Indian Hotels Company Ltd (INDHOTEL) Q2 FY23 Earnings Concall Transcript

Indian Hotels Company Ltd (NSE:INDHOTEL) Q2 FY23 Earnings Concall dated Nov. 10, 2022

Corporate Participants:

Puneet Chhatwal — Managing Director and Chief Executive Officer

Giridhar Sanjeevi — Executive Vice President and Chief Financial Officer

Analysts:

Sumant Kumar — Motilal Oswal Financial Services — Analyst

Achal Kumar — HSBC — Analyst

Deepika Mundra — J.P. Morgan — Analyst

Shaleen Kumar — UBS — Analyst

Prateek Kumar — Jefferies — Analyst

Nihal Jham — Nuvama Institutional Equities — Analyst

Vikas Ahuja — Antique Stockbroking Limited — Analyst

Kaustubh Pawaskar — Sharekhan — Analyst

Jayesh Shah — Ohm Portfolio Equi Research — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Indian Hotels Company Limited Earnings Call, Q2 FY 2022-2023, being hosted by Mr. Puneet Chhatwal, Managing Director and CEO, IHCL; and Mr. Giridhar Sanjeevi, EVP and CFO, IHCL. [Operator Instructions] Please note that this conference is being recorded.

At this time, I would like to hand over the conference over to Mr. Puneet Chhatwal. Thank you. And over to you, sir.

Puneet Chhatwal — Managing Director and Chief Executive Officer

Good morning, everyone. Thank you for joining so early.

It is our pleasure to walk you through our responsible profitable growth continuation and the journey, presenting the second quarter results. Firstly, this is the best ever second quarter that we have had when we went and checked more than a decade of the results that have been presented. Our revenue came in at INR1,258 crores, which is a 22% increase over the same quarter last year, or I would say pre-COVID level, with a EBITDA of INR319 crores, another 76% increase and a EBITDA margin of 25.4%.

Profit after tax of INR122 crores, strong free cash flows and we were net cash positive of approximately INR388 crores. Our journey on margin expansion and flow through continues. As you can see when we embarked on giving this kind of guidance way back in 2018 on the journey of aspiration 2022, our guidance and our aim was to get to 25% margin. And Q2 being the weakest of the four quarters, we’ve been able to deliver that 25% already in this, following a very strong Q1 at 31%. And the same thing is on our PBT. Our PBT is positive for the first time in last 11 years. And the PAT is also at a healthy level of INR122 crores.

Further, what is making all this happen? Of course, we have an upswing, which is happening. Business is coming back to normal, especially on the domestic front. There is still a lot of expectation in terms of international arrivals going back to pre-COVID level as of early ’23. If we see the tourism breaking news this morning, that’s what was stated that the expectation is, as of Jan, the international incoming will go back to the pre-pandemic level. But also there are other activities at the international front. We are expecting more conference, meetings, incentives to follow.

The second reason that we have witnessed is a very strong revenue growth index. Our RGI in most of our key markets is already above 30%. That means we’re performing 30% better than the comp set. And in certain markets, like Rajasthan, Goa, Kerala, it’s almost double. Our not like-for-like growth is also assisting us with the change in the business model. Our signings have seen a very strong momentum. Even this year, we are year-to-date at 16 new signed contracts, added to the pipeline.

Nine openings have happened. We expect nine more hotels to open. And our pipeline today is more than 8,000 rooms. So the pipeline with the total — of the total portfolio corresponds to 30%. And if you were to look at as a percentage of the number of rooms in operation, we’re getting close to 40%. So it’s a very strong pipeline. And even if there was some washout, which there always is, we’re still looking at a very healthy growth momentum going forward based on a fee-based driven model, so that we are in line with the guidance that we’ve given on AHVAAN 2025 of having a balanced portfolio of 50% coming to owned and leased and 50% through fee-based business.

Some of our recent openings include the Sawai Man Mahal on the grounds of Rambagh and other palace, which has opened the Taj Wayanad in Kerala, Vivanta in Shillong and also Vivanta in Ahmedabad. We also have a two state-of-the-art Ginger properties that opened in two very strategic locations. One is Ginger in Ahmedabad and the other one is in Mumbai, Ginger in Goregaon.

In order to strengthen our brands further, we have been continuously innovating with new concepts and also polishing and upgrading our legacy brands like the Chambers, which we have mentioned. But of the new launches, we recently launched a new Indian concept called Loya. It has launched at Taj Palace in Delhi. It will be followed by Taj West End, Taj Mahal Palace in Colaba, and Taj Lands End over the next nine months to 12 months.

Another partnership we had entered into just pre-pandemic with Paper Moon from Italy, has also opened up at the Fort Aguada. And we are very excited to bring this Italian concept, which complements our very well-established Trattoria in Mumbai, which we are also planning to expand in the next quarters. On our new businesses, this is how we have assisted our traditional businesses. And you will keep hearing more and more about our new F&B concepts, new launches, as we move into the third quarter related to our backbone, which is about Taj brand or our traditional portfolio under SeleQtions and Vivanta.

But under the new businesses, Qmin is beginning to be a nicely established and positioned brand, which has moved from not just home delivery, not just trucks, but the Qminization of Ginger, which we said, 8 of those restaurants have been completed. We expect now that the portfolio has reached 25 QSR outlets, 11 which we took over from Tata Cha, eight in the Ginger, the others in the Connaught in Delhi, the Ambassador, the President, Taj Wellington Mews, the one in Guwahati, taking the total to 25. And then the Qmin business has already crossed a GMV of INR125 crores since we started.

So, we are very pleased with the contribution of Qmin and the way it has evolved. And in these new businesses, we would also like to mention ama. Ama, our homestay has now crossed the portfolio of 100 homestays with 57 in operation, the others in various stages of development and in the phases of getting the licenses. And some of very beautiful homestays that got added to the portfolio, especially one in the Lonavala area and another one, a new one in Goa in Bastora called Hacienda De Bastora.

