Chalet Hotels Ltd (CHALET) Q2 FY23 Earnings Concall Transcript

Chalet Hotels Ltd (NSE:CHALET) Q2 FY23 Earnings Concall dated Oct. 21, 2022

Corporate Participants:

Sanjay Sethi — Managing Director and Chief Executive Officer

Milind Wadekar — Chief Financial Officer

Analysts:

Archana Gude — IDBI Capital — Analyst

Vikas Ahuja — Antique Stockbroking — Analyst

Anshuman Maheshwari — Auronova — Analyst

Sumant Kumar — Motilal Oswal — Analyst

Rajiv — DAM Capital — Analyst

Prateek Kumar — Jefferies — Analyst

Vikas Ahuja — Antique Stock Broking — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the second quarter and half-year ended FY ’23 Earnings Conference Call of Chalet Hotels Limited. [Operator Instructions] I now hand the conference over to Mr. Sanjay Sethi, MD and CEO, Chalet Hotels Limited. Thank you and over to you, sir.

Sanjay Sethi — Managing Director and Chief Executive Officer

Thank you, Rochelle. Ladies and gentlemen, good evening and seasons greetings from all of us at Chalet. To begin with, the presentation has been uploaded on our website. You may refer to it during the call or afterwards. I’m sorry, there’s been a little short notice between uploading of the presentation and the call, but we wanted to get the call done with before Diwali holidays. So quarter two has shaped that we expected it to, with a decent July, followed by a challenged August, and an excellent September. August had four mid-week [Indecipherable] three weeks affecting business travel and the month ended at an occupancy of 69%, and an average room rate of INR7,425. However, September had a brilliant rebound with occupancies coming back to 72% and a very strong average room rate of INR9,070. The highest this year, and one of the best September for the Company.

This accentuates the back to normal sentiment for the hospitality business. The portfolio F&B revenues continued to grow at a healthy pace, backed by increasing demand and revival of non-resin business in our restaurants. F&B revenue for the quarter was up 18% higher than Q2 of FY20, in fact, September F&B numbers were 32% higher than September of 2020. I’m glad to share that JW Marriott at Sahar, Westin Hyderabad, Four Points Sheraton, and Novotel Pune have exceeded the revenues and EBITDA of Q2 of FY20. During the quarter, [Indecipherable] 120 rooms and it’s wall room under renovation and hence did not meet the FY20 numbers. The revenue and EBITDA for hospitality division for the quarter was INR2.2 billion, and INR0.8 billion, which is 9% and 8% higher respectively than Q2 of FY20. For the quarter, consolidated revenue was at INR2.5 billion, with an EBITDA of INR0.9 billion, a growth of 4% and 1% over FY20 numbers, respectively.

Our H1 numbers indicate good growth over FY20, with EBITDA higher than 14%. Our H1 revenue was higher than the same period of FY20 by approximately INR190 million and the corresponding EBITDA was higher by approximately INR200 million, indicating a greater than 100% flow-through to margin. Our employee-to-room ratio remained stable throughout the quarter and was 0.9 at the end of September. This includes all employees including contract employees. On the expense front, payroll costs have been maintained at 14% of revenue as compared to 15% for full-year of FY20. The Q2 FY20 payroll cost percentage was 16%. Our utility expenses have been stable at 7% of revenue.

Some key highlights of our ongoing projects Westin 2, Hyderabad, with 168 rooms and the commercial tower at Hawaii are on track for completion in Q4 of the current financial year. The new commercial tower in Bangalore has already received part OC. Municipal approvals and amendments are awaited for the residential development at Bengaluru, we expect them soon. Our work is on site at whatever approval we received till date. The project of additionally the eight rooms at Pune and the conversion of mall at Bengaluru delayed briefly due to supply chain issues. The rooms at Pune are expected to be completed in the current quarter. Conversion of Bangalore mall to office space will be completed by end of the financial year.

On the office leasing front, the ORB at Sahar is now 94% leased out. At Bengaluru, we’ve already have an LOI in place for a tenant for 1.5 lakhs square feet. This bodes well on the leasing traction and the rate as I mentioned earlier, seems to be better than Bengaluru than we’d initially expected. The Bengaluru Metro has commenced trial runs on the Whitefield stretch and the Metro Line is expected to be open to public early next year. Improved connectivity is expected to generate higher demand for commercial office space in Whitefield. I’m happy to share that the license agreement with the Delhi International Airport Limited for the new hotel at Delhi had been executed. Initial design work is on schedule. This Marty hotel assets is expected to be completed by financial year 2026.

