Leela Hotel Expansion Goes On Despite Its Shares Declines.

March 13, 2009 - PRLog -- Despite these alliances, HLVL's share prices have been constantly declining since January 2008. From Rs74 on 1 January, the prices have come down to Rs28 on 1 November. "But this is not just the case for us. Everybody's shares have similarly fallen," defends Nair. "We are still the market leaders in Bangalore, Goa as well as Kovalam," he says, adding that, from October onwards, things have picked up again. "We are fully booked now and things aren't bleak any longer. We are hoping to close FY 2009 at 10 per cent higher revenues than last year," he says.

Even competitors don't feel that HLVL is the only company going through a bad phase. Dinesh Khanna of the Holiday Inn group feels that there has been a 10-15 per cent dip in all businesses, including hotels. "Moreover, the Leela group is expanding on the fast track; so, there is immense pressure for capital expenditure," says Khanna. "However, while the Leela Bangalore, responsible for almost 50 per cent of the revenues, may earn about 15 per cent less because of the airport's shifting as well as the general slowdown, new IT centres such as Chennai and Hyderabad have come up," says Khanna, adding that the room rates for Bangalore might have been Rs25, 000 per day for the premium rooms in the peak season, but the ARR has been around Rs18, 000. Currently, the ARR for Mumbai is Rs12, 000; Goa, Rs10, 000; and Kovalam, Rs7000, indicating an overall 5-7 per cent drop.

It is important to note that HLVL's EBIDTA margins are better than those of the three other major hotel chains in the country - Indian Hotels, EIH Hotels and Asian Hotels. While Indian Hotels' margin is the lowest at 24 per cent, EIH's is 31 per cent; Asian Hotels' is 35 per cent. HLVL stays at the top with 38 per cent.

Debt in control
While other hotels in Goa and Kovalam reported losses in the April to September period, Leela managed to garner a 30 per cent growth, says Sanjoy Pasricha, vice-president, sales and marketing, HLVL. Also, the Leela at Kovalam recently became the first Indian beach resort to get the ISO 22000 certification, a food safety standard. "Bangalore is also almost on a par with last year's revenues," says Pasricha. "Only the Mumbai property has come under pressure, as six new hotels have come up in the same region in the last two years, increasing the number of rooms available in the area. Occupancies fell down by 7 per cent, but things are better now. We have also completely renovated the Mumbai property at a cost of $45 million (about Rs210 crore)," he adds.

V.L. Ganesh, chief financial officer, HLVL, explains how the company has its debt payments in control and is looking at a bright future with the opening of the first phase of the new Leela hotels. "Foreign currency convertible bonds (FCCBs) have funded the first phase of the new properties, along with internal accruals from operations," says Ganesh. These FCCBs are payable over a five-year period - in 2009 for the dollar ones and in 2010 for euro. "For the next phase, we are hoping that the internal accruals from operations in these new hotels will be enough, so that we don't have to resort to any equity or debt. We have about Rs1,300 crore in debt because of these new projects, but we're meeting our debt schedules on time. Also, these are long-term debts payable over a period of eight years (due in 2015); so, everything is quite healthy," he adds.

HLVL did go through a tough time when they had just opened their Bangalore property. "After 9/11, nobody was ready to fund our new hotels. However, new reforms in the shape of foreign investments came up in 2005 and the influx of foreign tourists went up to almost five million. Things started looking up after that and room rates went up by almost 50 per cent. We took over Kovalam in 2005; acquired land in Udaipur and signed the Gurgaon deal in 2006," he adds. Tourists' inflow to India is still paltry, when compared to the other countries. By 2010, Dubai will be looking at 10 million tourists, China will have 30 million international visitors and Indonesia 12 million. So, India is still far behind. (World Travel & tourism figures put inflow of tourists to India at 10 million).Nair is optimistic about the industry as well as India. I want to develop tier two and tier three towns and pilgrim centres as well. I am also looking at the north-east states such as Assam and Arunachal Pradesh. We also want to build 300 rooms and a convention centre in the land adjacent to Leela, Mumbai, which is owned by the airport authority," he says.

With 400 rooms, Leela's Chennai property will be the largest in the city, and will face the Bay of Bengal. "No other hotel even has 150 rooms. Delhi's location in upmarket Chanakyapuri is also prime and like all our properties, has a major element of Indian culture and architecture," says Vivek.

"The larger hotel chains have been suffering less as they have 50-60 properties including overseas ones. Leela has fewer hotels, at least as of now, so a comparison is not fair," says Khanna. "Share prices will soon stabilise and the high season has just begun. I don't think they need to be too worried," he adds.

Vivek is positive about Leela's growth and expansion plans. "It has been a little capital-extensive in the beginning but we will take over in a few years," he says. "Our Q2 results are lower than what we expected because of mark-to-market losses on foreign currency term loans - close to Rs14 crore. But being a mixed bag of business hotels and resorts has helped a lot. Moreover, domestic tourists have not let us down and even international tourists from faraway places like Russia and Estonia are interested in beach holidays, as they are less affected by the global slowdown. All in all, we are absolutely optimistic about the industry as well as the economy," concludes Nair.