Also very pleased in the new businesses, we count Ginger. Ginger had a very good quarter, and a very good H1. If we looked at Ginger from an H1 perspective, we’ve had revenue of INR143 crores and EBITDA of INR56 crores and a margin of 39%. And Ginger has been PBT positive for each of the six months of the first half of the year. We are expecting a lot of hotels to open under Ginger before the end of the financial year. As I mentioned earlier, we are expecting to open nine more. And of these nine, we expect five properties to be branded as Ginger-branded properties.

Why we also called responsible profitable growth because a responsible business is at the core of anything that we do as a Tata Group company. And our 2030 goals just for the sake of reminder to all of us is 100% wastewater recycling, 100,000 youth to be skilled for livelihood. Now these 100,000 youth will have at least 25% women. This is the target we have set for us. 50% energy from renewable sources, 100% hotels EarthCheck certified, 100% hotels go beyond single-use plastic and 100% adoption of UNESCO’s Intangible Cultural Heritage projects in geographies that we operate in and 100% business meetings and conferences to go green. And we are calling these Innergise Green Meetings.

Some of the projects that are underway is you must have read about it is whether — it’s a collaboration with Tata Power to have EV charging stations, which is now 225 plus and the count keeps increasing every day. Renewable energy sustainable cooling projects with IFC from Washington are preserving cultural heritage strong, 10 projects underway and the latest one being in Orissa, our traditional one being in Madhya Pradesh in Chhindwara. And also, our focus remains on what — the campaign which we did, which we call ‘She Remains The Taj’ in diversification on women referral program on skills for women. And we have also collaborated recently with the Orissa Government in Bhubaneswar and in Assam, to build a skilling center. And we are currently having 13 skilling centers and 1,200 students being trained. We have started a new newsletter internally to just inculcate, deeply embed the whole thinking and the whole way of doing business under our Paathya, that’s what we call the program and we are calling it Paathya Vani.

Moving on to some of the key trends that are emerging. I think — let me just give you a brief on that before we open up for questions. HVS ANAROCK came up recently with a Q3 outlook of demand outpacing the supply. But they said the demand on a RevPAR level should have a double-digit increase. From whatever we have seen over the last six weeks in this quarter, we can confirm that we are witnessing similar trend. This is very critical because Q3 is the strongest quarter. And if we have that growth and if it’s mainly driven through average room rates, then the flow through would be higher. So that’s one. And if we turn the clock back to almost 10 years ago, the number of branded hotels supply in operation almost equaled the number of branded hotels supply under development, under construction or in pipeline. That number has come down significantly and it’s currently at 40% of the number of branded rooms in operation. So, that should help.

The second key trend on the demand generators is air passenger traffic is expected to reach pre-pandemic level with very strong growth, which is also coupled. It’s aided, it’s getting help from both recovery and corporate travel, as well as domestic leisure which continues to be strong. And international travel has also picked up strongly. We can all see on the cost of tickets that the demand there is also very strong.

Further, as of the middle of this month, we expect a very strong wedding season this time to kick in, which will also be further assisted by India’s taking over the Presidency of G20. And we expect more and more delegations, more and more events happening, which should help the sector, not just Indian hotels, rather the entire sector should benefit from it. Yes, we still maintain our guidance of Ahvaan 2025, based on all these trends to achieve what we have guided on a 300 plus hotel portfolio, a balanced portfolio, 50% owned and leased and 50% driven through fee-based business, a 33% margin at the end of the cycle and no corporate debt, zero debt at corporate level in terms of running business.

And all in all, I would say, yes, the journey is exciting because it seems we are at the beginning of an upswing in the cyclicality of our business. And the way we are positioned with the operating leverage of the owned and leased portfolio, coupled with now the ever increasing size of our asset-light growth, together with the new businesses which are high-margin driven businesses, we feel confident in achieving the guidance that we have provided unless anything like a COVID-19 or any other event comes in the way. But even there the management will continue to navigate as we have done in the past.

With that, I would like to open up for questions unless Giri, you want to add something?

Giridhar Sanjeevi — Executive Vice President and Chief Financial Officer

No. No, sir. I think let’s do the questions because of the time cap.

Questions and Answers:

Operator

[Operator Instructions] The first question is from the line of Suman Kumar from Motilal Oswal. Please go ahead.

Sumant Kumar — Motilal Oswal Financial Services — Analyst

Yeah. Hi, sir. Good morning. My question is regarding the occupancy for U.S., U.K., Delhi and NCR and Rajasthan is still lower than pre-pandemic levels. So any thoughts on that?

Puneet Chhatwal — Managing Director and Chief Executive Officer

U.K. and U.S., the occupancy or let’s put it this way, the RevPAR in U.K. and U.S. is at 92% and 96%, respectively, compared to pre-COVID. And we expect that as of this quarter, we will get to almost 100%. And in terms of Delhi-NCR, as I said before with the government delegations and the G20 picking up, that should recover fully. The challenge in Delhi is also every year with the weather situation. And I think it does not mean that the demand goes away, it only gets displaced to a later month or later weeks. So, I do expect demand to pick up in Delhi. The occupancies must rise. And for us, Mansingh renovation is also having an impact. If anybody who’s Delhi based will go and see that half of the facade has become very beautiful, but that means half of the facade is without windows and we are not able to sell those rooms. And this renovation is expected to be completed at the end of this quarter. And it will be repositioned.

It is almost already repositioned as the flagship property like we always had and the rates almost have doubled there, but on a very lower base. So, we are expecting another 100-plus rooms to come into operation in the next four weeks to six weeks. Rajasthan is very strong. We are not going for any and every kind of business, especially in our palaces. Yes, you can get a lot of wedding business, that’s short term. Our strategy is to be most iconic and with most iconic thing, we are trying to manage it in a very good way. And the rates are very robust, the performance is very good. And Jaipur is at its best ever. Udaipur has also shown a lot of resilience and the rest will follow, Sumant. It’s not something to be worried about in the short term. Both Rajasthan and Delhi will be very strong for us.

Sumant Kumar — Motilal Oswal Financial Services — Analyst

So can we say U.S. and U.K., we are focusing more on pricing and not on occupancy?