We continue to make steady progress on our ESG goals and proud to share that we are well ahead of our committed goals with Climate Group. As part of EV100 initiative, we now have EV charging stations operating at all our hotels. I’m also happy to share that the Company improved the renewable electricity ratio to approximately 80% of total consumption in our hotels for the first half of the year. [Indecipherable] Chalet Hotels has been listed amongst India’s Top 10 Best Places to Work for Women in 2022 by the Great Place to Work India. We’ve also been recognized as Best Workplaces in Asia in 2022 in the mid-size category.

Ladies and, gentlemen, overall I’m happy with the quarter-on-quarter progress of our performance. We expect further improvement in business traffic soon. That combined with the culmination of some significant CapEx initiatives, will have the Company make strong strides on P&L and balance sheet front in the coming quarters. Before I hand over to Milind, this opportunity to wish you and your dear ones a very happy Diwali. Milind, over to you?

Milind Wadekar — Chief Financial Officer

Thank you, Sanjay. Good evening, ladies and gentlemen. Let me now take you through the financials in some more details. Reported revenue for the quarter under discussion was at INR2.5 billion, which was higher by 4% as compared to quarter two FY20, on the back of strong recovery in areas and healthy F&B revenue. As we all know, quarter is seasonally the weakest quarter for the hospitality sector, current performance showed the strong recovery for the industry. Consolidated EBITDA was at INR0.9 billion, up by 1% for the same quarter of FY20. The EBITDA margin for the quarter was at 35%. Profit-after-tax was at INR157 billion, higher by 53% from Q2 FY20. The hospitality segment contributed to 89% of the total dividend Q2 FY23. Revenue from the hospitality segment was at INR2.2 billion for the quarter and EBITDA was at INR0.8 billion. The segment reported margins of 36.3%. Two of our major cost saves for hospitality, payroll cost was at 14% of the revenue in Q2 as compared to 15% in FY20, and utility costs as a percentage of revenue was steady at 7%.

The food and beverage segment reported healthy growth. Revenue grew by 18% in Q2 FY23 to INR743 million versus INR632 million in Q2 FY20. It increased its contribution to total revenue to 33%, down 31% in the pre-pandemic period of Q2 FY20. The rental and annuity segment contributed to 10% of total revenue for the company. The revenue and EBITDA from the segment were at INR244 million and INR198 million for the quarter respectively. First half of FY23 consolidated revenue was higher by 4% over pre-pandemic levels, led by strong performance by the hospitality segment. Effective cost management has resulted in EBITDA growth of 14% in H1 FY23 over H1 FY20. Credit rating agencies, that is India rating, And ICRA, during the quarter have revised upward our long-term credit rating outlook from negative to positive and stable respectively. This indicates confident and visibility of strong revival of the industry and our company.

Completion of the ongoing projects along with our asset management capabilities are likely to result in higher totals from the hospitality segment. Net debt of the company from March ’22 to September ’22 was marginally higher b, INR0.6 billion to INR23 billion. While the company spent INR2.3 billion on the CapEx during H1 FY20, it was largely funded by internal accruals. Hence, I would like to highlight that, interest cost for Chalet as of March ’22 was at 8.04% with some external borrowings on books. The interest cost as of September ’22, has moved up by 14 bps to 2.18. And the Company has repaid all its ECB loans. This against the backdrop of an upward policy rate in the region of 1.90 bps by RBI during the same period.

The company has CapEx plan of around INR6.5 billion to INR7 billion till FY24, that is for the next 18 months for it’s capital work in progress. This excludes CapEx on proposed second commercial tower where we are still seeking approvals. Business is well-funded with internal accruals, and available lines of credit. Considering all under-construction projects, the company has INR10 billion of capital work in progress across hospitality and rental assets as on September 2022. These investments are expected to generate revenue over next three to four quarters — balance sheet.

We have cash and cash equivalents of INR0.8 billion as of September ’22 and INR5.7 billion available lines of credit for general corporate purposes at planned CapEx. There has been no new subscription from promoters on 0% non-convertible redeemable preference shares during the quarter under review. The total subscription now stands at 2,000 million as of September ’22. Before we open the floor for question, let me wish everyone a happy and prosperous Diwali. Over to you Rochelle.

Questions and Answers:

Milind Wadekar — Chief Financial Officer

Thank you very much, sir. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Our first question is from the line of Archana Gude from IDBI Capital. Please go ahead.

