR 300 crores and an EBITDA of INR 120 crores, a margin of 39%. We expect this to increase by 13 percentage points. So coming from 26%, it went to 39%, but the best here also is yet to come, and we eagerly await the opening of Ginger and Santacruz in Mumbai as of 1st of October. And I think this brand has the potential of a brand in this category, in this segment has the potential to deliver a minimum of 50% margin. So that's something we are very pleased about. I'm so only pleased also about our flight kitchen business, which we have a joint venture with SATS from Singapore. For the first time in history, it did a margin of 20% revenue, which exceeded INR 600 crores and an EBITDA of INR 127 crores. Since the opening of Qmin or since the launch of Qmin. It has done a GMV of INR 150 crores. Today, we have almost 34 outlets, of which 50% are in Ginger Hotels, which we very affectionately call the cumulation of Ginger, which means the all-day dining of all Ginger hotels will slowly but steadily get rebranded into Qmin. And ama is something which we will start working on together with Qmin to scale up in the next years to come. A very important part that we would like to share with you that Taj Mahal Place, our temple of hospitality is 100% green, 68% through renewable energy from Tata Power and the 32%, we had to buy the certificates for renewable energy, so that we became 100% green. Our 6 pillars of Paathya, the 100% waste elimination, 100% of the hotels to have organic waste management system, 100% recycling of water, all hotels to have EV charging system and all hotels to have green meetings, which is being launched in June and 50% of our energy from renewable is the targets that we have given for 2030. Very pleased to say that we are not only on target, we are ahead of our guidance and ahead of our target on ESG, which remains a key pillar not just for Indian Hotels but for the entire Tata Group Companies. Also, we were given awards on corporate governance, the Golden Peacock, the ICICI National Award for governance also as well as very recently, the Risk Management Award for business model adaptability from ICICI in collaboration with CNBC. So I think in all the last 5 years from an aspiration 2022 of a turnaround of a business model in between derails, but helping with the reset in 2020 and a further guidance of Ahvaan under 2025, the company is very well positioned to achieve a 33% EBITDA margin over the business cycle by 25%. With remaining 0 net debt company with a 300 hotel plus portfolio and a balanced portfolio built on the bedrock of the culture and values of both Tata Group as well as Taj, which stands for Trust Awareness and Joy, leveraging our enablers and our initiatives, which keep going on, on reimagining our brandscape, reengineering our margins, restructuring our portfolio and the journey of most iconic and most profitable hospitality company continues. With that, I'd like to get to the outlook. I think this is what has happened. We said in the short term, this is what we'll do. We got derailed. But where do we see the sector today? I think very important to note is one key factor, which is helping the sector as well as Indian Hotels is that demand is growing faster than supply. So while a lot of people want to talk about pent-up demand, I would say, pent-up demand is like 3 months, 6 months, 9 months. But the reality is that although just domestic as foreign tourist arrival has not yet come. The domestic demand has been strong enough and is outpacing supply because not many hotels got built in the last 3 years. And that imbalance in demand and supply will continue, which will help drive occupancies as well as the rates in the sector and even that we are present in 31 of the states and union territory of India, I think we are very well positioned to capture the benefits of that demand and it's also based on all the guidance given by various companies, whether it's HBS or Harvard India annual report or Hotelivate that the demand in -- especially in India, where 87% of our portfolio and revenues come from is strong, is going to stay robust. And it is going to get boosted by 3 or 4 key factors. Supply is one part of it. But the G20 this year till October and expected to peak in September, October is going to aid the need for the rooms and food and beverage. Number two is the World Cup cricket. And number three is that the sector, tourism sector expects that the foreign tourist arrivals as of October will go back to the pre-COVID level, which was at only 60% for last year. So I think the outlook remains very positive. What can we expect from the Indian Hotels with this outlook? We continue our pace of signing. We will keep adding hotels where we think we can create new destinations in the spirit of what Tata Group has done, what the oldest operating company, which we are -- of Tata Group has done consistently over a century. And we are also pleased to say that we'll be opening a minimum of 20 hotels this year. Last year, we opened 16. This year, we will open 20, we will cross the target of 200 hotels in operation globally and get very close to having 200 hotels in operation in India. But if we were to say South Asia, we will definitely achieve that also this year. So that's on the growth part of it. In terms of new businesses, which are very close to our heart, we did very well on incremental -- incremental cash flows and in incremental profitability. We did not really spend any money on growing ama or Qmin. I think this year, we will use some of our free cash flow to really scale up these businesses because of the margins that they drive. And at the same time, also the other businesses that we've been guiding on like The Chambers, we will be adding on that. So The Chambers in Bangalore at PacWest will open this year. We have applied for permissions for doing The Chambers in New York. So really making The Chambers also a global brand and some of our food and beverage brands. Food and beverage is very strong in South Asia and Southeast Asia, and we are very optimistic about growing our presence, not just with Qmin as a QSR, but some of our iconic brands. I'm very pleased to announce that in the next week, we are launching House of Ming at the Taj in London and Bombay Brasserie at the Taj in Campton Place in San Francisco, and we are hoping to take Bombay Brasserie as a brand to other parts of the world where we have the rights and we have been able to register the brand. So all in all, I think in all businesses, not just the rooms business but food and beverage business, which is aided very strongly this year by G20, the events, the conferences that are happening in India, a very strong, robust rating business, scaling up new businesses, opening hotels continuously on management contracts or operating leases slowly but steadily starting to build on our international portfolio just with the Taj brand. I think Indian Hotels is well positioned and also to give this guidance that this year, what we have seen and today being like almost 4 weeks into the new year, the trend that we are seeing in terms of business that has happened also the business on the books, we are very much in line and ahead of April of last year and expect the same thing in May. Albeit, I have to say that the visibility of long-term bookings still remains very short. So it's very difficult to make predictions about what will happen in July, August, September, but the trend that what we are witnessing today is extremely positive. And the growth of the GDP in India, the growth of buoyancy in business, the need to do business, airlines, travel, all the planes are full, the seats are full. So especially on the key sectors, Delhi, Mumbai, Delhi, Bangalore or Chennai, all the key metros and also the upcoming new airports, we feel that the travel remains very strong, both on business and on leisure and one of the few trends that we can highlight here is bleisure. Now whether it is business with leisure or leisure with business, this has become a common trend since COVID. We are seeing no change on that one, on that front. And also when it comes to spending money, I think it's not revenge. It's not like that what we call the [Indiscernible] factor, that's not there. The main thing is that people are still saving, but they are willing to spend a bit more than they were spending in a pre-COVID time, which is also assisting not only in our room demand but especially in our food and beverage demand and in the restaurants. So I think that's what I wanted to say about the year gone by and the outlook that is out there. And we will continue on our journey of balancing the portfolio, not investing into single assets, except for very key strategic investments like the Ginger in Santacruz or our couple development Vivanta and Ginger in Ekta Nagar which is near where the statute of Unity is totaling 275 rooms, but where we also get -- we are eligible to get certain subsidies, making the investments very feasible. I think the outlook remains strong, and we are at the beginning of an up cycle, which has witnessed a few quarters, and we feel that Indian Hotels is very well positioned to take benefit of this up cycle. Over to you, Giri.