Puneet Chhatwal — Managing Director and Chief Executive Officer

Yes. I think that is not just us. If you look at the global trends, the rates in the U.S. have gone up significantly and U.K. has its own challenges. Some months become very strong, like when we had the sad news about The Queen. Those three weeks, four weeks were very strong and then the recent political turbulences make it a little weak. But all in all, London is very strong especially for us. We are investing in London further. And we are taking our iconic House of Ming from Taj Mansingh to London and it will open there also by April. We opened Chambers there. We opened the new all-day dining there. Now, we’re also opening the Chinese. It’s already under construction.

Sumant Kumar — Motilal Oswal Financial Services — Analyst

Can you talk about the cost trajectory, particularly from employee costs and other expenses for the coming quarters?

Puneet Chhatwal — Managing Director and Chief Executive Officer

You know, if you look at our results in detail, you’ll see on the employee and employee benefits, we are very much at the same level as we were before. And that is mainly because of the efficiencies that we have drawn in through our change in business models. So, I think the fixed costs pre-pandemic were at — in quarter two were at 276 and a variable on the employee side at 89, totaling 365. And in Q2 2023, it’s at 372 with fixed going down to 234, and an increase in variable to 129 [Phonetic]. So, I think if you look at the total is INR376 crores versus INR365 crores pre-pandemic, and that is very much in line with the increase in business because our revenue levels are much higher than before and the size of the portfolio also.

Sumant Kumar — Motilal Oswal Financial Services — Analyst

Okay. So — no, no, we are maintaining almost similar level of sales, but our costs has increased. So, is it related to the employee or some expenses for the upcoming business also for the Q2?

Puneet Chhatwal — Managing Director and Chief Executive Officer

Every year in the second quarter, we have increments and bonuses that are paid. So, there is a change in Q2, which you don’t see in Q3, Q4. It stabilizes. Then again, the next change that you will see, a little uptick you will see in the Q2 of next year, because how that’s how it is done, post the AGM and the Board Meetings that we have at that time of the year.

Sumant Kumar — Motilal Oswal Financial Services — Analyst

Okay. Thank you so much, sir.

Giridhar Sanjeevi — Executive Vice President and Chief Financial Officer

And if I may just add, Sumant, I think the point — the focus is on productivity. You have seen a total revenue growth of 22%. And the overall cost growth has been much lesser at 11% for the quarter and 8% for the year. I think — and that is giving us the leverage. And productivity continues to be strong if you look at the cost per top like percentages as you have seen. So, that’s the way to look at these cost actions.

Sumant Kumar — Motilal Oswal Financial Services — Analyst

Okay. Thank you so much, sir.

Operator

The next question is from the line of Achal Kumar from HSBC. Please go ahead.

Achal Kumar — HSBC — Analyst

Yeah. Hi. Good morning, gentlemen. Thank you for taking my question. A great set of numbers. And by the way, well done about the presentation, about the pack. I see there’s a lot of new, wonderful information in the pack. So that’s fabulous.

Coming back on the questions. So first of all, on this HVS ANAROCK forecast, which you talked about 8% to 10% increase in areas, well, we don’t know what assumptions have gone into that. But what are your thoughts on that? I mean, how much international inbound recovery they are incorporating in that? But do you think this number is probably underrated or undervalued or underplayed? Do you think it could be — it would be higher in case if there is a strong recovery in inbound international tourism? And where are you on that?

Second on — second about the collaboration with the Tata Group. So have you started deepening your collaboration with the group and what kind of benefits do you see there? And you’ve given INR1,000 crores plus number from loyalty program? How much of it you will dedicate to Tata Neu?

And finally — and finally, the G20 Summit, I think it’s a big event. And then I guess preparation must have been started. Not sure if you can — if you can convert some of your thoughts from qualitative to become more quantitative. Do you have something in mind, something — some calculation, some numbers on that? That’d be great. Thank you so much.

Puneet Chhatwal — Managing Director and Chief Executive Officer

Achal, thank you. Very good questions. One, I would not like to speak on behalf of HVS ANAROCK. It just was given as a reference what they have put into guidance. We said — what they have said is what we are witnessing and the growth is mainly driven through rate. I can only repeat that, that is absolutely the case on the domestic front, which is almost more than 85% of our portfolio.

Number two, we have a lot of new openings coming in, despite the openings, when we put the consolidated, you see the — you see that the rate is still showing an upward tick. Number three, the demand in both leisure and corporate remains strong. The sector has shown its resilience. And it shows that we are in the beginning of kind of a very strong Q3 from whatever we have seen in the last six weeks. This is what I said, and I’ve repeated that. What HVS factored in, I think, you can check with them directly.

The second question you had was on Tata Neu and loyalty-led revenue. Our loyalty-led revenue is around INR1,000 crores, of which what qualifies under that program where you earn and burn, earning of points is around INR675 crores, of which another 5% of that number is directly attributable to app, which is the Tata Neu app. So, really the loyalty program has got a significant boost. We have had a 50% increase in our loyalty members. This is only the seventh — seven months, because it was launched on the seventh of April.

We are very excited because this — this whole cost of technology innovation bringing so many groups together, getting to such a large loyalty potential has been made possible for us through the group synergies and we are very well positioned to take advantage of it. And more will — we will see more in this quarter because at the end of November, Ginger will also — we needed to do some technology upgrades. And Ginger was not linked to the app. So when Ginger gets linked together with BigBasket, 1mg, all these kinds of businesses, the trend is coming online, then it will be in that kind of segment to benefit further.

Finally, on the G20. I liked the way you questioned, how we can turn the qualitative into quantitative? We can give also more guidance offline or a little later because as we speak, a lot has been [indecipherable] lot in the hands of the hotel sector. It has lot to do with all the different collaborations happening at different bureaucratic levels. Through other positions that we have in CII or Hotel Association of India, we do get to know a lot. But all I can say is Taj and other hotel groups are strongly collaborating with the government. And we’ve done a lot on the rates and the rooms and certain bookings, whether it is with the Sherpa’s office, the G20 Sherpa’s office or its Ministry of Commerce, or it is our Invest India, CEO. So, a lot of these things are happening as we speak and there will be more and more clarity latest by the end of this month.