Archana Gude — IDBI Capital — Analyst

Hi, thank you for the opportunity. I have two, three questions. Sanjay, can you help us with the revenue mix for Chalet in terms of domestic leisure, domestic corporate, and industrial travel for this quarter? Certainly, thank you for the question. You’re referring to the quarter, so let me just pick up the sheet for the quarter. So I’m going to give this to you in two ways, one is, how many room nights were occupy Indians and foreigners for the quarter and then compare that with Q2 of FY20. Our mix for Q2 FY23 right now is 67%, 33% favoring domestic. Our domestic guests recovery to FY20 numbers is 156%, 56 same higher than FY20. The recovery of foreign guests is at 64% to FY20 numbers. So we’re still short of 36% there. The other way to look at the business as a market segmentation, and, there’ll be more or less return to normal. Pre-pandemic, the transient segment which is the short-stay corporate segment, it used to be 76%, we are at 75% now. The group segment, which is basically others was at 14% pre-pandemic was at 17% and the contract which is largely airline crew was 11% pre-pandemic, it is at 8%. In general, the segmentation is back to where it used to be. The gap on the foreign travelers is still there. I was looking at the airline data a little while earlier today. While air traffic passenger load for the first five months, which is April to August for domestic passenger is up 91% to pre-pandemic, the recovery is at 91%, the foreign traffic is at 75%. We expect this to improve significantly coming in November, December on the back of two, three things, this season typically for foreign starts in November into India, and second airline connectivity is improving as we speak. Direct flights to US have been now been announced in November from Bangalore, Mumbai, and Hyderabad, which will help all these in future. Thank you. Sure, that was pretty helpful. My second question is, when I look at the hospitality segment, the growth is primarily driven by the higher ADR, while there is decline in occupancy. I do understand last quarter we had IPL which aided the occupancy. How we should look at this growth in Asia going forward given that Q3 and Q4 we should have for the growth in occupancy?

Sanjay Sethi — Managing Director and Chief Executive Officer

Archana I think, one way to look at this is that what’s the trend on the ADR. If you look at the ADR month-on-month trend, if we look at month-on-month ADR trend, I’m going to read you out right from April onwards because it’ll give you a sense of how things is going. April, the AD or ARR was 7,100. May it was 7,600, and June it was 7,600. July it was 7,300, August it was 7,400, September it’s climbed to 9,070, which is a massive jump. And this is basically indicator of things coming back to normal on corporate travel side, and we’re seeing similar rate, in fact slightly better rate in September in October on a month-to-date basis. So largely we’re trending towards 9,000-plus ADR and in H2, there should be clearly going upwards from here onwards, which means that we’ll probably be well ahead of ADRs of FY20 levels. So looking good on the ADR front.

Archana Gude — IDBI Capital — Analyst

Sure. Sanjay you spoke about maybe expanding leisure segment earlier and — of course we are happy that now we will be north as well. But nothing came up in leisure segment to expand for Chalet?

Sanjay Sethi — Managing Director and Chief Executive Officer

Few opportunities that we are pursuing. We will announce them at the right times.

Archana Gude — IDBI Capital — Analyst

Sure, lastly one question. If we’re spending INR250 crores for this Delhi hotel, what kind of ROS we’re expecting there?

Sanjay Sethi — Managing Director and Chief Executive Officer

I’ll let Milind answer that. But basically we look at two, three parameters on this Archana. We look at IRR on a project basis, IRR on equity basis, and the net present value of the project. We also look at ROCE on a year-on-year basis to see whether it meets our investment criteria. On all four fronts, Delhi has a pick. I’ll let Milind give you reference numbers.

Milind Wadekar — Chief Financial Officer

Archana, on IRR front, projected IRR we are looking at close to 17%, 18%. Equity IRR is north of 20%, and ROC stabilized will be closer to 12% to 13%.

Archana Gude — IDBI Capital — Analyst

Since we have close to INR700 crore CapEx lined up, is it fair to assume that our debt figure by FY24-end will be close to INR3,000 odd crore?

Milind Wadekar — Chief Financial Officer

Not really, Archana. We expect our debt will peak out at INR2,750 by FY23 and then we’ll start earning rentals and EBITDA from our commercial assets.

Archana Gude — IDBI Capital — Analyst

There will be some debt repayment you are seeing in FY24?

Milind Wadekar — Chief Financial Officer

Yes, there will be [Indecipherable].

Sanjay Sethi — Managing Director and Chief Executive Officer

Basically, we see debt bearing down from the next financial year. Internal accruals as well as the fact that the projects will come to combination.

Archana Gude — IDBI Capital — Analyst

Sure Sanjay, that was pretty helpful. Thank you so much and Happy Diwali to you and your team.

Operator

Thank you very much. Our next question is from the line of Vikash Ahuja from Antique Stock Broking. Please go ahead.

