Indian Hotels Company Ltd (INDHOTEL) Q3 FY23 Earnings Concall Transcript

Indian Hotels Company Ltd (NSE: INDHOTEL) Q3 FY23 Earnings Concall dated Jan. 31, 2023

Corporate Participants:

Puneet Chhatwal — Managing Director and Chief Executive Officer

Giridhar Sanjeevi — Executive Vice President and Chief Financial Officer

Analysts:

Prateek Kumar — Jefferies — Analyst

Achal Kumar — HSBC — Analyst

Binay Singh — Morgan Stanley — Analyst

Sumant Kumar — Motilal Oswal — Analyst

Nihal Mahesh Jham — Nuvama — Analyst

Karan Khanna — Ambit Capital — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Indian Hotels Company Limited Q3 FY 22-23 earnings call being hosted by Mr. Puneet Chhatwal, Managing Director and CEO IHCL, and Mr. Giridhar Sanjeevi, EVP and CFO, IHCL. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the call concludes. [Operator Instructions]

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

Puneet Chhatwal — Managing Director & Chief Executive Officer

Good evening everyone. Thank you for joining late in the evening. We are very pleased to report our Q3 results with record level on all key parameters, revenue, EBITDA, EBITDA margin, PAT, strong free-cash flows and being net cash-positive as we have communicated. I am just hoping that everyone has had a chance to look at the presentation because that has been uploaded, so I would not be going in that sequence. So, I’ll just pick-up some key messages and the first of those is that as we informed, post Q2 result, that Q2 is the weakest quarter in the year and Q3 is the strongest. You can see the difference that between Q2 and Q3, the 27% margin has become 37.6% and Q4 is traditionally the second strongest quarter of the year and with the month of Jan gone by almost tonight we see the momentum continuing.

We have a fair idea and depth of the business on the books and the pick-up the way it is coming, the outlook is very strong albeit it is all built mostly on domestic because foreign inbound is still lagging behind 2019-2020 numbers and a lot of events, which are happening this year including G20, including World [Phonetic] of Cricket should further boost the demand or provide the necessary buffer, should there be any former headwinds coming from anywhere. One of the key highlights of the PAT this year or most of the numbers that we have they are the highest-ever even when compared to earlier number. So the INR383 crore PAT for this year surpasses the best-ever financial year in the history of the company and we think that after three consecutive record quarters, the Q1 was a record, Q2 is the record, Q3 is the record, we see no reason at this point of time, as management of the company by Q4, should be any different.

We’re seeing strong weddings business stay strong, conference business pick up and we also witnessing very good leisure demand which is holding — people thought it was pent-up in Q1 or in Q2, but I don’t think after 9 months of the COVID wave, we can still keep calling it pent-up demand and I think there is a permanent shift in the way the customer behavior has impacted in taking — combining more business with leisure or taking more extended weekends by driving to a destination and working out of there.

I think also in the presentation year-on year for the quarter, as well as for the nine months, the chart clearly shows that we are, as a sector on the right track. I think the sector is doing very well and within that sector, we being the largest hospitality ecosystem, serving the needs of the consumers, both on-the-ground and in the year, we stand in a very good position to take advantage through our diverse portfolio of over 125 plus destinations, excluding our homestay business to cater to the needs of all segments. I think the other positive news is that there are green shoots of recovery in international travel.

MICE business is beginning to come back and we have seen already seven events of G20 that alone Taj ha posted so I think that momentum is going to only accelerate going-forward and very pleased to report that, I think we are of the belief that we have industry-leading REVPAR growth, we have industry-leading brands in all segments and the portfolio growth in the calendar year we have signed more than 30 new agreements and added 14 hotels, which opened alone in this financial year and 2017 for the full-year — for the calendar year.

We also feel we’ll end this financial year anywhere between 17 to 18 hotels, as we have consistently communicated about 1.5 hotels opening a month and almost 2 to 2.5 would is signing per month. Travel is coming back, of course, foreign travel it’s not as strong as it used to be, but domestic has been very strong, especially in the month of December and demand will continue to outpace supply. See supply growth will remain constrained for a variety of reasons what we’ve all experienced in the last two years and the demand will grow, but also even if new supply is coming, there are a lot of new destinations that are coming in the country alone with the government’s focus on infrastructure, on building new airports that will bring in some supply. But, what we have to see is how does the supply in each of the markets, which are very important and critical for let’s say, a company like us so Mumbai, Delhi, Goa, Rajasthan, Bengaluru to name a few these are very important markets for us. How is the supply in these markets?

And I think there the supply levels are lagging far behind in terms of the demand and that we start seeing the difference in the average rates or the ability for the brands to charge. Moving forward, I think on our hotels in pipeline, which I think is also an industry-leading pipeline we have a smaller base though that is correct, but our pipeline of number of rooms is almost 35% of the total portfolio on operation and we expect to open more than 40 hotels in the next two years or 2.5 years and 70% of our pipeline is management contracts.

There are few leases for Ginger which we have communicated that model on a low revenue but that small percentage of fees doesn’t make sense. And more importantly we have now reaching certain milestones with certain brands, so Taj is today at a portfolio of 95 hotels, it has 75 in operation, 20 in pipeline so it’s getting close to 100, Ginger has 85 also getting close to 100, ama our homestay has already reached 108. So, I think the scale in each of these individual brands is very critical and we hope to be giving the similar news on SeleQtions and Vivanta reaching 50 hotels in each of these respective brands and platform in the next three to four quarters.