Achal Kumar — HSBC — Analyst

Thank you, Puneet.

Puneet Chhatwal — Managing Director and Chief Executive Officer

Then we can turn it into quantitative. Then we will give you what approximate — actually, we will not need to do it. The government itself will be publishing how many events will happen in how many destinations, what are those destinations? It will not all be Delhi or Mumbai centric. From whatever I know and I’ve heard is there will be more than 50 destinations, which will be covered across India with our 100-plus presence in 100-plus destinations that IHCL is present. I think we are well positioned to get our fair share of that business.

Achal Kumar — HSBC — Analyst

Thank you, Mr. Puneet. Sorry, if I may take liberty to ask one more question that’s last I promise. Any update — do you have any update on Sea Rock Hotels and the use of that INR4,000 crore of investment platform with GIC line unused at the moment?

Puneet Chhatwal — Managing Director and Chief Executive Officer

Giri, would you like to take that?

Giridhar Sanjeevi — Executive Vice President and Chief Financial Officer

Yeah, no, I think the Sea Rock discussions continue, Achal. I think from what we understand, the government is trying to prioritize the breeding of iconic kind of projects in Bombay. And we are clearly been working with designers to get some preliminary thinking in terms of what we want to do. I think from an MCGM [Phonetic] perspective, I think hopefully, things are getting clearer. So, there is progress. But we need, of course, [indecipherable] to move and kind of get all the other clearances.

But overall, I would say that when the — given the discussions with the government, things look much more positive at this point of time. And it’s probably a few months more where we will get better clarity on this resolution. That is number one. As far as the GIC platform is concerned, yes, I think we keep looking out for, what you say, acquisition opportunities for sure. I think with the running away, what you say, the ending of the moratoriums and all that. And we continuously keep evaluating, but we don’t have any need to report at this point of time actually. No need to report.

Achal Kumar — HSBC — Analyst

Perfect. Thank you. And I wish you wonderful, great luck.

Operator

Thank you. The next question is from the line of Deepika Mundra from J.P. Morgan. Please go ahead.

Deepika Mundra — J.P. Morgan — Analyst

Hi, sir. Good morning. Sir, if you can just talk a little bit on the occupancy front. You’re already seeing peak level type of occupancies as compared to we have In the past. So from here on, would RevPAR be more? Is there scope for occupancies to go up further or it’s all going to be rates?

Puneet Chhatwal — Managing Director and Chief Executive Officer

Deepika, that’s a trade off. We have to look at it. There are certain — depends what is the source of occupancy. If it’s a wedding business, then you also are doing food and beverage, same thing on events and meetings. On FITs or transient customers, you always try to get a higher rate and try to get them directly to you instead of coming via, via, via, right? But I personally see that what we have witnessed in the last six months that the rates will continue to increase. They have increased globally, and I see no reason why they will not increase in India with the constraints and supply, independent of peaking of the occupancy.

Deepika Mundra — J.P. Morgan — Analyst

Okay. But if you had to put — is there a cap to occupancy level given weekday versus weekend demand and the type of demand profile that we have in India, which is slightly more on the corporate side? So is this the best occupancy that you think is doable?

Puneet Chhatwal — Managing Director and Chief Executive Officer

No, the best is always 100%, even more than 100%. If you’re in an airport location, you could even sometimes sell the room twice. And we are far away from that as a sector. We’re only seeing 70%. So the best is when it’s 100 on 100 like, with the best possible rate. But we are still away from it. Very strong — market is with very strong. Demands have demonstrated the ability to go 85%, 90% occupancy at the peak level. London, Paris, New York, the three largest lodging markets of the world, and for us, let’s say Mumbai in the month when we had IPL, April and May was very strong occupancy. Goa, Rajasthan in December. So there is — you cannot cap. Then we will not go beyond 75%, 80%, 85%. You have to sell every room because when you go to a hotel school, you are taught a room not sold today cannot be sold tomorrow.

Deepika Mundra — J.P. Morgan — Analyst

Right. And sir, on the manpower numbers, we’ve been a steady, slight climb up in terms of number of employees per room. Obviously, that is probably to do with the demand pick up as well. Over here again, would we continue to see a rising trend in line with how the occupancy is improving? Or do you think you’re at fairly steady state right now?

Puneet Chhatwal — Managing Director and Chief Executive Officer

We are at a fairly steady state. But if the demand continues to grow, we will have to have more people that we need. And our strategy has always been to be the most iconic. We don’t want to cut corners, especially on our palaces business, on our very iconic assets. So, there is a certain level of service that has to be maintained. And that’s how business has been done, especially with Taj. What Taj is because of that consistency for almost 120 years in business. So with Ginger, of course, it’s always been a very lean model. That’s why we call it lean luxe. With Vivanta also, it is very much a given. We know how many employees exactly it will have. But with the safari, with the palaces, with the business hotels, that Taj brand has and the locations it has, that number will keep evolving.

Deepika Mundra — J.P. Morgan — Analyst

I understood sir. Thank you so much.

Operator

Thank you. The next question is from the line of Shaleen from UBS. Please go ahead.

Shaleen Kumar — UBS — Analyst

Yeah. Hi, Puneet. Hi, Giri. Congratulations on the good set of number and great operating metrics. So a bunch of questions from my side. If I recollect, I think this is the time when you get into negotiations with your corporates on the rate. So any color on what kind of ARR increase we can see on the corporate side?

Giridhar Sanjeevi — Executive Vice President and Chief Financial Officer

No, I think the corporate negotiations have gone well. In fact, I think what we have tried to do on the corporate side this time is to sort of make sure that the rate increases are there. I think the rate increases are more than 10% in terms of corporate rate increases. Number two is that, We’re also very careful in terms of preferential rates which are given through the season. So I think that has changed in terms of making sure that there are certain number of rooms which come at the negotiated rate, but above it, it is all linked to bar actually. So that is the way we have been doing it. And many of the smaller corporates, actually, we have — I mean, they have now — many of them are actually more coming through the transient route, as opposed to the negotiated route, actually. So I think — so I would say, given the overall momentum and the level of business, all corporate negotiations, the rates have gone much higher. And overall, remember Shaleen that for us, the corporate business, in general, across the net — patch is not more than 15% historically as well. So it is not the biggest part of our revenue line, actually.