[Giridhar Sanjeevi, executive]

No, thank you, Puneet. I think Puneet has summarized it. I think we have had a great year in terms of the overall business. And as we explained, the outlook is strong. I think the core thing that we need to remember is that the story of hospitality, the story of penetration, actually, which means as airports come up as the growth is happening in cities beyond the key cities actually, it is really a story of penetration, which will be multiyear. And that's really the story. We will talk about this more, not just on this call, but we also have announced a Capital Market Day on the 11th of May 2023. And we will talk about this more. And I think over now I'll open it up for questions.

[Operator]

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Binay Singh from Morgan Stanley.

[Binay Singh, analyst]

I have 2 questions, one on Ginger and the second one on [Indiscernible] business. Starting on Ginger, we are seeing good performance. Could you talk a little bit about the road map to 50% EBITDA margin. Is this coming off from like the 2 factors that would take us from around 39% that we are at today to around 50%. The second question on the U.S. side, there also could you talk a little bit about what's happening over there? How did the March quarter go? When do you see that business tracking and taking even?

[Puneet Chhatwal, executive]

So Binay, thank you. Ginger is something which we are very focused on. I think it's an ideal brand for a heterogeneous landscape of India. And it is the fastest-growing brand in terms of number of hotels, not in number of rooms because a lot of Ginger hotels can be 60, 80, 90 rooms. So except for the one which we're doing in Santacruz is 371 rooms because it's in Mumbai. A similar large size development will also be happening at the Bangalore Airport. So just to give you a flavor, that Ginger reported revenue is around INR 300 crores. A hotel like Santacruz, which we own has the potential on stabilized figure of at least INR 100 crores in revenue with 371 rooms. So I think that is what makes us believe that Ginger landscape will continue to evolve very rapidly. And this is not something which is going to happen in 3 years or 4 years from now, it's already delayed by 6 to 8 months because of COVID. So it should have normally opened. But now we are opening it hopefully on the 1st of October this year. And similarly, many other Ginger branded hotels will drive that drive the growth and this business model and especially what we call under the lean luxe because the new Gingers are all lean luxe And all the lean luxe hotels are operating north of 50%. We have some old portfolio, which we have to renovate, reposition or get out of those contracts. Like a few of the contracts we did not renew, which we had when we started the Ginger brand like the [Indiscernible]. So we have given those up because they are not good for the plan today where we have reimagined it all. So we expect Ginger over the next 3 years to grow north of 50% in margins, as I said in my opening remarks. And on the U.S. side, we have renovated basically, it's New York, San Francisco was profitable pre-COVID is going to get there as the market begins to evolve. On the New York, we have done very well in curtailing our losses, and they've reduced to a significant level. But besides that, we have reduced the cost of lease. We have renegotiated our agreement on the peer. We have completely revamped the banquet hall there, which is one of the largest falls in that marketplace, in that micro marketplace around Central Park, and it's just getting to the finishing phase. So we are positive about New York. We are extremely -- you did not ask this, but I would say this on London with all the changes that we have done, including now the opening of the Chinese, besides the Quilon, which we have had there as our Michelin star restaurant, also we opened The Chambers in London. So a lot of investment in our key marquee assets is also helping drive performance. Of course, U.K. and U.S. are not at the pre-COVID level. They're still operating at 92%, but we expect in the next few months for them to either get to '19, '20 level or definitely even exceed the '19, '20 level. So that's a kind of upside we are also waiting for.

[Binay Singh, analyst]

Just one question. Then the business was at another year of strong free cash flow. Anything that you will do differently in the coming 2, 3 years from what we've done in the last 2, 3 years? And if you could also share the CapEx number that we expect for next year?

[Puneet Chhatwal, executive]

See, our CapEx is always around -- there is an operational CapEx, and there is the CapEx in the new construction and building other businesses. So our CapEx figure is always around 5% to 6% of our reported revenue. And nothing is going to change on that. There will be certain situations where we invest. And in the interim over the next 18, 20 months, we kind of do a sale and manage back with a long-term management contract. That is something which we'll guide on during our Capital Market Day. So on the CapEx side, that is what has helped us to get where we are today. As an example, 24 of our Taj branded hotels were upgraded. If I look at total number of hotels upgraded, including Ginger in the lean luxe, we have upgraded more than 40 hotels that is also driving the performance. It's not the pent-up demand and an imbalance in demand and supply. It's hotels, which needed renovation and were downgraded to Vivanta, have been upgraded back to part, and that is what has also made Taj 100-hotel portfolio. So I think CapEx is a key. But intelligent use of CapEx is the key to driving margin and creating competitive advantage over the other brands and the competition in the mid and long term.

