India’s luxury hotel company had a record quarter in the season that is usually its weakest, and raised its forecast for the year.
Indian Hotels had a fabulous quarter as room revenue at Taj Palace in New Delhi more than doubled between July and September, rising 132% from a year earlier. In a monsoon quarter, normally the slowest stretch of the year for Indian hotels, that is an exceptional result.
The rest of the Indian Hotels Company followed a similar pattern. The owner of the Taj, Vivanta and Ginger brands reported consolidated net profit of ₹349 crore, up 23%. Operating revenue rose 22% to ₹2,484 crore, faster than the 15% growth it posted in the April–June quarter. It was IHCL’s 18th consecutive record quarter, and first-half revenue rose 18% to ₹4,824 crore.
Management then raised its full-year revenue growth forecast to 15–17%, from 12–14%, and expects the hotel business alone to grow 17–19%. Companies rarely raise guidance at the halfway point unless bookings for the rest of the year already look strong. The October–March half brings the wedding season, peak domestic travel and the main foreign tourist months, so the upgrade signals confidence that strong demand will carry into the busiest period.
The most important figure in the results is occupancy. It rose to 82% from 75% a year earlier. Hotel revenue can rise simply because companies raise room rates, but this was about volume: IHCL filled many more rooms. Revenue per available room, the industry’s main measure combining price and occupancy, jumped 28% in the standalone business.
That has a direct effect on profit. A hotel’s costs, including staff, maintenance, electricity and property, stay roughly the same whether a room is full or empty. Each additional room sold therefore adds mostly to profit. IHCL’s standalone operating EBITDA rose 40% to ₹520 crore, and the margin widened by four percentage points to 38.9%. When occupancy is high, small revenue gains lead to large profit gains.
The company is also shifting to a lower-capital model. IHCL earned ₹156 crore in management fees this quarter, up 25%, from running hotels owned by other investors. This side of the business needs little capital, because IHCL provides the brand and the management while the owner pays for the building. Of the 670 hotels in its portfolio, only 390 are open, so the pipeline is long. It signed 47 new hotels and opened 20 in the first half alone. Ginger, its budget brand, grew revenue 24% to ₹193 crore with a 40% operating margin. IHCL also has more than ₹4,350 crore in gross cash, which gives it room to invest or withstand a downturn.
Two worlds
The results are striking against the broader economy. Retail inflation is close to 6%, fuel prices are high and the RBI has started raising interest rates. Large parts of the mass market are cutting back, as several consumer companies are reporting this season.
Affluent India is behaving differently. Weddings, corporate offsites, premium leisure trips and domestic holidays by higher-income families are all strong. The Leela, a rival luxury chain, reported revenue up 33% in the same quarter. Companies serving wealthier customers are doing well this earnings season.
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