Shaleen Kumar — UBS — Analyst

Yeah, fair enough. Absolutely, Giri. But generally that tend to be the lowest on the ARR increase. So if that is more than 10%, I assume every other segment is higher than that.

Giridhar Sanjeevi — Executive Vice President and Chief Financial Officer

Yes, that is true. That is true.

Shaleen Kumar — UBS — Analyst

Okay. And secondly…

Puneet Chhatwal — Managing Director and Chief Executive Officer

Also, Shaleen, what is driving or has driven our rates on corporate and others is the upgradation of our assets. You would recall that, unfortunately the pandemic came, but pre-pandemic already we had upgraded 17 of our assets back to Taj, whether it was Lucknow or it was the two hotels in Goa, or Fisherman’s Cove in Chennai. A lot of our properties were upgraded and thankfully so in time, so — because the resort business benefited during the pandemic. And we are — and we continue to do so. As I said in the presentation, we are opening — we had just the Italian in Aguada. We are opening a new pool in Goa, in Holiday Village. We are opening 30 new rooms in Holiday Village after refurbishment. We’re coming up with two new food and beverage concepts in Holiday Village, which was underutilized space or not utilized at all, let me put it this way. It’s not replacing something. That should open by the end of this month. Our collaboration with Diageo called House of Nomad and another one with AB InBev called Seven Rivers, like we opened in Taj MG Road. So all in all, all these — and that’s been that part, the, a, of the smart strategy where we said, asset management this is how you’re managing your assets that you own and continuously taking them to the higher level so that you get a larger share of the market and also you’re able to retain the business and don’t lose it to the competition.

Shaleen Kumar — UBS — Analyst

Right. Right, sir. And sir, Giri, you mentioned that there is the bonuses being paid out in 2Q. So that — then I assume that that’s largely a 2Q phenomenon, right, that will not be in 3Q and 4Q, right?

Giridhar Sanjeevi — Executive Vice President and Chief Financial Officer

No, I think what was stated earlier was that the increments kick in from Q2, and therefore, there is a little bump up because of the annual increments which gets kicked in. That’s the only thing. As far as bonuses are concerned, for the year, we typically provided at the end of the year. So that’s more cash payout, as opposed to what you say a P&L event, whereas the increments are where the current P&L will go up again. Yeah.

Shaleen Kumar — UBS — Analyst

So there is nothing like a one-timing bump-up in Q2 in employee cost?

Giridhar Sanjeevi — Executive Vice President and Chief Financial Officer

None. Nothing. No, nothing. It is just the normal increments which come in which kind of increase the Q2 numbers.

Shaleen Kumar — UBS — Analyst

So the employee cost would be at this level, unless we obviously increase the employee headcount or maybe some bit of variable pay.

Giridhar Sanjeevi — Executive Vice President and Chief Financial Officer

Yeah. No. I think one thing I need to add, some of the wage settlements that have happened across some hotels. And so, what then happens is that, because during the pandemic maybe we can speak offline in terms of some of the details. I think some of the wage settlements which had been postponed due to the pandemic last three — that has now come in. So that it may have been — there is a certain element of one-time increase which has come because of the catch-up which has happened. And I don’t have the details as I speak, Shaleen. Then we can speak separately on this, no problem.

Puneet Chhatwal — Managing Director and Chief Executive Officer

But Giri, in principle Shaleen is right. What I’ve also said earlier, once you get this increase uptake every year at the same time because we do increments, but then unless we increase the headcount, that’s what Shaleen said. Unless the headcount is increasing, so salaries and employee benefits stays the same unless there is a new directive from the government to increase contribution on X or Y or something. But from what we know today, it will stay at the similar level.

Shaleen Kumar — UBS — Analyst

Right, right. Great, great. Thank you so much, Giri. Thank you so much, Puneet. That’s it from my side. Great show. Congratulations once again. Thank you.

Operator

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

Prateek Kumar — Jefferies — Analyst

Yeah. Good morning. [Technical Issues] is on wedding season. So how do you see this time is expected to be like big fat wedding season for the industry? So how do you see that benefiting the business in third quarter?

Puneet Chhatwal — Managing Director and Chief Executive Officer

Yeah. We see the outlook very good, but I would like to correct you, it’s not for fat but this is for magical moments at the living legacies of Taj with everlasting memories.

Prateek Kumar — Jefferies — Analyst

Sure. So, generally, so we — in second half of the year, we typically do a net off 20% to 25% growth in revenues versus first half. So from that perspective are we in line with the trend like that for FY ’23 as well or FY ’23 was much stronger so that second half versus first half growth maybe slightly [Phonetic] depends?

Puneet Chhatwal — Managing Director and Chief Executive Officer

No, as I mentioned, the first six weeks give us reasons to believe that the trend continues and especially in Q3 is very important because this being the strongest quarter, your starting base is very high from a pre-COVID level, right, and pre-COVID in November was an outstanding month in 2019. Despite that, we said we can confirm that we are seeing an uptick. A strong double-digit uptick.

Prateek Kumar — Jefferies — Analyst

[Foreign Speech] Lastly on other expense, so that has also like sort of increased 5%. So what has gone maybe on higher other expense during this quarter versus like last quarter? How should we look at it going forward?

Giridhar Sanjeevi — Executive Vice President and Chief Financial Officer

I think — Prateek, I think, these costs are fundamentally increases in sales and marketing expenditures because of the resumption of activity. Clearly, we have kind of spent on that. But, of course, in a very productive way. So I think — and you should look at it as increasing in line with the activities which are happening.

Puneet Chhatwal — Managing Director and Chief Executive Officer

Also, Giri, the increase in license fees because of the revenue share in Delhi as and — as more and more renovations complete in Taj Mansingh, as well as in Connaught. There is a linkage to that higher revenue share. And that will be one of the consequences of the increase in revenue in these hotels.

Prateek Kumar — Jefferies — Analyst

So, is there a one-off pent-up costs which was like sort of not accounted earlier for the reason like a renovation, some maintenance, which is like come in this quarter? Like some of the peers have also quoted similar trend. So is it something which we have also witnessed?