[Operator]

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

[Achal Kumar, analyst]

But anyway, moving to the question -- sorry, I have 4 questions, if I may. First of all, I just want to understand -- so the government has recently announced that they want to make Delhi as an international hub. Do you have any plans to align your growth in that part of India, the Delhi, Rajasthan, Agra, -- have you thought about it? Do you have any plans to grow aggressively there in case government is successfully able to make Delhi as an international hub? So that is my first question. Secondly, I'm referring to Slide 38, where -- which is a very nice slide. You mentioned about the EBITDA margin expansion from the existing hotels and from the new hotels. So I just want to understand how long would it take for the new hotels or you can say, the middle block to move to the left side of the block. So I mean, what is the gestation period when the new hotel could actually generate the similar kind of EBITDA margin as good for your existing hotels. So that is my second question. Third thing on the SATS. So you reported a very strong growth in SATS. I mean, what was the driver of that growth? And now what next, where do you think the future growth could come from? I mean, do you have any -- I mean, any plans, anything in place, which can sort of generate the similar kind of growth going ahead? Or is this a kind of feeling now that okay we reach here and then this is the feeling? And finally, probably if you could give us a bit more color that you've already reported 34 -- more than 34% margin -- EBITDA margin in Q4. Of course, as you rightly said, the industry dynamics are very strong, demand supply is very strong and looking at ARR and everything is going perfectly on your way. So what actually -- I mean, do you think the margins could decline and then come back to your long-term target of 33%? Or how do you see that? Or if that's not the case, I mean, how do you think it's now rather easy to achieve your EBITDA margin for FY '26 which you are targeting in FY '26 in the next year itself. I mean if you could give us a bit more color on that.

[Puneet Chhatwal, executive]

Achal, thank you a lot of questions. But let me first start on a lighter note. What you said on Slide #38 in the middle of how it could move to the left. There is -- from a guidance perspective, there is a mistake on that slide. The mistake is that the numbers are right. but it is not showing the return on equity or return on investment. There has been no investment in Qmin or ama, this is really a clever use of the brand that we had by reimagining and repositioning them, but we have not invested money. So like, let's say, on the left side, if you say we have invested a lot of money into our entry into London and U.S. and all other places. There is no investment that has gone into Qmin or ama or QSR or Chambers, et cetera. It's just reusing the same space by renovating it in a normal CapEx. So what -- a lot of what you see on the left side, let's say, Chambers in Taj Mansingh in Delhi, is driving a lot of revenue, the Chambers in the middle that you see is only the fee from new members. But Chambers in Mansingh that the revenue it is driving is on the left of the chart. And the left of the chart has investment in the middle of the chart has hardly any investment, except for asset management perspective. So that's one. Second is your question on growth, Delhi becoming up. Of course, Delhi is the capital of India. The state capital is Delhi or the national capital is Delhi and the commercial capital is Mumbai. IHCL can never have enough hotels in these 2 metros. And we have just signed 2 days ago. We have not yet announced another hotel in the Delhi NCR, Vivanta. And we are very well positioned to add more cash properties. But what we will not do in Delhi is do a cash that might dilute the positioning of Mansingh or Taj Palace because we are the only brand which is present with 2 such properties plus Quilot and ambassador under SeleQtions in New Delhi. So [Indiscernible] just got added. So we are not going to stop here. This will keep getting added. As also you said Jaipur. Jaipur we have just added with the largest banquet hall that we will have in our card system. So despite having Rambagh -- Rambagh Palace and General Palace and all the hotels. So our strategy in these key markets in India is to own them. We will be the largest players in all these markets in number of hotels, not necessarily maybe in number of rooms because we are not in the business of taking rooms to a bank account. We want to cover the micro markets and the macro markets within these metros to the extent possible. So if we look at lets take Mumbai. So we will be opening very soon this year in Vikhroli project. We opened a Vivanta in Navi Mumbai. We have the Taj Lands End, we have the Taj Mahal palace. We have the Taj Santacruz, we have the president. So we have the Ginger in [Indiscernible], we have the Ginger in Mahal, we have the Ginger in Borela. We'll go opening a Ginger in Santacruz. And the journey will not stop here because these are very important markets, the commercial capital of the country and the national capital we'll keep seeing more and more growth and that was the entire purpose of creating comprehensive brand management and focusing not just on Taj, but also on other brands, so we can get into the depth and the breadth of the market. So given this thing on the growth as well as on the other question that we said in the middle of the segment, it will also keep moving towards less as it matures, it takes time to mature. So we are -- we'll keep nurturing our traditional businesses and keep growing them through market share through clever asset management and the new businesses, we will keep scaling them up. So once they become mature, we start adding further new businesses. So that is the strategy which we have communicated, which will have also in more depth and detail during Capital Markets Day. And when it comes to margins, margins is a combination, and I'll let Giri to add to that is the operating leverage on the left side, what you see on Slide 38 and on the middle also the management fee business, the asset-light model. So if you look at let's say, 1 parameter or 1 variable corporate overhead. Our corporate overhead from 8% of total revenues on to 5.8%. So there's no reason this will go up again despite increase in salaries, despite our increase in number of people because we are becoming more and more efficient. So I think margins, we will definitely remain within the guidance that we have given of 33%. Q3 and Q4 will have higher margins Q1 and Q2 will have lower margins. So the blend of it should always keep us in line with 33% or ahead of 33%. Giri?

[Giridhar Sanjeevi, executive]

Yes. No, just building on it, I think -- see, the heart of our strategy is the diversification on the top line actually. I think while other hotel chains just have the rooms and food and beverage, which is where analysts sort of start focusing in terms of RevPAR and all of that. I think there, I would sort of say that we have always differentiated and done better than the market in terms of RevPAR across cities, actually. So therefore, irrespective of the market, we will do better. That's number one. Number two, the asset light growth, which is what we spoke about on Ginger, The Chambers, the Qmin, amas, the management fees, I think they will continue to be very, very strong actually. And so this diversification of top line is really the core to our strategy, coupled with the productivity on expenditure actually. And any margin, the 30% margin that we talk about is really very healthy, actually. So I think we will, as Puneet just said, we will be within the guidance of 33%. And we will continue to progress our strategy and execution to ensure that we have a healthy growth in top line, absolute EBITDA growth and the impact growth actually. So that's the way we look at our business.

[Achal Kumar, analyst]

Sorry, last question on TajSATS, if you could please get the color on TajSATS?