Some of our openings we have shared with you on the investor presentation, but under our 2025, we guided that we will have a 50-50 balanced portfolio and we are well in that range to almost. 48%, 46% to 48% is on the management contracts and the remaining on the leased or old portfolio. But, very important is that also today Taj and the rest of now Taj portfolio is almost 50-50 and that is very-very healthy although Taj is our crown jewel, Taj is the one that has always been driving revenue and profitability, but it is nice to see other businesses grow and start contributing because their flow-through and their margin is higher.

When it comes to — in terms of EBITDA split of course Taj takes more than 3/4th of the EBITDA at an enterprise-level. And if you took it at a standalone level, it’s the number is maybe 10% lower, so importantly, we thought we must share this time is our good growth in our flagship brand and we didn’t share this in the last 4-5 years because this was work-in progress. Five years ago, we had 31 hotels on the Taj brand in operation and today we have 75 that’s a 2.5x growth.

We renovated or better said, we used all the tools available to us under asset management to upgrade a lot of our assets totaling almost 24 to Taj that includes the Holiday Village, the Fort Aguada, the Fisherman’s Cove, the Mahal, Taj Mahal in Lucknow and they were brought back to their old glory — excuse me and then we opened 20 new orders. Our portfolio in terms of number of rooms also doubled from 5,500 rooms to 11,000 rooms and the percentage to enterprise-level revenue system-wide because of our management contract driven asset-light growth, it went from 52% to almost 70% to which I just alluded.

Similar nice story we have with Ginger. Ginger has a revenue of INR225 crores, but the 9-month margin has gone up to 40% and 50% of the Ginger — Reimagined Ginger is in the lean luxe portfolio. And Ginger has now also gone live in this month on Tata Neu and we expect it to benefit from that. All other new brands, Qmin 25 stores, ama, I already spoke to you about it. The Qmin-ization of Ginger almost 18 hotels Ginger branded properties will have all day dining called Qmin, 9 have already converted, 9 others are getting converted before the end of March taking our total them of Qmin restaurants as quick-service restaurants 25 today to almost 35 before the end of this financial year.

Other than that, I think some of the key drivers of our revenue I think 70% of the growth is coming from existing hotels — some new hotels, some new and re-imagined brands and very, very marginal or a small amount from a non-operating income, all as an exceptional item. With that I think I should now — okay Giri says I should continue, so I will continue.

Key markets for us every market, we are performing better than the pre-COVID level which is leading also to margin expansion. Goa has been a star performer for us that is definitely the case. Also, Mumbai is doing very-very well, even January was very strong for Mumbai. Our occupancy in business hotels in Q3, went up to 77%, leisure to 65% balances was at 57% and Ginger it hit 61%, but more important is if you look in the presentation of the rates, the leisure portfolio commanded a rate of almost INR17,000 and the balances at 46,500 and the business getting close to 10,000. So, I think these are some very significant increases in rates and we all know that the increase in rate leads to higher flow-through and convergence.

On International portfolio also, we have done quite well. US was positive, UK has been positive, Maldives was good, Dubai was very good and also Sri Lanka is beginning to come back to almost 50% occupancy level so, there is no cash burn happening in Sri Lanka. In terms of domestic versus international operation I think if we were — the way we report I think if we were to add a line on our reporting on income from international contracts in management business or to add it back to the international portfolio, then you will see that even the international portfolio is almost at 22% EBITDA margin so that is extremely positive.

Very important is the control of the cost, if you see the fixed-cost as a percentage of revenue in Q3, went down to 28% payroll costs went down to 24%, a lot of you asked this question last-time in the Q2, what happened, payroll is the cost getting inflated? What kind of salary increases are there? And we’ve said this is just a weaker quarter where you are seeing that increase and the salary raises that we give at a certain time of the year, which has had an impact, but you will see the difference in Q3 and now, I’m sure you’re able to see that difference and very — we are very happy to see that our corporate overhead, as a percentage of revenue has gone below 5% which was always 7% 8% 5-6 7 years ago.

Our nine-month management fee growth surpasses highest ever, full-year management fees, so same story. Our Q3 management fee has grown by 86%. We remain confident that this income will keep growing and in 2025 we will exceed the guidance that we have given. Chambers remains a very important source of our profitability, because the flow-through is larger than 80%, very happy to report that the Chambers in Bangalore at Taj Weston is going to commence work. We are adding also a new spa in Weston and we also adding newly-launched Indian restaurant called Loya, the concept also bringing it to Weston and then to Lands End and finally to Taj Mahal Palace, Colaba over the next 12, 14 months.

[Indecipherable] margin expansion remain existing hotels? Why? Again Asset Management. We have renovated a lot. We have done a lot of innovative concepts in existing hotels, we have added a lot of new hotels on management fee basis. We have the new businesses of Ginger, Qmin, ama which also add to the margin, so does the Chambers and that eventually is the reason why a nine months comparison of 24 plus percentage EBITDA has gone to 32.1 and most of you would remember that we had given the guidance of 33% under Ahvaan 2025. We see no reason why we should not achieve that, given our growth momentum, given the strength of our pipeline, given our momentum in openings and also our continuous effort on asset purchasing.

With that, we would like to open for questions. The rest of the information is in the investor pack and for any questions, offline we’ll will make ourselves available. So, please feel free-to contact us. Thank you very much.

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] The first question is from the line of Prateek Kumar from Jefferies. Please go-ahead.

Puneet Chhatwal — Managing Director & Chief Executive Officer

Good evening Prateek.

Prateek Kumar — Jefferies — Analyst

Good evening sir and congrats for great results. My first question is on occupancies, so occupancies versus pricing. So, it seems the occupancies have been like largely stable versus like pre COVID period, but pricing is like 25% range higher versus pre-COVID period. So what really like sort of explains this? Is this like a difference in transient demand mix with I also saw is like 8% higher versus pre-COVID period or how are we looking at it?