Giridhar Sanjeevi — Executive Vice President and Chief Financial Officer

Nothing. I mean, nothing I can think of in terms of any significance, they’re one-offs actually.

Puneet Chhatwal — Managing Director and Chief Executive Officer

Giri, there was something I — you might remember is, some VAT amnesty we did in Mumbai properties.

Giridhar Sanjeevi — Executive Vice President and Chief Financial Officer

But very small at…

Puneet Chhatwal — Managing Director and Chief Executive Officer

INR1.5 crores it was I think but not such a big number to…

Giridhar Sanjeevi — Executive Vice President and Chief Financial Officer

Yeah, yeah.

Prateek Kumar — Jefferies — Analyst

Sure. Thank you for taking my questions.

Operator

Thank you. The next question is from the line of Nihal Jham from Nuvama. Please go ahead.

Nihal Jham — Nuvama Institutional Equities — Analyst

Yes. Thank you so much and congratulations on the strong performance. Sir, couple of questions from my side. First one is, you highlighted about the foreign tourist expectation of a full revival in Jan. Just from our perspective, is the business on books from the foreign arrivals similar to what it was pre-COVID? And is that giving us an additional lever to reprice higher?

Puneet Chhatwal — Managing Director and Chief Executive Officer

International business on the books, is that your question?

Nihal Jham — Nuvama Institutional Equities — Analyst

Yes, that’s my question and if that can give us a better lever to price higher in this peak season?

Puneet Chhatwal — Managing Director and Chief Executive Officer

I think the demand in the last rolling 12 months, domestic has been so strong. That is where the price rise has been coming from. If international picks up the way this morning tourism breaking news said, as of Q4, goes back to the pre-pandemic level, then the price hike could be higher. Otherwise, when it comes to international business in our international properties, we’re almost in line as of this month to the pre-COVID level. As, I said before, like, 92%, 96%. Cape Town should see an uptick. Dubai was performing very strong, 30-plus-percent higher than pre-pandemic. Maldives has been strong. Of course, Sri Lanka has been weak, it is at 50% of pre-pandemic.

Nihal Jham — Nuvama Institutional Equities — Analyst

For our domestic properties, how would that look like?

Puneet Chhatwal — Managing Director and Chief Executive Officer

For the domestic properties, I think because of the constraints in supply, whether it comes from international or domestic, the rates should remain robust and should keep increasing.

Nihal Jham — Nuvama Institutional Equities — Analyst

Sure. That is helpful. The second question…

Giridhar Sanjeevi — Executive Vice President and Chief Financial Officer

And the other thing you should note, Nihal, is that, and — is that, if you see our slide which is on margin expansion, I think one of the things which is just beyond rates and occupancies is the way we look at asset management. And if you look at the graph which shows the waterfall between 17.7% pre-pandemic to 25.4%, we have a block which says key hotels at 3.8%. These essentially represent significantly, the asset management activities which we do in terms of driving greater revenues, optimal cost and therefore, driving margins so 3.8% of the increase of 8% is coming through such strong asset management activities, actually and we have spoken about Mansingh in the past, we’re doing some stuff in Lands End. So hotels, I will tell, we’re kind of working in terms of driving through. So therefore, our own profitability profile of hotels is driven, not just between occupancy and rates, but also a whole bunch of asset management activities.

Nihal Jham — Nuvama Institutional Equities — Analyst

That is helpful, Mr. Giri. The second question was on our MICE business. So in the rates part we’ve obviously seen a strong resurgence which is visible and the room revenues are getting. Now with this being a peak quarter for both MICE and specifically for marriages. Is it that we are expecting that the business coming back to pre-COVID in terms of the number of editorial conferences? Or is there a significant repricing in these events also which can drive a strong improvement in this line item?

Giridhar Sanjeevi — Executive Vice President and Chief Financial Officer

I think, you want to answer for me, in terms of wedding?

Puneet Chhatwal — Managing Director and Chief Executive Officer

No, no. Go ahead, Giri.

Giridhar Sanjeevi — Executive Vice President and Chief Financial Officer

No, I think the wedding business has come back quite very strongly actually and the rates have been — have gone up significantly. And therefore, I think, not just in terms of number of events, but also in terms of the rates, there is a significant increase and that is helping. And even in corporate MICE, you see corporates coming back in terms of number of events, plus the government business as well, now I think as we spoke launches G20 with a lot of government business in terms of ministerial travels, all of that is helping in terms of driving the overall MICE business. So — and it is helping us in the overall shape of business, plus of course, the key cities, Delhi, for instance, government business, Bombay, and some of the newer places like Goa, where we have some very strong convention center facility, all of that overall having the level of business plus our market share as well, actually.

Nihal Jham — Nuvama Institutional Equities — Analyst

Understood. I think this answers. I wish you all the best. Thank you so much.

Operator

Thank you. The next question is from the line of Vikas Ahuja from Antique Stockbroking. Please go ahead.

Vikas Ahuja — Antique Stockbroking Limited — Analyst

Hi, sir. Good morning. Sir, can we talk about the attrition position? Is it also at record-high levels in-line with what we are seeing on a positive side on the operating drivers? And in terms of the wage hike, is it possible to give a impact on margins? And do you think this year we may have to give one more wage hike maybe selectively to retain talent, considering the overall wage inflation?

Puneet Chhatwal — Managing Director and Chief Executive Officer

Vikas, thank you. No, there is — attrition is a challenge for the sector, but I think — and with the ethos of the Group and of Taj, we have treated our people very well. So, we are not in that kind of a vulnerable position. And not sure where the second wage hike comes from you this. I’ve not heard that from any one of my colleagues in the sector. So that is not relevant. Of course, there is pressure. If you are the world’s strongest hotel brand with Taj and you are doing well, your employees are sought-after by — and your associates and key managerial positions are sought-after by other group’s. However, because we are a company with very strong growth, I think the opportunities for our people to grow with us are far higher than growing elsewhere. And that has already helped us in employee retention. On the contrary, we are spending a lot of money in building our people for the future. We’re not only is skilling 100,000 people and we have taken initiatives with CII, but whether it is our top management people going for advanced management programs or middle management or senior management or — we have doubled almost our expense on learning and development to actually service the need of a growing portfolio where we need — if you’re opening two hotels a month we need people, right? So we are working on a very different set of assumptions versus the question you asked.

