Sectoral outlook 2022: 10-year price records broken in the third quarter of fiscal 22, says Amit Jaiswal, CFO, Royal Orchid Hotels
Amit Jaiswal, CFO, Royal Orchid Hotels, talks about Omicron and its impact on company operations, cancellations, price movement, discusses Vascon Engineering’s expectations to Budget among other things in a frank conversation with Swati Khandelwal, Zee Business. Edited excerpts:
Q: To what extent has the increasing number of cases due to the Omicron impacted your booking, if so, how long will the effect be there?
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A: Corona is increasing right now and there is no doubt about it and if you look at the numbers it is increasing very quickly. But the good thing is that there is no need for hospitalization. It affected activity – the type of activity we saw in October, November, and December (we had pretty solid activity) – and corporate bookings, among other things, declined. I believe it’s going to be a phenomenon of a month or a month and a half, after which the revenge tourism will start again and people will come out and start traveling. I would like to say that the Omicron version of CORONA is actually a release and CORONA will end after that. I think this year is going to be a very good year for the travel and tourism industry. If we take this month off, it will be a pretty good year for the travel and tourism industry.
Q: Have you seen any cancellations due to the increase in cases?
A: The trend was pretty good and even in January, all of our hotels in leisure destinations were fully booked. Even business hotels were picking up. But the current situation is such that cancellations are occurring at leisure destinations where people were traveling with their children but cancellations have not occurred for adults. However, slight cancellations were noted for family bookings. When it comes to business hotels and weddings, the restrictions have reduced the number of people as the number of guests was limited to 150-200 people compared to 400-500 people, which used to be. In the MICE segment (Meetings, Incentives, Conference / Conventions and Exhibitions / Events), which was generally quite good in January and February, people are postponing their plans because they are alert. Thus, the corporate business and MICE segments are postponed. We expect business to pick up as soon as the situation normalizes, things are expected to return to normal by mid-February or its end.
Q: How much have prices increased in the midst of increased demand and what kinds of trends are visible in terms of prices?
A: Regarding the pricing, if it is separated into two parts one is the leisure price and the second is the business hotel pricing. Leisure pricing reached a level in the previous quarter (T3FY22) that broke all records for the past 10 years. Never had awards like this and the records for the past 10 years have been broken. It has gone so high that prices have even gone up by 300% in some hotels. Business hotel prices improved slightly over the past quarter, but they were still 10-15% below pre-COVID levels. We expected prices to hit pre-COVID levels this quarter, but because of Omicron, it looks like we’ll have to wait a bit longer. In fact, the business hotel occupancy rate was 75% in the previous quarter and I think it could be hit by 10-15% this quarter. But it will improve after that. In terms of profitability, we were one of the few hotel companies that recorded a profit in the September quarter. We have high expectations for the December quarter, which will be reported once the account is finalized, but the December quarter results will be very good. However, the March quarter will be affected a bit.
Q: Going forward, what will the company’s philosophy and strategy be and will you focus more on leisure hotels? What is the separation between leisure and business today? Also, the last time you told us that the company was going to increase their number of hotels from 70 to 100. Where are you going to focus in terms of geography and segment?
A: Leisure hotels are going to do very well over the next 2-3 years, there is no doubt about it because before people were leaving India, but now they are roaming India. Domestic tourism has increased significantly and is expected to increase further. The next two years will be very good for leisure destinations. So we are focusing on leisure destinations, but yes, following the asset-lite model, we will be looking forward to hotel management or revenue sharing mechanism. We have 12-13 hotels in the pipeline and I think we will be able to exceed the number of 100 hotels by March 2023.
Q: Around August, the company reached an agreement with Vascon Engineering to acquire the remaining 50% stake in Cosmos Premises Pvt Ltd. of the RSDPL. The deal was to be concluded within 60 days. Is it over? Furthermore, what kind of reconciliations will we see globally and nationally?
A: The deal has been completed, but the shares have not yet been transferred. The financial transaction closed. With that, now we are 100% owners of the hotel that we have in South Goa. We have ceded our land to Pawai, which will be developed by them. So one of the reasons it’s good for us is because Goa is a good location and there is a lot we can develop there. Our debt assets have moved and this will significantly increase our profit margin in the coming quarters.
Q: During the second quarter results, the company issued a termination letter regarding one of your rented hotels and the matter was pending arbitration. What’s the update now?
A: The arbitration process is underway, the arbitrator has referred it to the conciliator, we are in contact with them. Even we want to continue with the hotel if we get better conditions.
Q: The budget is fast approaching. So what do you expect from the central government and the budget this time around?
A: The government should think that 9% of the country’s GDP comes from the tourism sector, so it should give it a tax benefit, which will further increase productivity. The company, which has headed to destinations like Sri Lanka and Thailand, among others, will remain in India, meaning the government will collect more taxes. So, it is a call from the government that in order to help the tourism sector, it should reduce the tax system a bit, so that the business goes up. This will be my appeal to the government.