Giridhar Sanjeevi — Executive Vice President and Chief Financial Officer

I think as we have always said I think it’s a combination of factors. So, number-one is that the demand continues to be very strong. Consumption patterns are strong here hence that is explaining why the occupancy is strong and with supply constraints that is clearly showing up in at least all the key metros and we have been able to sort of ensure that we kind of continue to maximize price realizations. So we believe — and as Puneet said in the beginning we see the continued momentum even in this quarter so-far. So I think we will continue to see strong occupancy and price growth.

And if you see the price growth also, I think while the leisure price — average price has been around INR17,000, the business is still at around INR9,000 or so and we’ve always been maintaining that the potential for business to grow is still significantly there. So there’s no reason to believe that both occupancy and price growth will continue. And you asked the question in terms of the transient growth. Clearly, the transient growth has been very strong actually. Our corporate dependency also, if you notice has been around 11% or so which means we are not big on corporates and there also we had explained, Prateek in the past that — as part of the rate renegotiation cycle.

We have changed the principle wherein for many of the corporates, it is not a fixed-rate that we negotiate for the year, but the rate of the bar, which means that it’s a variable-rate, which works both ways, both for customers as well as for us actually. And of course all the other segments in terms of Milds [Phonetic] and Leisure groups, all that is kind of coming back. So there is nothing, which indicates that there is the kind of flattening of both occupancy and rate [Indecipherable] reduction.

Prateek Kumar — Jefferies — Analyst

Thank you sir. My second question is on management fees, so management fees has been now running very strong and with many more hotels coming on management fees so would you look to revive the INR45 crore [Phonetic] guidance for FY 2026 or 2025 which we have.

Giridhar Sanjeevi — Executive Vice President and Chief Financial Officer

So what we will do on this Prateek, is that we normally do this around the Capital Market Day. Last year, with the Capital Market Day after our first-quarter results maybe around that time — once the year has ended we will take stock of all the guidance that we’ve given and we’ll come back in terms of the revised guidance, wherever appropriate actually that’s what I would say, but you are right that the management fee for nine months has been about INR276 crores. So, it’s a very strong growth and driven clearly by I think portfolio growth as well as by the underlying performance. So, we’ll come back on the guidance. At this point in time, we’re not changing the core guidance that has happened as part of our 2025.

Prateek Kumar — Jefferies — Analyst

Sure, thank you sir. I have more questions, but I’ll get back to the queue. Thank you.

Giridhar Sanjeevi — Executive Vice President and Chief Financial Officer

Yes.

Operator

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

Achal Kumar — HSBC — Analyst

Yeah, hi, thanks for taking my question. Congratulations on such strong numbers. So I have a couple of questions please. First of all of course, on the EBITDA margin so you already reported 32.5% and Puneet said that there is no reason you should not be able to achieve 33%. Now, of course the question is that if you are already at 32.1% what — how do you see the EBIT margin bridge from here to FY 2026?

I mean, don’t you see significant potential upsides to your long-term margin, given that anyway next year, you have G20 meetings — sorry, this year you have G20 meetings and World Cricket Cup is there and then you are collaborating with Tata Group. So all that, how do you see the EBITDA margin bridge going into FY 2026. My second question is on G20 meetings, so you already mentioned that some of the meeting is already happening at multiple places and again from the last-time I repeat my question, so I guess, it could be slightly easy for you to quantify the benefits now.

So could you please share your thoughts in terms of how much this G20 meetings should accelerate the occupancy and ARRs for the industry and for you. And how is that divided into sort of room revenue and MICE, because I understand all the all the G20 meetings — they do have a room revenue as well as a big event afterwards. And finally, my last question is on your collaboration with the Tata Group. But of course, not only in terms of Tata Neu, but also in terms of Tata Group’s aviation business. So, how do you see the benefits for IHCL? Thank you.

Giridhar Sanjeevi — Executive Vice President and Chief Financial Officer

Okay, taking one-by-one Achal, thank you for your. I think on the margin guidance, as I said, we’ll come back on the guidance on margins, I think 33% is a very decent margin for service industry. I think — but more specifically, if you ask me what are the triggers and that’s exactly what your questions were. I think if I look at the triggers for margin it’s the diversification in topline that we have, in terms of some greenfields that we will build, the growth in management contracts, the growth in Chambers, the growth in management fees and the growth that we have — getting on both the other businesses that we have.

So, I think the diversification of topline on high-margin businesses is something which is there and we are very clear that every new business that we do, will have to be, what do you say, get us the margin above 35%, otherwise we will not be able to get your 33% margin. So I think we are confident of our strategy and execution on all of these drivers. And on the cost, you saw that productivity coming through, so we will work on it and we see no reason why the margins should not go up, but a little patience still our Capital Market Day in terms of the guidance on these parameters, I think, let the year end is what I would say on the margins.

The second thing is that, as far as the lease renewal, obviously the G20 is concerned, I think the — we were very happy to report that we have done a number of events in the run up starting with Andamans, [Indecipherable] palace to Delhi, to Bombay, to Chennai now. So, I think in terms of the share that we have — share voids that we have is clearly very strong, and we need that actually and the real business is yet to emerge, because main event is September-October and we are yet to see the follow-ons in terms of the business delegations and all which happened G20, follow-on business delegation.