Vikas Ahuja — Antique Stockbroking Limited — Analyst

So, sir, I mean, that clarifies. Sir, there won’t be any more bump ups in the wage cost? I understand. Thanks a lot. Thank you.

Operator

Thank you. The next question is from the line of Kaustubh Pawaskar from Sharekhan by BNP Paribas. Please go ahead.

Kaustubh Pawaskar — Sharekhan — Analyst

Yeah. Good morning, sir. Thanks for giving me the opportunity and congrats for good set of numbers. Sir, my question is on the room demand front, as you said, that supply constraint will continue to have a positive impact on the ARRs, and even the demand is strong in the domestic market. But do you think inflation — sustained inflation might act as a risk of going ahead to the room demand? Or do you expect, despite the inflation, the sentiments would be strong and it will continue to have positive impact on the demand?

Puneet Chhatwal — Managing Director and Chief Executive Officer

I personally feel that the inflation — especially on the domestic front, people are used to a certain level of inflation. And this morning, I saw that the US numbers come in a very restrained way in inflation which should help the rest of the world also. So there was a certain pent-up need for certain prices to go up, and they’ve gone up. But it is all a function, which is beyond our control, it’s a function of oil prices, it’s a function of dollar exchange rate, this morning the dollar also looks not as strong as it looked two days ago. So there is a lot of things happening. Our job is to somehow manage and navigate through this, which we will do. But we don’t see uptil now any disturbances in business, in variable costs, fixed costs, you have all the data with you in terms of our — as an example, our fixed costs as a percentage of revenue versus pre-COVID is down from 48% to 37%. Our corporate overhead as a percentage of revenue is down from 8.1% to 6.7% in second quarter. So all in all, I do not see that kind of an impact. As my colleague Giri mentioned, we are looking more at efficiency without compromising quality, and doing the right things and keep improving and innovating so that we can manage — at the same time, optimize our revenues and also manage the costs both fixed and variable at a — in a healthy fashion.

Kaustubh Pawaskar — Sharekhan — Analyst

Yeah. Thanks for the detailed explanation. Sir, my second question is on the room innovation. So how many rooms you’re planning to renovate over the next 12 to 18 months? And because of this attrition [Phonetic], whether there is any increase in the cost of innovation per room which we need to factor in?

Puneet Chhatwal — Managing Director and Chief Executive Officer

Typically, we have budgeted and given the guidance, not the rooms renovation only, as Giri mentioned, all the other activities that we have. We’re looking at a capex of 4% to 5% of our annual revenue that is the way this business works globally. And we think we will be in-line with that, this year and next year also and the coming years also.

Kaustubh Pawaskar — Sharekhan — Analyst

Okay, sir. Thanks for the opportunity and all the best for the future quarters.

Puneet Chhatwal — Managing Director and Chief Executive Officer

Thanks.

Operator

Thank you. [Operator Instructions] The next question is from the line of Jayesh Shah from Ohm Portfolio Equi Research. Please go ahead.

Jayesh Shah — Ohm Portfolio Equi Research — Analyst

Hi. This is Jayesh Shah. Congratulations on great set of numbers and a big [Indecipherable] in hotels. Puneet, I have a broader question that given that we are at the beginning of the hotel cycle, but we have seen a huge bump-up in the first year itself because of COVID, pre or pent-up demand. So how do next two years really pan out? Is it occupancy growth? Can it really go up and the rate hike, both can be 10% extra to give something like a 20% revenue? I’m not asking for guidance. But more quantitatively as to which is the bigger trigger here? Or is it the new initiatives that you guys have, which will be a meaningful delta for next year — or next two years? That’s my question.

Puneet Chhatwal — Managing Director and Chief Executive Officer

Right. So, Jayesh, there are a few factors which need to be considered. One is the change in consumer behavior because of the pandemic. As an example, not many people were driving themselves pre-pandemic as they’re driving now and taking off, let’s say, this week Tuesday was a holiday of Guru Nanak’s birthday. And you may take a Monday and take Friday, Saturday, Sunday, Monday and Tuesday. And actually drive yourself also given that the airfares are at the peak level. So, this was not as obvious before and with the government spend on infrastructure improving, let’s say, the Delhi-Agra-Lucknow corridor, Karnataka connect Goa, the Mumbai building on all these coastal road and all these structures coming in, I think that has a direct correlation with hotel demand going forward. Something which was there, it was a latent demand but it was not satisfied because of whatever reason nobody ventured out the way they ventured out because of the COVID. And that is not going away because people now get used to that and that has led to the evolution — strong evolution of the bleisure segment. When we saw leisure destinations are doing very well it’s because a lot of business is being done from leisure destinations like this call today. I can take it from London, I can take it from New York, I can take it from Goa. I’m taking it from Mumbai from Express Tower, our office. But I could have been anywhere and still combine a few days — tomorrow and day after being the weekend and combine that with the weekend. So I think that is one significant change which will — which has been driving incremental demand, which was not there to that extent in a pre-COVID level.

Second factor you have to consider is, it varies from companies to companies. Being a strong growth company that we have become, we have a lot of not like-for-like growth. And that should also help us driving in terms of quality also as we are not adding assets that create losses in the first few quarters or first few years because still they reach the stabilization most of that is driven through management fee contracts or operating leases for the ginger level. So I think that’s the second thing that one has to consider opening going for.

Third is, how much our new businesses will be successful and withstand the test of time. This is the Qmin and the Ama, if they become large and successful businesses, of course, the figures that you were mentioning are achievable from a top line perspective because they’re all incremental, they’ve not displaced any previous revenue and then you have rebranded it as something else. So it’s all adding to the base that we used to have.

