One of the Indian subcontinent’s most iconic brands, The Taj, started to lose its way in 2008 when the collapse of Lehman Brothers started a global economic crisis. That was followed almost immediately by a terrorist attack on the Indian Hotels Co. Ltd.’s (IHCL) flagship property and backbone in terms of profitability, The Taj Mahal Palace in Mumbai.
To make matters worse, IHCL chose that timeframe to launch a global expansion plan, making it the classic right idea at the wrong time story. Nonetheless, the company moved forward and even launched new brands like Vivanta and Ginger. But by February 2017, then-CEO Rakesh Sarna surprisingly reverted the portfolio to the single Taj Hotels Palaces Resorts Safaris umbrella. No matter, profit remained elusive and toward the end of last year it became clear yet another change in leadership was needed.
Enter Puneet Chhatwal, 54, who was running Germany’s Deutsche Hospitality after spending many years as a senior development executive at Rezidor Hotel Group. The opportunity to return to his homeland and run Taj was one he could not pass up. His arrival in November 2017 led to the revival of the multi-branded hotel business strategy, as well as Chhatwal’s pledge to restore greater profitability.
2022 aspirations
To regain its lofty position, Chhatwal understood that IHCL must grow, so it launched Aspiration 2022, a strategy to re-engineer margins, restructure the company and re-imagine the brandscape to dominate high-growth segments. Goals include growing the portfolio by 50% over five years (to 25,000 rooms from 17,000) and increase EBITDA margin to 25% (+3%-4%?revenue; +3%-5% costs) from 17%.
Since then, curtailing waste has been a focus, as well as growing market share, which has increased by a couple of percentage points on the revenue side. Profit in Q4 2017 saw a 70% increase over Q4 2016. With flow through at more or less 100%, after six years the company returned to profitability on March 31. Profit in Q4 2017 saw a 90% increase over Q4 2016. For Q4 2017-18, IHCL delivered an increase of 4.6 percentage points on EBITDA margins. In Q1 2018-19, it improved EBITDA margins about 2 percentage points. The second half of 2018 bodes well as the first two quarters of the year for IHCL are traditionally much slower than the last two quarters of the financial year.
The company has around 25 hotels in its pipeline totaling 3,000 rooms with plans to evolve from a 65% owned and 35% managed platform to 50-50. The Taj brand will be the focus of global growth, while the revamped Ginger brand will do the heavy lifting in India. Chhatwal says 80% of the growth in the near term will be domestic and 80% of that will come through Ginger.
The timing feels right to Chhatwal, despite geopolitical uncertainty. If anything does get in the way, he says it would be macro-economic factors.
“The Indian economy has very strong domestic growth. We have a lot of capital available and sources of capital,” he says. “We have Tata Group companies with which we can synergize and we are sitting on land banks we have not leveraged to date… Just growing will not make us profitable. The growth has to come from different brands at different levels in different locations to increase margins.”
The timing to return to India also feels right for the veteran hotelier. “I never left any of my Indian-ness behind. At the end of the day, I was born and raised in this country, so I hope the experiences that I have had (launching new brands with Rezidor and rebranding Steigenberger Hotels to Deutsche Hospitality) helps me become a better professional coming back here,” Chhatwal adds. “It doesn’t change with which part of the world you’re in. You still cook with water, right?”