[Giridhar Sanjeevi, executive]

So TajSATS I think, has done extremely well. In terms of number one, the opportunity which is there in the lean ecosystem. With the growth in passenger traffic and the doubling of airports, which is happening, there is a huge opportunity in terms of how the growth in flight kitchens is happening. That's number one. Number two is the whole synergy with the Tata Group in terms of India, Asia and Eastern. So therefore, these are opportunities, which will there we will continue to be the beneficiary actually. The third one is that the growing Indian business also means that there are a lot of international flights are also going up, and we continue to take an increasing share of the international business as well, which is adding to profitability actually. And so we will continue to grow in terms of opening up kitchens in new areas like Amrit, which was shut about 5 years ago, will re-open this year actually, and it is already profitable actually. Third is productivity has gone up significantly, actually. If we take Delhi Kitchen as an example, between the pre-pandemic period and now, we've improved productivity by more than 50% actually. So I think productivity of kitchen is also going up. And finally, I would sort of say is that business model changes are coming, where our partners are setting up substantial kitchen in Bangalore, where I think the business model will change towards producing food in bulk and transporting to the other kitchens that we have. So what that means is that going forward in about 2, 3 years' time, we will not need the big kitchens in Bombay and Delhi in terms of sizes. They will receive the food from the semi kitchen and they will become the repackaging kitchens, which means that should also help in terms of driving costs down, actually. So I think there are a number of factors at play, which ensures that the trajectory of TajSATS is going to be very significantly high actually.

[Operator]

The next question is from line of Sumant Kumar from Motilal Oswal.

[Sumant Kumar, analyst]

So my question for U.S., U.K. business. And we have seen in FY '23, occupancy is still lower and the recovery is lower. So can you talk about going forward, can we expect the occupancy? What we have seen in FY '20 say for U.S. 75% FY '22 we have 59% only and U.K. 79% in FY '20, and we have 70% in FY '23. So can we reach the FY '20 level occupancy for these 2?

[Puneet Chhatwal, executive]

Sumant, we will reach here and also keep on, we will do better. We can already say that April for London has been a very strong month, better than any April that we have seen before. So I think also because of the coronation of the royalty, what is happening. So there is a lot of activity in London. And slowly, markets are usually efficient and they go down, but they at least come back to the level they were. But I do expect the U.S. to do much better and also for London to do much better because of the investments we have made and are making in these properties in their repositioning. And 59% occupancy for the largest lodging market in the world is a very low level. So these markets are used to operating at 75% plus. And that's why I also feel the best is yet to come, and these hotels with the income that they have in dollars and pounds multiples many fold in Indian rupees when we report. Also, when they are not doing well, like they have not done as well in last year, they tend to understate what our normal result would happen. So in a way, it would be fair to say that, that is a hidden potential for us and especially also even Capetown albeit small, but we took over 100% ownership of Capetown at the peak of COVID. And the third wave, the Omicron started in South Africa. So the first 6 months of last financial year were more or less like a washout for Capetown. all these hotels should do much better in this quarter and the next quarters to come.

[Giridhar Sanjeevi, executive]

Yes. Just building on it, Sumant, I think if you look at U.S., while you highlighted the occupancy of 59%, I think remember that '22-'23 was the year, which is the first year after the COVID. And therefore, we were more cautious also and we grow a rate-driven strategy. So ARA did grow by 25% because the more you open up the hotel, the costs would have gone up. So we wanted to be -- we wanted to drive the rate strategy. But now I think with the over behind us, I think what is happening now is that we will drive the occupancy as well. And bear in mind that the banquets did not fully kick in in the previous year. The banquets will start kicking in fully this year. So a combination of driving occupancy banquet improvement, all of these should help is what I would say, actually.

[Sumant Kumar, analyst]

Talking about lifetime FY '20 FY '21 was 62% and FY '23 was 51%. Do you think this is a normal opportunity for lifetime market?

[Giridhar Sanjeevi, executive]

I think, see, what we have not seen is really the benefit of the international passenger, as you know. I think Rajasthan with the palaces really depend upon the international passengers. And I think that has not come in, and that's going up should certainly help in terms of driving the occupancies in Darian.

[Sumant Kumar, analyst]

Okay. The last question, the Kolkata, we have seen a significant improvement in occupancy, but rate increase is minimal compared to other markets. Any reason for that?

[Puneet Chhatwal, executive]

See Sumant, every market will not move at the same speed and pace or there are different issues in different markets. So if we look at places around Kolkata, like [Indiscernible] area. It did very well because that was a great place to go, and it got very well established. Similarly, we'll be opening this year in Gangtok, the Taj in Gras Kutir. So there are different markets and different the beauty is how hedged is your portfolio? So I think Indian Hotels can not only buy different brands, but by being present in 125 plus locations in being all the metros but also in the Tier 1, Tier 2 cities, but even more importantly, having a healthy mix of resorts. The number of resorts we have have really helped us in the last few years, and we want to maintain that strategy. Sometimes, let's say, Orica, which hosted the world cup hockey was going up. And maybe if there is no world cup hockey, it will for 6 or 8 weeks, when revenues start going down. So there are those one-off events. There are elections. There are so many things that keep happening in the marketplace. But all in all, most of the metros are great, the air show in Bangalore. It does not happen every year. One year, it takes it up, the next year it brings it out. But generally speaking, India remains a very strong market because the demand is stronger than the new supply that is coming in.

[Operator]

Next question is from the line of Prateek Kumar from Jefferies India.

[Prateek Kumar, analyst]

First question is on on the supply addition. So based on pipeline data, which you have given to account of supply meant 10% PBR over the next 4 years. How should we understand this in context of mid-single-digit supply of industry. We hear that some of the larger local also appear to be adding a good pace. So is this like top 10 players are adding a higher line smaller players unable to add the pipeline?

[Puneet Chhatwal, executive]

I could not understand because the calls kept dropping. Can you -- did you understand, would you like to take that?

[Giridhar Sanjeevi, executive]

Yes. I think fundamentally, the question is that we are adding supply 10% every year. In the context of industry supply growing at less than 10% is what his question is that are the bigger players taking a bigger share and see you wanted some color in terms of our supply growth versus industry supply growth

[Puneet Chhatwal, executive]

Yes, we said that we have an industry-leading pipeline and there was a time when others used to say they are larger, they are larger, those stones are mall because nobody is signing more hotels or openings, even if timing is not important. It's opening is that is the key. And when we said we are opening almost -- we have opened 16 hotels last year, and we'll be opening anything north of 20 hotels this year. That gives a good flavor of what is about to come and what is about to change. And we see no reason about the openings slowing down because 73 hotels in various stages of development to open over the next 3 years is a very big number. And this does not include any possible conversions which we get. That means existing hotels, which get reflagged or rebranded. So I think we are in a very good space. And that is the dominance that was needed and also prove that while going multi-brand instead of there was a top 5, 6 years ago, we shouldn't be only doing Taj. Why that multi-brand strategy in a heterogeneous landscape is a big boost to us. and also a big boost to the hospitality landscape in India because we are the largest hospitality ecosystem. So we have to take that leadership position, the ownership and drive these businesses forward.