So this will emerge I think there is a second point, and we will talk about it separately as well on this, but this is — we see the strong momentum. And the last point you had was on the aviation business. Absolutely I think on the collaboration with both Tata Neu as well as the airline businesses I think it is developing well. We have a slide, which talks about the growth of the loyalty membership base. So, the total loyalty revenues have gone up significantly, I think by INR1,500 crores. Basically what that means is that the incremental people have used star hotels at least once, of which the loyalty earning members has been about INR800 crores or so, so. I think this is something that we continue to develop and with new brands also joining like Titan as an example so that is continuing to develop. On the airline partnerships, so that is clearly developing and you have seen the TajSATS numbers in terms of the leadership that we have demonstrated. In fact, the nine months’ numbers for TajSATS are very strong. I think it’s at INR443 crores has been the topline for TajSATS and with a very strong EBITDA. So you will see TajSATS continue to do well.

I think, yeah. I mean, so. I think all good, do you want to comment?

Puneet Chhatwal — Managing Director & Chief Executive Officer

No. I think the outlook, as we said, is very strong and if the rates keep increasing, the margins will automatically increase. I think that is the key. And we are very blessed with the Indian subcontinent because the SMB [Phonetic] part of the business is very strong also and we’re seeing a lot of demand for lot more buoyancy in the wedding segment and events. A lot more events happening, lot more people participating and that is really driving that non rooms revenue. And those kind of businesses are also high-margin so I think the restaurants is not as high as the event and confidence and wedding segment.

So I think as far as management is concerned, today what we know, what we see, what we have as business on the books we feel that going is robust. It will stay strong and with certain other events, one-off like just now we had World Cup Hockey, we cater to the teams in Rourkela and Bhubaneswar. As Giri mentioned, we have already hosted seven events of G20. We also did the catering for the India Pavilion in Davos in Switzerland for the World Economic Forum. So there are a lot of activity going on and all that, eventually everything adds up and I think it’s going to stay like that.

There’s nothing that suggests, unless there is another COVID or something else that happens, which is beyond anybody’s reasonable control or vision but also we have to invest. We have the most iconic portfolio and our strategy is, in whichever segment we are present we have to be the most premium brands in that segment. So, it’s not just the percentage only — that 33% should become maybe 35%, 35% should become 36% is finding the right balance of the top-line, of the absolute amount of EBITDA and having a healthy margin. So, if there was a downturn, we’re better hedged and we are less volatile, despite being in the hotel sector.

Achal Kumar — HSBC — Analyst

Perfect. Thank you. I have a couple more questions but I’ll come in the queue, in case there is time. Thank you.

Puneet Chhatwal — Managing Director & Chief Executive Officer

Thank you Achal.

Operator

Thank you. The next question is from the line of Binay Singh from Morgan Stanley. Please go-ahead.

Puneet Chhatwal — Managing Director & Chief Executive Officer

Hi Binay.

Binay Singh — Morgan Stanley — Analyst

Hello, good evening. Congratulations — very strong set of numbers. Two questions, in the past, we’ve often talked about inflationary pressures that the business is facing, which clearly you’ve managed quite well. Standing today, what are the key inflationary pressures that you’re seeing now, anything you would like to call-out on that is one. The second is out you guys have extensive industry experience. This is cycle high-margin that the industry is making so when do you think capacity growth starts to kick-start? There will be a time period by the time it comes in, but how do you see capacity growth incrementally, when does it start to kick-start so that we see some bit of equation of demand-supply matching?

Puneet Chhatwal — Managing Director & Chief Executive Officer

If I was to quote. Mr. Mandeep Lamba, he did a session recently. Is this the beginning from HVS Anarock. As one of the examples, he said was, is this the beginning of a five-year upcycle which is going to compensate for last 15 years, right. I’m not sure, this is what he said right. All I know is that, no matter what capacity comes, we tend to forget. Listen, what has happened in Mumbai there is a very big conference center, which has come up in BKC. What is happening in Pragati Maidan in Delhi, there is a huge convention hall, that has been built for the G20. What is happening in Dwarka in Delhi, there is a big convention center coming up here.

These facilities as infrastructure were not available when now they are available big events will also come. So, I think that is one. I already gave in the introduction, the post COVID consumer behavior that is changing. The third is our focus on each of the brands with a comprehensive brand-management strategy, which we have always communicated consistently. And finally, not starting any new businesses which do not provide less than 35% margins then we rather focus on what we have existing.

So, I think the culmination of this will help us to drive topline, will help us drive absolute EBITDA, PBT, PAT and still maintain a very healthy margin. But, we have to keep investing in our portfolio, like we have done even in the last three years or four years, despite COVID being there, we have to invest because we have these iconic assets and as communicated before, staying the most iconic but also most profitable company we cannot ignore the iconic element.

Binay Singh — Morgan Stanley — Analyst

No, that is definitely there. Anything on the inflation, any cost item view in there because inflationary pressures are coming up?

Puneet Chhatwal — Managing Director & Chief Executive Officer

I think the inflation has softened. It’s not going up the same way as it had gone up like three, four, five, six months ago. So we are able to mitigate the inflation impact. I think actually inflation in some ways is good to drive the average rates. So, that also helps if the dollar has strengthened, so much and the foreign travel wants to come back and if they can stay in a Taj at INR15,000 this is $180 and when we go to New York, we have to pay $1,000, including in [Indecipherable].

So, I think there is a there is a positive and a negative to it, but I personally believe say for any geopolitical factors, say for any black swan event I think the demand will keep growing. The spend, as I mentioned earlier on infrastructure will help the sector and we are very well-positioned because we are in different — we are addressing all consumer segments and we are addressing all businesses. So, only a black swan event can stop it, but otherwise something will always keep doing well.

