Have highest operating margins in the country: EIH

He says that the DLF-Hilton joint venture will not impact EIH-Hilton in any way. He also says that the value of the company's saleable land bank is currently seen at Rs 300-350 crore. 

Excerpts from CNBC-TV18's exclusive interview with SS Mukherjee:

Q: What has been happening with the average room rentals over the past quarter or so and where you are seeing the greatest growth?

A: The outlook for average room-rate and occupancy is likely to be very buoyant for the next few years. This is mainly because of the demand-supply imbalance across cities in India. 

The best way to understand the occupancy and average room-rate scenario, is in the resultant- the revenue per room. Currently EIH has had an increase in the revenue per room by 36%. I believe that we should be able to atleast maintain that 36% if not increase it throughout the year. That is really the outlook for average room-rate and occupancy.

Q: You had announced a fairly ambitious expansion plan in July. Could you give us some timelines as to which projects will come up in 2007, 2008 and 2009?

A: First of all, let me explain our expansion plan. As you know, EIH believes in Greenfield development rather than acquisition. The reason that we believe in greenfield development is because the Oberoi group experience has shown that you can keep your operational efficiencies the most if you are developing your own property, which ultimately results in the highest operating margin.

Uptill now, amongst all our competition, our operating margins have always been the best. Now, because all this development is greenfield, obviously there is the need for time for all these projects to come in.

We do not see any project coming up in 2007, but 2008 onwards, all these projects will start coming in. Between 2008 and 2011, all the projects that have been announced will be operational.

The first project that will be operational is the 440-room Trident Hilton Hotel in Bombay, in Bandra-Kurla and the 150-room Oberoi in Gurgaon. Both are scheduled to be operational between September 2008 and March 2009.

Q: These two hotels entail investments between Rs 800-900 crore. Would you need to raise any capital or would you load on that much debt on your balancesheet?

A: We do not have any investment in the Gurgaon hotel. It is under management contract. In Bandra-Kurla, we have a project cost of Rs 800 crore, out of which, roughly about Rs 350 crore has already been spent, and  is already sitting in the balancesheet. So past expenses have taken care of that.

Apart from Bandra-Kurla, we are getting into our own projects in Bangalore,  Goa and Rajgarh. So to finance all these projects we have taken a three fold strategy.

One is the money that is coming from the operations; the operational cash flow. Another is the money that we have constantly been accumulating by selling off our non-revenue generating assets.

Probably many analysts, many people do not know that EIH has a huge land bank. You must have observed that in the last year we sold a piece of land in Gurgaon, right now we have saleable land in Puna, Bhubaneswar, Vellore, which is a tourist location in Karnataka. We have land in Kolkata, we have land in Agra.

All this land had been acquired at some point of time for various developments, and now the need for those developments are not relevant anymore. Hence we have decided to dispose off all this land.

As I said, the second part of the revenue will get generated out of the sale of these properties, and then there will be borrowing. For the entire capital expenditure that is planned, from now till 2010, which is Rs 1600 crore, I do not see borrowing beyond Rs 400-500 crore.

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