[Giridhar Sanjeevi, executive]

And you see rate growth. The momentum is only going up. Historically, we were opening around 2,000 rooms payer. But now in '23, '24, we expect 2,300-plus rooms and nearly 3,000 rooms in '24, '25. And so therefore, this momentum of opening room openings will definitely go up actually..

[Prateek Kumar, analyst]

And my second question is on ARR. So on an annual basis or overall in an operation basis I mean we ended the year on a very high base and on to of that price hikes or hikes, it happened during the year in in October and February. So like because of very strong exit, is it like from a margin perspective, is it like okay to assume like I sit kind of growth for next year or maybe grow a little bit

[Puneet Chhatwal, executive]

As long as we have a good base of demand, which we have today. There is no reason why ARR should not keep growing. See ARRs have not grown in the last 10 years. They've only grown in the last year. So if we took 2012 as a base, the year and take the 2011, 2012 as a financial year as 100, then there was a continuous decline in the ARR because of the imbalance in supply and demand. This has become healthy in last year. And the expectation is based on a report of, I think, HBS analog that should reach at the level of 125 versus '11, '12 a base. So if the market reaches 125, we are very confident of doing 130, 135 with '11, '12 as base because of the power of our brands, some of your colleagues have written also about it. But also very important is our loyalty-driven revenue is increasing very much. But Tata Neu is beginning to settle down and establish and is growing. So data Tata Neu we are a founding member of Tata Neu is beginning to assist us. So getting base business through our normal channels through airline crews through contracted business to Tata Neu business gives us the base so that we can indulge in better comprehensive revenue management to yield much better rate and occupancy. So we are very optimistic on that front.

[Giridhar Sanjeevi, executive]

Yes. Just one build on it, Prateek, is that if you look, what's happening is that with the rise in rates which has happened, the rates are now settling down at a higher level, actually, even in the month of April. So if you see -- if you see the rates in Q1, we expect it to be better than what was happening last year in terms of Q1 because rates have settled out actually. And as you go through the year, and you see what happened last year, the rates kept going up. And the good news is that as we go towards the second half of the year, we have the G20 in September, we have the world cup cricket, the momentum in terms of bettings and all of those should actually help, the foreign travelers coming up and coming back. I think all of those should help actually. And we will continue to work on those factors. And the other point, what we mentioned is that, again, I reemphasize the point that our top line diversification is a big thing. And I think -- and that will continue to play a very big role in terms of driving the profitability and the top line actually. And as I repeat again, the story of Indian hospitality is a story of penetration actually. And I think people tend to look at targets like airlines actually.

[Prateek Kumar, analyst]

Yes. So another question was on Tata only -- so the in terms of customer base on Tata like at enterprise level? And I think later see activity on during IP this year, how do we see that?

[Puneet Chhatwal, executive]

We are very pleased that this is coming as a big boost to our business. On our own, I doubt if we would have been able to develop a loyalty program with that kind of capital that is needed and the kind of following it can get. With Croma, with big basket, with Titan now coming on board, there's so many other brands. But I expect Tata Neu to become a very strong player in the next 12 to 18 months. And the stronger Tata Neu gets, the bigger will be the benefit, including to Indian hotels. Especially, we have just now onboarded also Ginger with the technical upgrade that was needed to be linked to Tata Neu it's only like 6 weeks ago. So I think these kind of businesses will benefit a lot. Qmin should benefit a lot from Tata Neu, ama will benefit or not. So a lot of this earning and burning in various areas will happen. Of course, the first budget businesses will benefit more and the luxury becomes more aspiration. So that will take some time. But we are very, very pleased our loyalty base has doubled in the last 13 months. 7th of April last year was when Tata Neu was launched. It's not even 13 months. So it's a little less than 13 months. But yes, there were some start-up issues, which is normal when you try to combine so many companies and businesses, but we are very, very pleased and very optimistic about the outlook, about the contribution that Tata Neu is going to make, and we work very closely with the Tata Digital team in making things happen and making promotions happen, in making campaigns happen, marketing campaigns and how to keep improving this platform because it's a big win-win for all of us.

[Giridhar Sanjeevi, executive]

Sorry, I got cut off. I don't know what happened, I've just rejoined the quality.

[Puneet Chhatwal, executive]

Yes. Giri, I answered it between the question on Tata Neu and we have had, I said, doubled our loyalty-based active members in just less than 13 months. And our loyalty-led revenue is almost 20% of the enterprise level revenue, not the reported but the system-wide or the enterprise level revenue, and we remain very optimistic and very pleased with the rate Tata Neu is evolving and assisting us in our business.

[Operator]

Next question is from the line of Nihal Jham from Nuvama.

[Nihal Jham, analyst]

So, my first question was that given there has been such a strong source of domestic travel and international is still recovering. Is there a case of seasonality in the industry as getting a little more normalized? Or do you expect that as international travel comes back, that the Q3 and Q4 quarters will still remain the biggest ones significantly versus the first half of the year? Would you just take it in just a bit last in terms of the audio here. Maybe take that question, and I will answer based on the...

[Puneet Chhatwal, executive]

Nihal, I think with World Cup Cricket with the peak of G20, which will happen in September, October and very strong robust demand on reading, that is the only business that is getting booked in advance of much so much of lead time. There is no reason that makes us feel today that Q3 and Q4 should not be as strong as they have been in the previous financial year. And I actually feel it will be even stronger because because of these one-off events that are happening. And we as a sector on the various platforms that I sat on the hotel association or CII, et cetera, which I chair. The general consensus is that based on the queries that most of the travel agents are getting is that the foreign total arrival is expected to go back to '19, '20 level as of October.