Giridhar Sanjeevi — Executive Vice President and Chief Financial Officer

In fact Binay if I remember right, it was the Morgan Stanley report which talked about real-estate being a hedge against inflation. I think if there is only one area where I think costs are going up, it’s probably the project construction costs actually, I think that has certainly gone up, but otherwise ability to pass-on price increases is not — at least so far been a problem for this and bear in mind, let’s see what happens tomorrow on the budget, because tomorrow’s budgets will — because it’s a pre-election here people are — I don’t know the Infrastructure spending push whether it be anything like MSP increase that happened in 2019. I think some of those also should give help. So overall if you look at our presentation, the macroeconomic factors in terms of the growth of the country, the consumption trends, the projects, the pre-election year and then the hospitality demand-supply, all of it I think is in the right place and actually. And the growth is — and it’s also secular, it’s not just the key cities. It’s kind of growing across the hinterland as well, so I think all are good Binay at this point.

Binay Singh — Morgan Stanley — Analyst

Yeah. I know it looks very impressive across all parameters. Thanks team.

Operator

The next question is from the line of Sumant Kumar from Motilal Oswal. Please go-ahead.

Sumant Kumar — Motilal Oswal — Analyst

Yeah hi sir. So my question is related to the key markets like Goa, and we have seen a significant improvement in ARR but when we come to the occupancy level compared to pre-pandemic Q2 2019 we are still lower than pre-pandemic. And also the other observation is from the palaces and leisure destination. The occupancy is lower despite — so are we targeting higher ARR or the — what are the key reason where the occupancy is lower in the palaces, leisure destination and market like Goa and even we are seeing the Delhi and NCR occupancy is lower compared to pre-pandemic.

Puneet Chhatwal — Managing Director & Chief Executive Officer

There is no reason for us to target lower occupancy. We had 35 rooms which was renovated and was shut in Taj Holiday Village which were not available-for-sale, especially on the sold-out dates. They did not — they were not there, but they have now come back in this quarter, they are back so that’s one of the reasons, but we you take out inventories temporarily, if it’s less than one year, you don’t reduce the room count because that’s how it works in the professional circles, where we shared data.

Now, when it comes to the REVPAR is what you should look at and the average rate if you look, the REVPAR is almost having an increase of 45%, so it’s good to have the ability to charge higher-rate and sometimes a change in channel mix makes that happen. So, 1920’s Sumant the amount of international charters coming into Goa was very-high. Now, it’s getting back there in terms of international business. Slowly it’s picking-up, but when you mixed changes then you rather have FITs, transient or leisure group which are not even like-kind of charter.

Charter business is not — you cannot charge the same pricing. So I think there is a marginal adjustment 83% versus 80% occupancy so that’s not a such a big difference. The big difference is INR14,000 rate versus INR21,000 so it’s a 50% increase in rate and that’s what has driven the profitability in Goa.

Sumant Kumar — Motilal Oswal — Analyst

Okay, can you throw some light on US and UK occupancy when we can expect the normal level of occupancy what we’ve had in Q3 FY19?

Puneet Chhatwal — Managing Director & Chief Executive Officer

That’s a very good question. So, both these markets are not at the level that they should be. Occupancy in UK in 80% was around 84% in 19 and this time it was around 71%. But okay, there was an increase in the rate so the REVPAR again increases, but not good enough and US still has to recover on the occupancy front, the rate we are doing fine. And why I said it’s a good question, is that upside from US, the UK and Cape Town, which we now own 100% is expected, what we are seeing is performing better than 2019, at least for the month of Jan. And the outlook for February and March remains the same but it is expected to perform better.

Sumant Kumar — Motilal Oswal — Analyst

So can we expect in FY 2024, we can reach at the pre pandemic level or close to pre pandemic levels?

Puneet Chhatwal — Managing Director & Chief Executive Officer

I think it will be to pre-pandemic or even higher. Marginally higher.

Giridhar Sanjeevi — Executive Vice President and Chief Financial Officer

Yeah, because I think US as an example, we invested in banquets and we were able to open the banquets only post June, which means we did not have the benefit of a full banquet revenue in the US actually. So there is no reason why it should go back — it should not go back to the pre-pandemic level in the next financial year. I think UK while, of course, the challenges in Europe are there I think the strong Indian business — some of the domestic business and the US business.

The US business has certainly helped actually — all of these will help in terms of driving UK up, these are our two important markets, and as Puneet said, Cape Town is also coming on strongly. I think they are the last to recover, but I think this is a big season and they should also do well. So, I think 2023, 2024 should see us go back closer to the pre-pandemic unless there are geopolitical economic factors which impact actually is what I would say here.

Sumant Kumar — Motilal Oswal — Analyst

Thank you so much sir.

Operator

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

Nihal Mahesh Jham — Nuvama — Analyst

Yes, thank you so much and congratulations on the strong performance. Sir my first question was on the contract change that you’ve done in the corporate business, does that incrementally reduce the number of room nights that the segment ends up getting or does it get rate parity between the corporate and transient segments, more or less, how would it end-up changing the business mix order ARR realization in the future?

Giridhar Sanjeevi — Executive Vice President and Chief Financial Officer

So, I think what we have done in terms of some of the rate negotiations is a positive thing. Earlier on, when we had a fixed rate with corporates, we would have restrictions in terms of the number of room nights that we would give in busy seasons, but when you exchange the mix to a rate of the best available rate, what happens is that you will be able to offer better flexibility to the corporates also and it’s a much more dynamic rate now.