Vikas Ahuja — Antique Stockbroking — Analyst

Hi. Thanks for the opportunity and Happy Diwali to the management and everybody on the call. Sir, my first question is on the hospitality margins. We have seen a sharp drop. Can you help us with what were the key headwinds led to this fall? And secondly on seasonality on margins, second half is normally, if you look at history, it’s 500, 600 basis point higher than first half. Are we going to see same seasonality this time as well? That’s question number one. And the second question is on, if you can give us any color on pricing and occupancy in coming quarters on the basis of bookings you have yet to receive till-date? Finally my third question is on the sharp drop we have seen in occupancies of Mumbai in Q2. Partially I know IPL was there and secondly it could be largely because of rains as well. Have you seen especially for the Mumbai market, have you seen the pickup back to Q1 levels in October?

Sanjay Sethi — Managing Director and Chief Executive Officer

Vikash, thank you for your questions and thank you for Diwali greetings. Very quickly on the margins front, Q2 as Milind mentioned earlier, typically is little more challenged because of the revenue side of it, at pretty normal for Q2 to be weaker than Q1 that’s a natural cycle for the segment that we operated. Therefore that played out and that’s why you see this revenue is going down, and occupancies also automatically go down on account of demand going down during the monsoons in Mumbai. Mumbai did have a lot of rain, so did a couple of other cities, including Bengaluru and that affected but it’s pretty normal for this time of the year. So occupancy was lower on account of the regular annual cycle of occupancies. It was lower than Q1 because Q1 was padded up with the IPL business, true. On the margin side, driven by revenues for a bit and number two, we did have a couple of cost bunching up during this quarter, this is one-off costs. They’re not regular costs, for example, spoofing up of our hotels in preparation for the H2 that’s coming up. And second thing is there were some bunching up of cost on account of negotiations that we did with the unions in one or two of all of that, and it got bunched up from April to September in one quarter. Nothing to be concerned about, as I said, they were one-off costs. Going forward, we don’t give forward-looking numbers normally. Let me say that, H2 is always better than H1 quite significantly and, if things go the way they look right now, we should have a very good H2. Occupancies for most of good month and typically the good month in H2 are November, first half of December, last three weeks of January, all of February, and most of March. So we’ve got a fairly long period of good months ahead of us, and very confident that we will do well. On pricing and occupancy, going forward, I don’t want to give any indicative number. But you can benchmark them to previous cycles. I do want to highlight one thing here, in Q2, the Hawaii Hotel had 120 rooms out of action for renovation and occupancies. When we calculate occupancy we still count them in inventory. These are the renovations that are going on for the balance second half of the hotel. The banquet hall, the ball room was out of action for 39 days. So that’s all coming back in the near future and those are playing out in H2.

Vikas Ahuja — Antique Stockbroking — Analyst

Sure. Thanks. This was helpful. I’m not looking for guidance on margins on second half, just directionally what we have seen in the past the kind of improvement we see, this time it would be, there is nothing exceptional that first half had lot of pent-up that’s why margins will get structural improvement?

Sanjay Sethi — Managing Director and Chief Executive Officer

Yeah, there will be improvement, and the only thing I can say is that, you can look at the Q1 margin which are 41% in the hospitality division, and take a reference point from typically H2 is better than that.

Vikas Ahuja — Antique Stockbroking — Analyst

One last question on this payroll cost, which was around 13%, 14% in 1H. Now even your staff-to-room ratio in the presentation it mentioned that has come to 0.9%, but assuming second half occupancies are going to be much higher, do you think this ratio going up and we might see some challenges especially on the payable cost?

Sanjay Sethi — Managing Director and Chief Executive Officer

Target of 1.92% at the peak that will go up to. There is always some gaps in hiring, et cetera, that causes this to be at 0.9% or 0.8% in some point of time. But 1.92% is the optimal target that is kept in our mind. We don’t see that going up. Beyond that, keep in mind that whilst I said that payroll cost was 14% in this quarter, it was on a lowest revenue base, and that’s what probably affected from Q1. Secondly, compared to Q2 of FY20, it’s still 200 bps slower. Please keep that in mind.

Vikas Ahuja — Antique Stockbroking — Analyst

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Anshuman Maheshwari from Auronova. Please go ahead.

Anshuman Maheshwari — Auronova — Analyst

So we have a question regarding the commercial leasing business. We would like to understand what the visibility around commercial…

Operator

I’m sorry to interrupt Mr. Maheshwari, your voice is breaking up in between, could you please adjust your phone and use the handset?

Anshuman Maheshwari — Auronova — Analyst

Hi, is it better now?

Operator

Yes, it is sir. Please proceed.

Anshuman Maheshwari — Auronova — Analyst

Our quesiton is regarding the commercial leasing business, which is part of Chalet. Specifically, what would be the visibility around the project which are coming up in the commercial tower in Western Powai and the commercial tower in Whitefield, Bangalore?