[Nihal Jham, analyst]

Got that. It was also in relation to -- given the gene from Q4 to Q1, there is a certain percentage that we see. Would it be the case that, that wouldn't play out in the coming years as domestic tourism is strong and travel is strong and maybe that kind of jump back doesn't happen because the FTAs in Q4 were not as much. So that demand going is not going to be as much of an impact as more has been historically?

[Puneet Chhatwal, executive]

Yes. You're right. So actually, I don't know if it's a statement or a question, but whatever it is, I agree with what you said.

[Nihal Jham, analyst]

The second one is that on the new initiatives, you did mention the asset light, but you mentioned that some part of the free cash flow will be used towards them. I'm assuming it is be minimal spend or there is something more on a larger scale that...

[Puneet Chhatwal, executive]

We are not looking into some big investments. But of course, these businesses have been done to just incremental cost and incremental revenue model. So let's say, if you want to build 10, 20 INR 5 crores. So it's not a big amount. It's a good investment in 5 years or 7 years, the cost of each of those villas will double. And we don't have to buy land. We are sitting on a lot of land banks. As an example, in Taj Exotica and Goa, we have the ability to build more. There are so many other places where we have FSI available and we can build that we would have to do on our own so that we don't dilute. But we can also enter into some kind of development agreements with developers, builders in a sale and leaseback model. Up until now, our model has been purely fee-based model, and we have not added any kind of these kind of operating lease or ownership model on any of this. So it's all driven by that, and that's why it drives 50% plus margins on these businesses. But if we want to scale it up, we'll have to -- and we want to state it, we'll have to make some sliver with maybe the right word liver investments into some of these businesses in key strategic locations and also help for our asset management because we have the assets. We have the land bank. We don't have to go and acquire the land.

[Nihal Jham, analyst]

Got that. Just a final question from my side is that we see now we are getting aggressive again on the international expansion side with the expansion and I'm guessing all the management contracts on it. So just as an initiative going forward as you look at other Southeast Asian cities and just multiple other parts of the world, this will be mainly via NPV, right?

[Puneet Chhatwal, executive]

Yes. Operating leases or management contracts, there is no -- we are not going to enter into single asset acquisitions as we speak. -- unless there is one big exception for some reason that we don't know of today. It's like the black swan event on the negative side. On the positive side, something comes up -- it makes so much sense to buy, then you will buy it, right? So -- but those are one-offs as a normal business plan strategy, which will communicate more in the Capital Market Day, we have no plan to acquire assets.

[Operator]

The next question is from the line of Vikas a from Antique Stockbroking.

[Vikas Ahuja, analyst]

So just one clarification. I mean what the question Nihal asked. So from Q1 to Q4 to Q1, we normally see a drop. So what I could make out from your statement that the operating drivers, the RevPAR we have achieved in Q4? Is it a possibility that we might achieve something similar in Q1 as well. However, when we talk about the second half, there are enough levers like Wolcot to boost to take it to another high. Is my understanding correct? Or I make sense of it?

[Giridhar Sanjeevi, executive]

I think if I take this question, Vikas, I think what's happening is that the Q1 momentum as compared to Q1 of last year is very strong, actually based on whatever we have seen in the month of April and May. So that continues to be very strong. So we will show good growth in relation to that. So therefore, I think Q1 is going to be pretty strong. So that's number one. Q2 visibility at this point of time is weak. But as we go into the second half of the year, reading visibility is beginning to pick up the G20 and the World Cup, as I said, will pick up the foreign travelers coming in will happen actually. So therefore, I think if I look at this year, I think we should have a good deal is what I would say.

[Vikas Ahuja, analyst]

Okay. So that was in terms of the annual list. And secondly, when we talk about the U.S. business, I know you have answered that in detail but this -- the drop we have seen this quarter, especially on sequential, is it largely on seasonality or some part of macro also played out?

[Giridhar Sanjeevi, executive]

I think typically, the Q4 is actually a weakest quarter for the U.S. in particular, actually, Q4 is usually the weakest quarter and winter is the winter. And therefore, I think banquets don't happen and the occupancies don't happen. And therefore, to that extent, I think seasonality played a very big role actually. But I think -- but other than that, I think this year, if you look at it in terms of what I answered earlier, in terms of improving occupancies, driving the banquet businesses should all help us to grow the U.S. business. If we look at the cash loss position in the U.S., if you look at the exceptional statement and the stand-alone, you will notice that the pre-pandemic losses were about INR 69 crores, and that came down to about INR 20 crores and I think what we are looking at this year is to make sure that we will be cash breakeven on an operating basis. Bear in mind, in '22, '23, the U.S. was EBITDA positive actually. So hence, I think the U.S. should do much better this year than the previous year actually. A change in September is coming up. So there are a number of things that we are doing, which will ensure the U.S. is much better this year than last year.

[Vikas Ahuja, analyst]

Sure. And just to clarify, you said that the drop sequentially was all because of seasonality and there was nothing macro-led or calculations.

[Giridhar Sanjeevi, executive]

Yes, that correct. I think, yes, Q4, historically, is a seasonality factor because of the weather there.

[Vikas Ahuja, analyst]

Yes. I understand and finally, one key thing. In terms of the profit overheads, we have seen a 300 basis spend reduction since forward. Do we think there is more room there or largely we have done, especially on that, a lot?

[Giridhar Sanjeevi, executive]

Yes, I think the way to look at corporate average is that now the corporate is now managing a network, which is significantly higher than what it was in the pre-COVID period actually. So therefore, whilst some absolute cost will go up rightly so because of investment in say, IT or investment in marketing from a productivity perspective, that 5.8% that we talked about is the kind of numbers that we're looking at. So productivity will remain at around 5.8% of top line and absolute costs may go up because of the growth in network, which is a treat.

[Operator]

Next question is from the line of Karan Khanna from AMBIT Capital.

[Karan Khanna, analyst]

So my first question, just talking about your international expansion. So most of your recent management contracts have been centered around the ascites. But Puneet, given your background, are there any plans to enter the European market also? And second, as a follow-up, how are the contracts in the international management contract structure versus the domestic market because you're completing some of the larger global hotels?