And hence I think it’s good in terms of driving — not just satisfaction for corporates but also the profitability and secondly what we’ve also been doing is that, in many cases we have allowed corporates to be more use the transient route, and not necessarily through negotiations, especially the smaller corporates actually. So when you say transient business, the 58% I think it does include some of the smaller corporates as well. So overall I think we continue to have focused strategies vis a vis the different segments, actually. So, I think all good is what I would say. In fact, we are the first to change this dynamic pricing for corporates actually and they are also seeing value here.

Nihal Mahesh Jham — Nuvama — Analyst

That is helpful. The second question was on the foreign guests part, for our India business, what would be the current share of foreign guests versus pre COVID if in case you have that number available?

Giridhar Sanjeevi — Executive Vice President and Chief Financial Officer

I think it is yet to develop. I think as we have always clarified I think it has been slow. I think it’s not just because of Visa difficulties, but because of other reasons as well. We expect it to come back now, starting next year. I think — and generally what we’ve seen is that the foreign customer — and when I say foreign, it’s also Indians who are staying abroad we have seen about 15%, 20% percent are pure foreigners and the Indians who come with OCI cards don’t get measured because they have — I mean, Indians NRI, not OCI — NRIs I think that constitutes another 15%, so historically, it’s been about 35%, it’s not come back to the full 35%. So, you will see that as an opportunity going-forward in the current year.

Nihal Mahesh Jham — Nuvama — Analyst

So, just one last question was that, in the current environment with the kind of the demand supply situation that you see, ideally what is the long-term pricing that you believe this sector or you would want to take-in the coming years?

Giridhar Sanjeevi — Executive Vice President and Chief Financial Officer

Long-term pricing I think. I think as we said, see there it is tactical pricing and long-term pricing, long-term pricing you have to look at the long-term factors, the economic growth, the consumption trends, the pre-election years, the budgets tomorrow. I think a lot of these long-term prognosis in terms of consumption demand-supply — overall demand — demand is surprising actually, continuously very strong. So long-term price trends definitely are on the way up, is what we believe and relatively speaking also I think, we are still — the business pricing at INR9,900 rupees is what $120 actually.

And as he said in the US, it’s about $800, $900, Singapore, Thailand, all these places are much higher actually, so I don’t see any problem in long-term pricing trends being much, much stronger actually.

Nihal Mahesh Jham — Nuvama — Analyst

Understood. Thank you so much I wish you all the best.

Operator

Thank you. The next question is from the line of Karan Khanna from Ambit Capital. Please go-ahead.

Karan Khanna — Ambit Capital — Analyst

Yeah, hi, thanks for the opportunity. Just a couple of questions from my side. Firstly, if you could talk about the home sales business; there we are seeing a lot of competitive intensity that’s increasing from international brands, wherein Marriott recently-announced their plans to add around 500 premium homes under their brand homes and villas by Marriott Bonvoy. So how does this affect your proposal proposed 500 homestays and even the contracts or the negotiations with your partners in this business, if you could talk about that, that’s number-one. Second on the overall distressed asset acquisition opportunity being the largest and perhaps the oldest hotel chain in the country, if you could talk about how you’re looking at this space, given your balance sheet? Any meaningful opportunities that you’re seeing here, I think that will be great to hear your thoughts on that.

Puneet Chhatwal — Managing Director & Chief Executive Officer

You see we like to believe that the best competition is when you’re competing with yourself. And we are already at 108 homestays and we see no reason why we should not get to 500 because in this 108, we have not even used any of our own capital so once we start using some capital on our land banks and start building some of the ama Villages, it goes very fast so it’s not also always just number of homestays and is the number of this thing — what is your margin from those and what kind of revenues you are driving.

This number game on asset-light, we need a very large-scale, to make it any kind of a meaningful business, so I think we remain very confident that with what we already have, the strength of Tata Neu, the strength of the legacy of Taj, it provides a great platform for other brands like ama to thrive going-forward, but we are not in a rush, we’ll keep the portfolio clean, because as I mentioned earlier, we want to be perceived as the premium offering in any business that we are in.

We should not be the cheap one and that was the biggest change. We also did with the Ginger brand was taking it from a price-driven positioning to a more experiential driven positioning. So I think that is the answer on the homestay. Second question was on [Multiple Speakers] and sorry, what was your second question, you had another question.

Karan Khanna — Ambit Capital — Analyst

Yeah, so the second question was on the entire asset acquisition opportunity perhaps being the largest and the oldest hotel chain, if you can talk about any meaningful opportunities that you’re seeing in the domestic market.

Puneet Chhatwal — Managing Director & Chief Executive Officer

We think they will start coming as the ECLGS has alluded to in Q1 and Q2. Once it expires and then you have a default — some of that I hope not a lot, that some of that inventory comes into market. We are very well positioned without having any debt, having free-cash flows to take advantage of any opportunity that might come and we don’t always have to buy an asset.

We could use sliver equity, we could use management, we could use leasing, we could use Mezzanine debt, we could take a small stake, we could use our GIC platform. I mean, we have so many opportunities available and we have the brands available, so we can benefit from such opportunities. And your question is from a timing point-of-view good, because now we are beginning to see some opportunities come onto the market in the last few weeks, I would say since 10th, 11th, 12th of January some properties possible in Mumbai, some in — and even destinations like Alibaug or in South.

There is some discussions and also from I would say from the state governments. I mean, there is a possibility to do some business there. Also from our own group related companies. So one of our focus is on the Northeast. So if we can get some tea plantations out there for our ama brand or to expand our footprint in Northeast from currently 13 or 14 to 25 hotels that’s what we had guided the market to 25 yes, we will use our capital to expand because you also have certain other incentives to win these markets.

Karan Khanna — Ambit Capital — Analyst

Sure, great, that’s very helpful. Thank you.