Sanjay Sethi — Managing Director and Chief Executive Officer

Anshuman, thank you for the question. I’ll give you a brief update on this and then maybe [Indecipherable] share that with you. On Bengaluru, as we mentioned, we have [Indecipherable] for the building, some final work that’s pending, we should be getting that out-of-the maybe by third week of November. The clients that we’ve already signed up for the three floors will start at that point of time, and the other six months rent-free period, which is in line with what we had on our plans. Once we have the building completely sealed on the final side, we expect leasing traction to pickup. You’ve already got two more clients signed up. Just to give you a sense that one client that we signed up consumes about 25% of the new IT building this year. T

Hen there is the mall that has been converted to office. Between the mall and IT building, it’s about by 599 million square feet, and we believe that we should be able to release all of this out in the next three quarters or so, three to four quarters maximum. The rates are better than we expected it to be, ranging from 7% to 10% better than what we expected for the year. I’ll complete it, speak to you about Powai also. Powai is roughly around 760,000 square feet leasable space. We will complete this project by end of next quarter. The interest is high on the project. Once the building facade is up and the building [Indecipherable], we expect to start signing some deals. Right now we are making sure that we optimize the rental as against rushing into signing at a discounted price. But whatever the rental indications that we’re getting, it seem to be better than what we had expected earlier.

Milind Wadekar — Chief Financial Officer

Anshuman, the only thing I would like to add here is, infrastructure is getting upgraded. However, we will get connected with metro in next three, four months. Infrastructure around Powai is getting upgraded. The rentals could be higher than what we considered [Indecipherable].

Anshuman Maheshwari — Auronova — Analyst

For Powai, would you expect to make any announcements regarding clients that [Technical Issue]?

Milind Wadekar — Chief Financial Officer

I don’t see us making those announcements in next quarter.

Anshuman Maheshwari — Auronova — Analyst

Would you expect certain proportion of the area before the building is completed?

Milind Wadekar — Chief Financial Officer

We expect to lease some part, get couple of anchors in place before the building is completed.

Anshuman Maheshwari — Auronova — Analyst

Final question is regarding a point that he mentioned earlier in the call. I think you mentioned at the start of the call at 64% vis-a-vis FY20, you’re seeing international travelers coming in?

Milind Wadekar — Chief Financial Officer

Yes.

Anshuman Maheshwari — Auronova — Analyst

What is your outlook on foreign travelers for the second half of the year?

Milind Wadekar — Chief Financial Officer

I think we should be back to around between 90% and 100%.

Anshuman Maheshwari — Auronova — Analyst

That’s it from my side. Thanks a lot.

Milind Wadekar — Chief Financial Officer

What was driving this slowdown, one was the airline capacity. Airline capacity was taking [Indecipherable]. Between those two people who are finding it difficult to come in. Second, we had a bit of a Visa glitch in UK and couple of other countries in the last few weeks. You may have read about that. That’s been sorted out by the Ministry of External Affairs and we’ve actually posted Ministry of Tourism to push them to get this expedited, is getting sorted out.

Anshuman Maheshwari — Auronova — Analyst

Okay. Thank you. That’s it from my side, and thanks for the comprehensive answers.

Milind Wadekar — Chief Financial Officer

Thank you, have a good Diwali.

Anshuman Maheshwari — Auronova — Analyst

You too.

Operator

Thank you very much. Our next question is from the line of Sumant Kumar from Motilal Oswal. Please go ahead.

Sumant Kumar — Motilal Oswal — Analyst

So the occupancy for Q2 FY20 was 23%, and despite of lower inbound, we have shown a 71% occupancy. So with the recovery of the inbound travel in next two to three quarters, so can we expect the off-season number, what Q2 FY23 we have shown in the slides, the next year the Q2 ’23, we can surpass the occupancy 73% with the recovery in inbound travel? In Mumbai I’m talking about?

Sanjay Sethi — Managing Director and Chief Executive Officer

I don’t give forward-looking numbers, but there’s no reason why we won’t cross those numbers. I won’t put a number to it, but it’s pretty natural for second half to have better occupancy. And I think the year…

Sumant Kumar — Motilal Oswal — Analyst

No, no I’m not talking about second half. I’m talking about the…

Sanjay Sethi — Managing Director and Chief Executive Officer

Next year also.

Sumant Kumar — Motilal Oswal — Analyst

Yes the off-season number because you can’t compare the Q1 number with Q2 and Q1 had the higher occupancy because of IPL also. So I’m talking about the Q2 FY ’23, if the inbound would happen, the hour occupancy could surpass outbound because we have a higher foreign customer also?

Sanjay Sethi — Managing Director and Chief Executive Officer

True. On a same-store basis, that’s probably a real number.

Sumant Kumar — Motilal Oswal — Analyst

I think there is some renovation is also going on in Powai, so that has also impacted our ARR side?

Sanjay Sethi — Managing Director and Chief Executive Officer

It impacted occupancy and rates, both because of — wasn’t available.