[Puneet Chhatwal, executive]

Yes. No, Giri here. I will take this question. So our international contracts are oriented towards 2 things. Number one, the areas where there is an Indian diaspora, that's why Middle East has been very strong actually. Dhaka also pleased to that because it's part of the subcontinent. And in the future, we do look at opportunities in say Southeast Asia, U.K., for instance, I think we can take more hotels beyond London, for instance, in Edinburgh or in Birmingham or Glasgow, I think possibilities are there. As far as Europe is concerned, there are interesting possibilities which come because of the Air India Vistara flights which go down actually. For instance, the CCS has got significant operations and are still have got significant operations. So there are certain cities, for instance, where a combination of Tata Group as well as the flights of Air India Vistara are going to create opportunities for say, 150 where the base occupancies then come from this business itself, actually. So that we continue to explore

[Karan Khanna, analyst]

Sure. And my second question, in the last Capital Markets Day, Giri you spoke about looking to make the corporate holding stock, et cetera. So if there's any development over the last 1 year on the thing that you would like to share?

[Giridhar Sanjeevi, executive]

No, nothing. No development, I think this is an area which we continue to work on. As you know, we have complex partnership structures in different entities. And we continue to engage in terms of -- with the partners in terms of possibilities. And I think we will advise as soon as we kind of have an alignment with any of these partners, I think it's really what in the hotels and Manara hotels and PM, I think these are the 3 main entities where we need to work on. And I think we will come back guys, we'll come back as and when we kind of have an understanding with any of these people and I think for the last 6 years I've been there, I think we've all been talking actually. So we'll see. We'll see.

[Karan Khanna, analyst]

Sure. And lastly, this continuing from one of the previous participants or just talking about the Delhi micro market city, there are a bunch of new hotels that are opening up over the next 2 to 3 years. So are there any active discussions that you're having in terms of signing management contract in that market?

[Giridhar Sanjeevi, executive]

No, not yet. But what I think that's an area where we'll continue to look actually. And if the development will advise at this point of time, I would simply say that we are focused on where we are. And as Puneet said, that those are cities Delhi where we will continue to have significant opportunities, and we will continue to expand actually. We can't have enough in these markets actually.

[Operator]

Next question is from the line of Pallavi from [Indiscernible].

[Unknown Analyst]

I just wanted to know, since you mentioned at the beginning demand exceeding the supply. So how long does this cycle run, We have 3 to 5 years more in this cycle to run here given that the cyclical business? And the second question would be any guidance on ROIC?

[Giridhar Sanjeevi, executive]

Yes, let me answer both the questions. So the first one is that if I look at the Indian macro, the Indian macro with the 6% plus kind of economic growth and also the growth kind of going beyond the key cities into interiors, I think basically means that the country is in good shape. That's come a -- number two, within that the consumption is quite a conventional team I'm really excited about. You will have short-term blips on consumption, what people have spoken about car-share covers and all of those, actually. But nevertheless, if you look at the demographics and the long-term consumption trends, we are very, very impact, actually. Younger people are spending, the dairy do are equivalent of India but also spending because the bit of empty nester actually. And longer term, if you see one of the things that speak about in the U.S. is that in the next few years, on the D2 was passed, and we want big wealth transfer to the energization, and you will see that in India as well. Therefore, I personally believe that the long-term trends are going to be extremely strong on the consumption actually. Hence, I think -- and therefore, I think I come back again, I repeat is that the story of hospitality comes back to the penetration actually. And hence, very confident in terms of that. As far as ROIC is concerned, as you have seen, our growth is largely coming through, what do you say, the asset-light growth? And in terms of capital allocation strategy, we have spoken about it in some of our meetings. Basically, there are 3 or 4 elements to our capital allocation strategy. Number one is that we do want to maintain a certain strategic cash reserve for an eventuality like another core GST or demonetization actually. And that I think, at this point of time, we are saying it will be about INR 750 crores. That's the first part. The second part on renovations is that we largely intend to make sure that renovations are in line with our depreciation. Actually, that is the second part of renovation, and that also helps us in driving profitability because these renovations and existing properties helped to drive asset management action. The third is the greenfield opportunities where we will either construct as Puneet was saying in terms of where we have land banks or the new projects that we have signed, the blushed and Kavadi and others actually. So there will be some capital, which will go to a greenfield actually. But in greenfield projects, we are open to take project debt especially in a view where we will probably take some sustainable debt. So that is something that we are open with actually. That's the third part, actually. And fourth is really the dividend while we have not yet announced a dividend policy linked to PAT, but you have seen that the dividend has jumped to INR 1 a share, and the payout this year is approximately I think 17%, if I'm not mistaken, actually, in terms of a stand-alone PAT of the consolidated PAT. So I think the capital allocation policy will continue to be that -- and hence, the reason I mentioned this capital allocation policies is that this ensures that we use our cash well and as -- and therefore, driving up ROC. And of course, the other portion that Karan asked in terms of simplification, as and when growth happens, those also will help to drive efficiencies on the balance sheet. So that's the way I would kind of answer. So I think ROICs are definitely improving and with sensible capital allocations, this will continue to do well actually.

[Unknown Analyst]

And I understand on the consumption side. So on the supply side, we have seen a state of -- I'm not in the 5 star, but more in the 4 and 3 and maybe where Ginger is. In case of signing agreements by our competitors in terms of they also go in the asset-light manner and the industry seems to be heading towards that. So just on the supply side, do we have any concern is the competitive intensity increasing?

[Giridhar Sanjeevi, executive]

No, no, no. I think India is a very big market with India being a very big market, I think it is not a winner take all market. I think what is good is that we have leaders as Puneet pointed out, we have been leading in terms of signings and openings action. And I think in the 3-star category Ginger kind of category that you spoke about, the opportunities are even greater, actually in terms of supply because you don't need an outstanding location for Ginger or that category of a hotel like you need in Taj actually, fundamentally you need a sensible business location. And the possibility of conversions are very much fast what has happened, especially because of COVID. See, I think if you are an unbranded standalone hotel, your ability to access marketing is very difficult, actually. So therefore, many of the smaller hotels are actually aligning themselves with one of the branded chains actually. So the opportunities for conversion are much greater there. And then I think we don't anticipate a challenge. Of course, while the supply shortfall is there, I think, of course, supply shortfall will never be a perineal factor. And I think as the industry is doing well, that gives a motivation in terms of people to start putting CapEx and staff kind of investment. And that will also happen. Right now, of course, the new capital investment in hotels is kind of still low the bank balance sheet banks are also sitting on debt with companies and some of the -- what do you say, the extra what you sales to credit line, BCBS this year. But I think eventually, supply will come, institutional capital behind supplies will happen. And at the lower end, we will see a lot more conversions, and we will continue to lead, India is a big country.