Operator

Thank you. The next question is from the line of [Indecipherable], please go-ahead.

Unidentified Participant — — Analyst

Yeah, hi, thank you for the opportunity. So first question is, if you could just help lay down the status — it’s a hotel with the same number of rooms and REVPAR. If it is owned versus if it’s under a management contract, both quantum as well as percentage margin-wise, what is the difference in EBITDA that we can get?

Giridhar Sanjeevi — Executive Vice President and Chief Financial Officer

You’re talking of the growth in — see growth is coming at this point of time.

Unidentified Participant — — Analyst

Yes. The absolute amount.

Giridhar Sanjeevi — Executive Vice President and Chief Financial Officer

Absolute amount. Maybe we’ll take that offline to sort of talk through that. I think it will be easier. The only thing what I would point out is, when you look at the margin, what you say progression chart where we are showing an increase in margins. You will see that a significant margin is coming from existing assets. So, our overall margin grew from 24% to 32%, which is an 8% growth in margin, on that the existing hotels contributed 5.2% of the margins actually, which is really the growth in our existing properties.

And new hotels Ginger, Qmin, ama, Chambers, all of those, add-on actually. So this is probably the nearest I have on slide, but if you want more specific numbers, we can check separately not a problem at all.

Unidentified Participant — — Analyst

Understood. Okay and my second question was on your — if you just look at Taj which is 75% of EBITDA. I think what rooms we have till 2026, we are adding maybe another 10% of more rooms around 1,200 rooms over the 11,000 base. And given where our occupancy and ARR levels are how do we look at the growth in the Taj brand itself over the next two years?

Giridhar Sanjeevi — Executive Vice President and Chief Financial Officer

So we have guided to 100 properties in the Taj brand actually, we are close to that. I think…

Puneet Chhatwal — Managing Director & Chief Executive Officer

See, the Taj brand today has around 11,700 rooms in operation then another almost 3,000 rooms in the pipeline. And we think that this brand will continue to drive our performance, especially with our asset management efforts, which I mentioned before, let’s say, the Taj Mansingh another six months the renovation will be complete there. So we will have some impact of that renovation and the efforts, you’re already seeing that with only 50% of the hotel being operational. So soon it will be100% operational and completely in the state-of-art absolute flagship for us in Delhi.

Other things we are also investing in Lucknow, we’ll be opening a second Taj in Lucknow over the next 12, 14 months at a place called Vibhuti Khand. So, there is a lot of development that is happening on the Taj front, both on a company-owned in terms of asset management and also driving growth by way of management contracts, then it gets further interesting because as I’ve said before, we’d like to maintain a certain balance also in terms of resorts.

So, we want to defend the positioning of Taj in terms of palaces, in terms of number of resorts that’s why we bid for Lakshadweep because Taj created Goa, when I was not even in the hotel industry and Taj also created the destinations like Kerala, we have also created Havelock in Andamans and the next one will be Lakshadweep. So I think not only finding just growth and just management fees, but a nice mix of portfolio, which helps you drive rates, performance, keep the customer with you with the help of a strong loyalty program which we now have access to with Tata Neu.

I think it should all help in the customer journey for the Taj brand and we are very pleased that it is doing up to 70% of the total contribution and which is also interesting. It used to do maybe 10, 20 years ago, it was maybe 99% or 95% of the revenue and carrying the burden, but today almost a small number though, but more than a quarter of that is coming from our newly re-imagined businesses which are driving the margin expansion also.

Unidentified Participant — — Analyst

Understood. If I can just ask a follow-up, I’m referring to slide 70, where in Taj, you are adding around 1,200 rooms till 2025, which is around 10%, 11% on the current base. So my question is more so to say that where we are in terms of occupancy at pre COVID and our ARR is significantly high and has increased over the last 12 months. From a growth perspective, does that become limiting and do we see just the 10%, 12% growth over the next two years for Taj or how should we think about it?

Puneet Chhatwal — Managing Director & Chief Executive Officer

No no, this is not how it works. So see, if you look at that chart carefully, you will see pipeline rooms, which is 2,773, I told you, it’s almost 3,000 right. These do not include some, where there is a condition precedent which could get resolved for some of the hotels, which we have also signed-up. But there is certain conditions to be fulfilled by the owners so that’s one. Also, this does not include any conversions. See everything does not come as a new construction. So when we did this Taj Resort & Convention Center in Goa, together with to Cidade de Goa these 500 rooms were not a part of any pipeline. When we signed, within like a few weeks Cidade opened and within a few months the Taj Resort & Convention Center.

So there is something called conversion of existing properties, then there is something called a brownfield, which means hotel has built 60%, 70%, it needs another 30% 40% completion time so it will not take so much time. This is what we are reporting is what we actually have today, which is signed, legally binding and a press release has been issued communicating it to all the investors and also to the market.

Unidentified Participant — — Analyst

Okay, got it, thank you so much.

Operator

Thank you. The next question is from the line of Achal Kumar from HSBC Securities. Please go-ahead.

Achal Kumar — HSBC — Analyst

Yeah, hi, thanks for another opportunity. So a couple of things, one, in terms of liquid fee. So you ended the quarter with a liquid of 15 billion, with net cash of approximately 8 billion, given that you don’t have too much of debt commitment, what is your plan in terms of usage of cash — are you, I mean you already highlighted that you’re open for inorganic growth, but what exactly are you committing to that?