Sumant Kumar — Motilal Oswal — Analyst

So this is adjusted…

Sanjay Sethi — Managing Director and Chief Executive Officer

It has taken on one segment couldn’t be occupied or used optimally.

Sumant Kumar — Motilal Oswal — Analyst

Okay. And this is adjusted occupancy correct, 71% on available rooms?

Sanjay Sethi — Managing Director and Chief Executive Officer

No, it’s on full inventory.

Sumant Kumar — Motilal Oswal — Analyst

Okay. So this is on full inventory not adjusted inventory occupancy?

Sanjay Sethi — Managing Director and Chief Executive Officer

That’s right.

Sumant Kumar — Motilal Oswal — Analyst

Okay. So then in that case, the occupancy would have been higher also?

Sanjay Sethi — Managing Director and Chief Executive Officer

That’s right.

Sumant Kumar — Motilal Oswal — Analyst

That is also a key reason for that. And now talking about the Bengaluru side, we have seen a significant ARR decline compared to pre-pandemic, still we are lower, okay? Is the recovery in the occupancy and still, when we see the pre-pandemic occupancy for Bengaluru is 80%, and we have seen recovery in the Pune and maybe because of some other reasons, but Hyderabad and Bengaluru is still lower than pre-pandemic. So when can we expect the pre-pandemic of the — we can achieve in the coming quarters?

Sanjay Sethi — Managing Director and Chief Executive Officer

Actually, Hyderabad is higher.

Sumant Kumar — Motilal Oswal — Analyst

I’m talking about, compared to pre-pandemic.

Sanjay Sethi — Managing Director and Chief Executive Officer

Yes. Hyderabad is…

Sumant Kumar — Motilal Oswal — Analyst

No, no, it is not higher. It is 72% in Q2 ’20. And currently, in the Q2 ’23, we have 69%.

Sanjay Sethi — Managing Director and Chief Executive Officer

No, you’re talking about occupancy or average room rate.

Sumant Kumar — Motilal Oswal — Analyst

I’m talking about occupancy.

Sanjay Sethi — Managing Director and Chief Executive Officer

Yes. So occupancy in Hyderabad is — right. I was actually referring to average room rate because, we mentioned average room rate in some part of the conversation. See Bangalore and Hyderabad was slow to pick up compared to the other cities. They have picked up now. And I can confirm to you that September and early part of October have been good.

Sumant Kumar — Motilal Oswal — Analyst

Okay. So have we surpassed pre-pandemic number in the current month?

Sanjay Sethi — Managing Director and Chief Executive Officer

I don’t want to give current month, but I can share with you, September. So September, the reason I can’t give current month because I’ve not made it public as yet. But September, Westin occupancy was 72%, and the rates were INR9,729.

Sumant Kumar — Motilal Oswal — Analyst

It is higher than pre-pandemic or at the level of — that of pre-pandemic?

Sanjay Sethi — Managing Director and Chief Executive Officer

It’s significantly higher on rev par basis.

Operator

[Operator Instructions] The next question is from the line of Rajiv from DAM Capital. Please go ahead.

Rajiv — DAM Capital — Analyst

Thanks for the opportunity. Maybe a repetition. But on the employee cost front, I remember we discussed this in Q1, and we discussed that as compared to, let’s say, Q2 FY22 we have had salary hike then, and the INR33 crore run rate is the going rate now. I’m just failing to understand from INR33 crore to INR35 crore, there is increase here, we discussed this earlier, there something one-off here?

Sanjay Sethi — Managing Director and Chief Executive Officer

One minute, I’ll just give you the operational numbers first. The operational numbers at hotel level, the staff cost in Q2 FY20 was INR320 million and Q2 FY23 INR306 million. This is in-spite of addition of one hotel, Pune hotel. There is a reduction of 4% when you look at the P&L on that front, and if you now minus Pune, the reduction is even greater. Thereby, rental cost to revenue percentage is 14% versus 15% in FY20, 200 bps lower. What you see in your numbers, probably includes the P&L attribution of corporate costs, including I believe visa costs would have been added this quarter right.

Milind Wadekar — Chief Financial Officer

Few senior management employees have been granted this off. A cost pertaining to that, which is required, prevailing accounting standards has been accounted there, and on the hospitality front our cost has gone up by INR1 crore.

Rajiv — DAM Capital — Analyst

This 37 is a sticky number or?

Milind Wadekar — Chief Financial Officer

[Indecipherable] as compared to FY20, it has gone down.

Rajiv — DAM Capital — Analyst

Q1, the INR306 crore, Sanjay mentioned, what was the Q1 number there? The equivalent number?

Sanjay Sethi — Managing Director and Chief Executive Officer

It was up by about INR30 crores.