[Operator]

Next question is from the line of Anushi Bokaria from BB Wealth Management.

[Unknown Analyst]

I just wanted to understand the management contract is set or to this conference call, you have mentioned about how one as an case to have a 15% management fees or 15% plus 3% marketing costs. So can I just understand the overall portfolio level of how does the [whole plan] result?

[Puneet Chhatwal, executive]

Yes, sure. As we've always said, if you look at the typical management contracts, I think there are really 3 components, which is really the base, the incentive pay and the reimbursement actually Between the 3 components, I would say, it's about 6% to 7% absolutely, in terms of the total. And that is the pattern which continues actually. That's the pattern which continues. AMA is a different business where I think when we are really marketing arrangements, and these are small properties, actually. So we do charge 15% on management fees and another 3% in terms of marketing pass-through. So that continues. So there is no change in any of this at all actually. No change at all.

[Unknown Analyst]

So in a 6% to 7% fee that you are mentioning for all your properties like Taj and Ginger whichever you open it to the management contract model unless what is the base on exactly. So I just want to understand the model.

[Puneet Chhatwal, executive]

In Ginger, we do very few management contracts. We only do -- we mostly do operating leases or perfectly stated leases because Ginger 100-room property has a top line of say between INR 7 crores and INR 10 crores, as an example. Now if you -- when you do a management contract in Ginger, what happens is that the INR 40, INR 50 lakhs and INR 40 50 lakhs is a small fee amount in the context of a small top line. So what we prefer to do is to take the whole P&L actually is in terms of -- so when you take a whole P&L of, say, INR 10 crores and even if you pay 20% in terms of, say, 20%, 25% in terms of we lease charges to the owners. -- the balance you still end up making significant value. So it is not INR 50 lakhs that we we'll probably get around INR 3 crores so. And that is really the model that we're adopted in Ginger. And I think that's what it is. And other places Taj and Vivanta, we will take contract actually. But in Ginger, we don't take -- I mean, expect exterior property, like the one which is coming up in Bangalore Airport, we were is about, I think, 150 rooms plus, if I'm not mistaken. There, I think we are doing -- I think it's 200 rooms if I'm not mistaken. I think there we are doing a management contract. But other than that we don't do management contract in Ginger.

[Operator]

The next question is from Ranul Rajiv from DAM Capital Advisors.

[Rajiv Bharati, analyst]

So, on Slide 37, you used to provide this fixed cost as a percentage of revenue. Can you help me with that number, what is that the full year?

[Giridhar Sanjeevi, executive]

Fixed cost as a percentage of revenue. I don't think I have immediately, you can take it off line and sort of talk about it. I think today, I think we are more fixed like 37, just there. So 37 is the margin, 37 is the margin side. Why don't we -- Okay. If you look at this, like, see the raw material cost is totally variable. The payroll cost is a fixed cost, is really a fixed cost. And that absolute sums have gone up that the productivity is being another operating cost as the relevance of both variable and fixed actually because fundamentally, what's happening is that with the level of operations significantly going up, obviously, absolute costs are going up. But isn't that what we are trying to make sure is that the productivity is maintained and as you see from the chart to the end, the staff-to-room ratios are also being kind of protected without compromising on service quality actually. So that's the way to look at it, actually. But if you need more color on fixed cost maybe you can speak to [Nahan] and they will be able to clarify actually.

[Rajiv Bharati, analyst]

Sure. And Mr. Chhatwal actually mentioned about INR 100 crores in a stable state revenue of Ginger Santa Cruz. And what is the FNB to, let's say, room revenue ratio for that hotel as -- I mean what are you targeting as compared to, let's say, a regular Ginger?

[Giridhar Sanjeevi, executive]

See, Ginger will continue to be an accommodation only. But because it's a 371-room hotel, it will have one small banquet actually. So which means that I don't expect to [topline] SMB to be more than around 20% can be 25% as opposed to the typical 45%, 40%, 45% that we have, it will largely be accommodation driver. And since it's going to be accommodation driven, the room profitability are very high, actually. I think I can just one comment to the group. I think I will take one more question because I have to jump on a flight back to go to the airport. And we can continue the commutation, I think the rest are all available. So we can kind of reach out to us and we will kind of take questions separately. I can just take one more question, please. Thank you.

[Operator]

The next question is from the line of Nikhil Agarwal from EP Capital.

[Unknown Analyst]

One question. Your operating expenses have increased quarter-on-quarter. So just wanted to understand like why was PAT and was there some one-off? Or do you see this to continue in this change going forward?

[Giridhar Sanjeevi, executive]

So if you see the Q4 stand-alone number, where the other expenses have gone up by INR 20 crores. Also look at the top line in stand-alone, it has gone up by INR 70 crores actually. And therefore, it is largely to see growth in revenue. And I think in Q3, there was some reversal of INR 5 crores on online. So there is a little bit of a one-off actually. But other than that, I think the increase is proposed that has gone up because of operations and that one one-off of INR 5 crores which was reversed in the previous quarter. And I think if it's okay with you all, I would like to thank you all and conclude this conversation. As Puneet mentioned and as you have outlined on this call, I think we are coming off an excellent year in terms of all on performance. And as we look at ahead, we believe that the macroeconomic conditions, the hospitality is conditions in terms of demand supply, a strong consumption growth, I think all others well, we will continue to adopt the differentiated strategy, especially when it comes to diversification of top line and productivity and cost to ensure that we will be better than the market. Our balance sheet strategy was robust in terms of capital allocation. So we look forward to this, what do you say the future is confidence. And I think INR 10,000 crores of enterprise revenue, INR 1,000 crores of PAT, INR 1,000 crores of free cash flow was what we kind of demonstrated in the year that just passed, I would just conclude, let's say, expect more. So look forward to continuing the conversation. Thank you all for joining us this morning.

[Operator]

Thank you very much, sir. On behalf of Indian Hotels Company Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.