Jayesh Shah — Ohm Portfolio Equi Research — Analyst

Thanks. That’s very useful. And associated question, will cost also now rise faster than usual because earlier there was COVID, maybe you’ve postponed some pickup? So in one way, while you are saying that the growth is not front-ended, costing also not front-ended and moves in tandem?

Puneet Chhatwal — Managing Director and Chief Executive Officer

I don’t think — I think the costs or the cost of employment will rise but the efficiencies will also improve because another thing happened because of COVID is the acceleration of digitization. And I think digitization helps you to reduce certain costs or become more efficient. And that we’ll continue to see. You’re seeing that already on our corporate overhead, we’ve added 100 hotels to our pipeline and as the absolute amount and as a percentage, both the corporate overhead has gone down. And we are advertising more, we are more present in social media, we have more brands, we have more this thing but the absolute amount of cost is lower despite inflation, despite increments, despite wage settlement, so whatever you want to call it.

Jayesh Shah — Ohm Portfolio Equi Research — Analyst

Very, very impressive. And lastly, is there a challenge in getting new properties, acquisitions?

Puneet Chhatwal — Managing Director and Chief Executive Officer

Acquisitions is a different one that is when you want to buy. I think there is a ECLGS Scheme which is Emergency Credit Line Guarantee Scheme which is still valid. And may or may not get extended, we don’t know that. But I think that is good or healthy for the sector so that they got some breathing space. But some or the capital structure is not right will not be able to manage whether it’s a 2% or 3% of the total supply or 5% that whatever is relevant for us we will have a look at it.

Jayesh Shah — Ohm Portfolio Equi Research — Analyst

Sorry, I also meant in the form of greenfield. So in terms of getting properties at the right location that you…

Puneet Chhatwal — Managing Director and Chief Executive Officer

Not really, Jay, because there is so much to do. India is also going to witness a lot of growth in Tier 2, Tier 3, Tier 4 cities, which has not yet happened. There is a life beyond Delhi, Mumbai, Bangalore on the key metros. So you’ll see a lot of emergence. Look at just Northeast, I mean, beyond Guwahati, now the Dimapurs and the Itanagar and all, they will also need more supply. Similarly, newer states like Jharkhand, etc., they will also need more hotel supply than has been the case before. So, I think there is a lot of — our spiritual circuit, if you want to host today an event in the first university of the world in Nalanda, where do you make people stay. So I think there will be a lot of growth happening. And look at the UDAN scheme of the government with the 50 new airports that are coming or several new airports, they are in destinations which will also need hotel supply to be added. So there will be a lot of activity which will happen on the supply side. So on one hand you will see, okay, there is a supply increase but that significant increase is not going to come only in the metros as used to happened in the past.

Jayesh Shah — Ohm Portfolio Equi Research — Analyst

Thank you. Thank you very much.

Giridhar Sanjeevi — Executive Vice President and Chief Financial Officer

Thanks, Jayesh. Thanks.

Operator

Thank you. We’ll take the last question which is from the line of Vikas Ahuja from Antique Stockbroking. Please go ahead.

Vikas Ahuja — Antique Stockbroking Limited — Analyst

Yeah, hi. Thank you. Sir, just one small clarification. I understand on the attrition question, obviously, being Tata, our attrition is going to be half of the industry or even lower. But compared to our own history, maybe 10 years, is attrition level is also at decade high-level? Is it a fair assumption? That’s about it, sir. Thanks a lot.

Puneet Chhatwal — Managing Director and Chief Executive Officer

Giri, would you take that. I’ll…

Giridhar Sanjeevi — Executive Vice President and Chief Financial Officer

Yeah. I can do that. So, Ahuja, I think while attrition has gone up Because of the coaching which has happened. The reality what happens with us, Vikas, is that, the attrition is typically in the early years of the carrier of people actually. After about eight — seven or eight years or nine years, there is not too much of attrition for companies like IHCL because by then I think they are completely loyal to the company. So while attrition has gone up, but I don’t think it has created a problem for us in terms of key manpower being lost, actually. So I think we are fine. We are absolutely fine. So it’s not a factor which should be of any major concern for us.

And the other thing what Puneet was talking about training that we do, the thing on training, that’s a very innovative stuff we have got. In the UK, as you know, all hotel companies have been struggling with attrition actually. And one other thing we have done is to send about 10-odd people, 10-odd, 15-odd people from India to the UK, younger people with potential, which is part of their own carrier development in terms of working at an international location and also cracking the problem of low-manpower, shortage of manpower in UK. So some of these methods we have been using which really are quite innovative and helped us to deal with problems in very different ways, actually.

Vikas Ahuja — Antique Stockbroking Limited — Analyst

Okay, okay. And, sir, in terms of replacing those people, are we relying more on the lateral hiring? Or we are hiring freshers and just training them? Unless we are hiring fresher, what is the training time out or you put them at work maybe as soon as you hire them?

Giridhar Sanjeevi — Executive Vice President and Chief Financial Officer

We have a very comprehensive recruitment and training program which we recruit from the hotel management institute. So there is always an annual influx of people which happens through these programs. Lateral hiring is kind of minimal, but of course, with the growth in hotels what we’ve seen is that, we have taken lateral hire, for instance, in — general managers in Taj Dubai as an example as a lateral hire. So we have taken some of those steps in some of the key hotels, actually. But they are not significant at this point of time and where we need we have certainly recruited is what I would say, and that also reflects, for instance, we have international people in somebody’s international hotel, it is also to get a different kind of experience, actually.

Vikas Ahuja — Antique Stockbroking Limited — Analyst

Okay. Thanks.

Operator

Thank you. Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to Mr. Giridhar Sanjeevi for closing comments.

Giridhar Sanjeevi — Executive Vice President and Chief Financial Officer

Thank you all for joining us early morning for this meet. I think as we described during the conference, I think, the momentum in the business continues to be strong. Q1 and Q2 were historically the smaller quarters, and it is heartening to see that the first Q1 and Q2 are really strong. And as we are in the middle of the strongest quarter and well into the fourth quarter, we expect the momentum to continue. So — and thank you for your time. And we’ll anyway be in touch with the analysts and other fund managers over different meetings as we go forward. Thank you so much.

Operator

[Operator Closing Remarks]