Rajiv — DAM Capital — Analyst

Similarly on the other expenses side, Q-on-Q swing, what would that attribute to largely?

Sanjay Sethi — Managing Director and Chief Executive Officer

So, Rajiv, we have Marriott payables which are restated on account of changes in dollar price. There is some hit on that account. There were some brand change cost which is unaccounted. And as I mentioned earlier, there was some steepening of the hotels that we did. And therefore there were some cost attributed to that on the repair and maintenance side.

Rajiv — DAM Capital — Analyst

And then the last two of these, which is brand change and repair and maintenance, these are one-off or these will be again?

Sanjay Sethi — Managing Director and Chief Executive Officer

Maintenance was sort of one-off because we wanted to pull some of the properties before the coming season. We had a couple of areas shackles in [Indecipherable] we reopened them. So there was at one-time cost of reopening them. Basically if you want, it is like little bit of pent-up repairs and maintenance. Numbers are very large value. We don’t need to be worried about it.

Rajiv — DAM Capital — Analyst

Back to the KPI thing. In Hyderabad when we see that on a QoQ basis, 6,900 has gone to 8,900 vesrus let’s say, Bangalore where the occupancies are largely similar as compared to Hyderabad, but the jacking up of rates is not of a similar quantum. While I think the industry is working with the mindset of keeping the rates or getting the rates higher as of now at least?

Sanjay Sethi — Managing Director and Chief Executive Officer

When I mentioned the rates in September, I mentioned only Hyderabad. I can share with you the Bangalore rates also September was 8,819. You’re seeing the combined quarter rates, but the trend is going upward very sharply. Bangalore [Indecipherable] in September.

Rajiv — DAM Capital — Analyst

On that ALC thing, have you got the sign-up from the Board, approval from the Board to convert into rooms?

Sanjay Sethi — Managing Director and Chief Executive Officer

In principle, we have a sign up. We’re working with some designers to design that. We are looking at now adding 141 rooms to the existing 391. This will make it a 532 room property. That should be fairly large. The demand seems to be there with the recent weeks. This is about a project that will take anywhere between 12 to 15 months.

Rajiv — DAM Capital — Analyst

Sure. Thanks a lot. All the best.

Operator

Thank you. Our next question is from the line of Prateek Kumar from Jefferies. Please go ahead.

Prateek Kumar — Jefferies — Analyst

Good evening sir and wish you happy Diwali. My first question is on foreign tourist travelers. So you mentioned for the quarter two, we are short by around 36% versus normal. How would that stack up for specifically for the month of September?

Sanjay Sethi — Managing Director and Chief Executive Officer

I don’t have the month-wise data with me. But as I said, I think H2 we should be around the 90% mark recovery which means 10% short.

Prateek Kumar — Jefferies — Analyst

So this is based on — I mean expectations of 90% is based on forward bookings?

Sanjay Sethi — Managing Director and Chief Executive Officer

Movement in the recent months, plus the improvements in the available flights are coming into the three cities. Mumbai, Hyderabad and Bangalore.

Prateek Kumar — Jefferies — Analyst

Also from some of your forward-looking bookings in your hotels?

Sanjay Sethi — Managing Director and Chief Executive Officer

Forward-looking booking we get a Visibility as far as individual travelers are concerned of only around two to three weeks. But the groups have a longer horizon. But all indicators, the interaction that we’ve had with bookers, and the admin heads of companies indicate that the foreign travel will be back very soon. As I mentioned, there were two or three bottlenecks to foreign travel to happen. One was flight that’s getting resolved. We’re getting now direct sites to Hyderabad, Bengaluru and Mumbai from US. In fact, Hyderabad and Bangalore are from the West Coast which is the primary target market for us. Mumbai is expected to be in New York as well as west cost. That will help immense speed, flights to UK both increased. We had the first 380 of Emirates land in Bangalore last week. That’s becoming now three times a big flight, 380 brings a lot of people at one stop. All this will help improve business. Bangalore also opening a second terminal. Terminal 1 was literally bursting [Indecipherable] till now. By January, we expect the opening of the second terminal in Bangalore which again encouraged more airlines to bring in more flights into the city. So all that will help. Visa was a bit of a bottleneck. We are pretty sure the Ministry of External Affairs will sort of sort that out pretty soon.

Prateek Kumar — Jefferies — Analyst

My second question is on your cost line items. Are there any cost line items during COVID internally are not active in or there some other maintenance cost or some other one-off costs which you anticipate over the next six months for our business?