Do you still expect free-cash generation of around 15%, 20% pre capex of your revenue and are you open for return to shareholders? So what is, if you could share your thoughts on that. Secondly, any update on Sea Rock previously, of course, you have said that you will have some update so just wanted to understand if you have any update on Sea Rock, as well as usage of this 40 billion investment platform with GIC. And finally, last question is about, I saw you have put a slide talking about B2C channels. So do you see D2C sale is going up, which means the commission outgo could reduce, so what are your thoughts on that? Thank you.

Giridhar Sanjeevi — Executive Vice President and Chief Financial Officer

So I think, answering each one of your questions Achal. I think you are absolutely right that the cash of INR1500 crores of course includes INR450 crores, which is earmarked towards — from the QIP towards debenture repayments so it’s about INR1,100 crores of cash and cash generation will be strong. So I think this is kind of a developing area in terms of utilization. In my view, there are four broad buckets in terms of the utilization. Number-one is the regular reservations, which will broadly be in-line with the depreciation on the company that’s how it’s always been there.

The second is the greenfield projects that we have signed-up to, will have a second bit of utilization, which will happen. Then the third one is to your point on dividends. I think very clearly, we have been kind of — the performance has been not like the present — the earlier year and therefore we have been cautious in terms of dividend and very clearly we are open to re-looking at that, as we come to the end-of-the year and it is clearly not something that I can personally comment on, except to say that we will certainly re-look and it will be debated at the Board at the annual quarter.

But are we open in terms of re-looking at it and defining a dividend policy, which is more closer to a PAT based dividend policy, I think those are things that we’re thinking about. And post this, of course is that, they are also committed given that the difficulty that the industry has faced. We also want to make sure that we have a decent strategic reserve, which will help us against any future pandemic or any other things like demonetization or GST, so we will have a strategic reserve, but it is also true that we are likely to have money beyond it, which will be used towards potential acquistions.

So it is an area which is developing Achal and rest assured that we are working on it very openly with the full understanding that anything we do has to be accretive to the performance and returns to shareholders. So that’s the approach we’re taking so that is number one. The second question was on D2C, so D2C, the way I think we look at D2C is that anything which is not ADS or GDS, I think that’s been about 31% percent and at 69% is the D2C direct-to-consumer.

I think we are quite comfortable with the way the GDS and the ADS percentages are there. I think there is a role that the ADS plays whether it is MakeMyTrip or Booking.com, they do have a role to play in terms of reaching the consumer, but we continue to invest in our TRWs, the Tata Neu partnership, the loyalty programs also help us to get closer with customers actually. But do we expect dramatic changes to the D2C percentages from the current levels of 70%? I think it’s — I think we’re happy where we are, and if it goes up it is better and we don’t necessarily treat ADS and GDS as bad actually. They are important as part of the contribution, they do in driving sales actually, they all have a role to play..

Achal Kumar — HSBC — Analyst

Any update on Sea Rock please?

Puneet Chhatwal — Managing Director & Chief Executive Officer

Yes, we have made some progress with the MCZMA and now we are going to apply for fresh permissions both to MoEF and to BMC and we’ll be able to update you more in the next quarter, but this quarter update is that we’ve got a formal letter from MCZMA that please go please and apply.

Achal Kumar — HSBC — Analyst

Perfect, thank you so much.

Giridhar Sanjeevi — Executive Vice President and Chief Financial Officer

I think if there are no other questions. I think — is there anybody else in the pipeline, maybe we’ll take one more question and then, before we close the call in any case as we advice, we are always available, so we’ll take one more question.

Operator

Yes, the next question is from the line of Prateek Kumar from Jefferies. Please go-ahead.

Prateek Kumar — Jefferies — Analyst

Yeah, thanks for the opportunity again. I have two pending questions, my first question is on Ginger, Santa Cruz timeline. Would you be able to update on the timelines there? And second question is like now YTD pricing for FY 2023 appears slightly around 25% higher versus pre COVID pricing of — I mean, your standalone pricing at least. So how does this pricing like, let’s say compared to peak pricing years like 2006 to 2008 for company or maybe for industry?

Giridhar Sanjeevi — Executive Vice President and Chief Financial Officer

I think as far as the Ginger is concerned, we were earlier expecting it to open around June-July. I think it’s probably a couple of months — there may be some plus-minus. So I think that is something that will definitely open in the middle of the next financial year. As far as pricing is concerned, I think the markets in 2007, 2008 was very different actually. With 60,000 rooms, and today we have branded rooms at more than 160,000 I think the dynamics are completely to Prateek actually given the dynamics are completely different and I think there is really no point in us comparing back to 2017 in terms of what was there.

I think as we said at the beginning, the macroeconomic fundamentals are strong, the consumption theme is strong, the hospitality parameters are strong. So I think we can only look-forward to sort of say that both occupancy and rate unlikely to go higher. And as we clarified Prateek, the business ARR is still around INR9,900 as you saw, but there is still we believe potential in terms of growth in ARRs and there are no indicators that we have at this point of time to suggest the operation flattening or U turn in any of these parameters actually. I think you can see international tourists have still not fully come back. I think there are a number of factors, which are certainly helping actually.

Prateek Kumar — Jefferies — Analyst

Thanks sir, very useful and all the best.

Giridhar Sanjeevi — Executive Vice President and Chief Financial Officer

Thank you.

Operator

Yes, I now hand the conference over to Mr. Puneet Chhatwal for his closing comments.

Puneet Chhatwal — Managing Director & Chief Executive Officer

Thank you everyone, thank you for joining us and thank you for your support and we look-forward to continuous record quarters like the first three quarters of this financial year has been. Thank you for joining.

Giridhar Sanjeevi — Executive Vice President and Chief Financial Officer

Thank you.

Operator

[Operator Closing Remarks]