Sanjay Sethi — Managing Director and Chief Executive Officer

I don’t think anything material. As I said, we stopped the properties in the last quarter because we couldn’t do that in quarter one because occupancies were so high. We took the opportunity of slightly lower occupancies to spruce up the hotels, that’s happened one or two outlets were shut, we opened them, work is happening on them right now as we speak. I don’t think there’s any major cost that will come up, that will be material in nature. And I don’t see any pent-up costs from COVID. All of that has been accounted for.

Prateek Kumar — Jefferies — Analyst

And lastly on ADRs, occupancies. Anything you feel like during festive season. Some of the industry segments or consumer discretionary segments have indicated off some kind of slow down in terms of festive season expectations. Is it something which can also have an impact on demand destruction at higher prices for hotel segment?

Sanjay Sethi — Managing Director and Chief Executive Officer

Two things happen, in our portfolio that we have, because the primary business-driven travelers have come to hotels. We do get affected when there are holidays, especially the mid-week and I did give an example that in August we had four mid-week holiday spread over three weeks, which did disrupt the business, and that’s why the occupancy in August was down to 69%. But then it picked-up in September when we had no holidays. Similarly in October, we have Diwali coming up, we will get affected by those holidays and all of them are mid-week, long weekend sort of holidays. But November looks completely clean, looking very strong, first 20 days of December is looking very strong. 8th, 9th January onwards — for January looking very strong, all of February is looking very strong and most of March looking very strong. That’ll help occupancy and rates up. I think one thing that I can share with you, I think I did touch upon it when I was asked this question on rate, the general goal that we’re working with like our hotels is to quote about 40% higher than last year on the RFP accounts. We may end up closing it about 25%, 30% higher, but the first quotes have gone at 40% higher than the last year. Those RFP accounts are the big concept. And we believe that will give material push for the ADRs in the coming year. And these are January to December cycle. So quarter four of this year will also get the benefit of that. And then three quarters of next year.

Prateek Kumar — Jefferies — Analyst

Would that give maybe — some of the competition in your markets?

Sanjay Sethi — Managing Director and Chief Executive Officer

I mean that’s the general line of pricing that most hotel companies are following.

Prateek Kumar — Jefferies — Analyst

Sure. Thank you, sir. These were my questions.

Sanjay Sethi — Managing Director and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question is from the line of Vikas Ahuja from Antique Stock Broking. Please go ahead.

Vikas Ahuja — Antique Stock Broking — Analyst

Hi, thank you. I just have couple of follow-up. Firstly, any color on price negotiations [Indecipherable]. And then we talk about the contract with our global customers, are they largely in UIC towns and we keep the currency benefit fully or in the contract there is a flaws we we need to pass it back to the base?

Sanjay Sethi — Managing Director and Chief Executive Officer

I just spoke about the price negotiations that we are working on right now. We are now at the middle of the RFP negotiation period. And the hotels have gone out with 40% increases on the RFP that we’ve given, we may close lower than 40% but it should be, as I said, a material increase in the rates that we end up contracting with people. So expect a higher rate from the corporate. And on your dual pricing or the dollar pricing part of it, India stopped doing dual pricing I think about a decade back. We quote in rupees, basically. And that gets converted to dollars. There’s no benefit or any adverse effect expected out of the dollar pricing.

Vikas Ahuja — Antique Stock Broking — Analyst

Sir, just one last thing. I think [Indecipherable] also asked this question on the Southern market, on the Southern market, Bangalore, Hyderabad, it’s like all of your hospitality revenue. When we are talking about comparing the occupancy with forward level, maybe that number was 72, 73, maybe next year, isn’t that number is going to be materially higher because considering when we talk about old type ecosystem that is still following it from home and there is a huge pent-up demand especially in terms of travel, especially in these tech companies. Is it a fair understanding maybe next year we may see a pretty strong demand, like Hyderabad and Bangalore, what we are seeing currently in leisure or maybe in Mumbai?

Sanjay Sethi — Managing Director and Chief Executive Officer

Vikas, I don’t want to give you forward-looking numbers, but your logic is sound Southern markets will do well as the IT business kicks in again. It’s already kicked in as I said pretty sharply. It hasn’t kicked in at from foreign travelers coming into those cities, but that was driven not by the intent upcoming, it driven by the bottleneck of travel on the L&T, that’s getting sorted out. We see that picking up pretty sharply.

Vikas Ahuja — Antique Stock Broking — Analyst

Thank you.

Operator

Thank you very much. Ladies and gentlemen, that was the last question. I now hand the conference over to the management for closing comments. Over to you, Mr. Sethi.

Sanjay Sethi — Managing Director and Chief Executive Officer

Thank you so much ladies and gentlemen. Thank you for taking time off on our pre-Diwali Friday evening to listen to us. Wishing you and your family and your dear ones a very happy, prosperous and safe Diwali. Thank you.

Operator

[Operator Closing Remarks]