EIH Ltd, which runs hotels and resorts under the Oberoi brand, drew a strong response for its recent rights issue. The issue was subscribed 160 percent. EIH, which has struck a long-term strategic alliance with Mandarin Oriental, a key player in the Far East , is betting on a turnaround in the bruised hospitality segment by H1 2021 once vaccines are readily available. With India’s busiest travel season round the corner, Moneycontrol’s Ashwin Mohan caught up exclusively with Vikram Oberoi, Managing Director and CEO of the Oberoi Group for a free-wheeling chat on consolidation in the sector, ‘revenge tourism,’ pick-up in leisure travel and much more.
We understand that the rights issue of EIH Ltd, which had an issue size of Rs 350 crore ended earlier this week and has been oversubscribed. Can you confirm that for us and will the proceeds be used mainly to reduce debt? If yes, what would be the consequent change in your debt to equity ratio?
Vikram Oberoi: Yes, your understanding is right. The Rights Issue has been subscribed 160 percent. The proceeds of the issue will partly be used for debt repayment and partly for general corporate purposes. The debt-equity ratio will reduce from 0.22 (pre-rights) to 0.10 (post-rights). We are grateful to and would like to sincerely thank our shareholders for having reposed their complete faith in the organisation’s ability to deliver long-term value even amidst this pandemic.
The hospitality industry has been badly hit due to the global outbreak of Covid-19 and the business environment is uncertain, with many customers temporarily putting the brakes on discretionary spending. A clear path to recovery depends on the launch of a vaccine. Was the current uncertain environment the key driver for the recent long-term strategic alliance with another luxury player like the Mandarin Oriental Group? After all, collaborations today reduce overall business risk…
Vikram Oberoi: No at all. We were in discussions with Mandarin Oriental on the O&MO alliance for over a year. The rationale for the alliance between the two like-minded brands is long term, and that is to make our exceptional offerings mutually available to a much wider audience across the globe with both Mandarin Oriental and Oberoi guests. The O&MO alliance was originally going to be launched in April – we deferred the launch date to September 30 due to COVID-19 and the lockdowns across the world. With the launch of our alliance now, we have an advantage to be ready in time for when international air travel resumes next year.
Mandarin Oriental Group operates 33 hotels and seven residences in 23 countries and territories. It has a sizeable presence in the Far East, especially in lucrative markets like Singapore and Hong Kong. Post the strategic alliance, how many new properties will be added to the Oberoi portfolio in the Far East region and what’s the potential fresh exposure in terms of new customers?
Vikram Oberoi :The O&MO alliance brings together more than 50 of the worlds finest luxury hotels for discerning travellers all over the world – this is not just in the Far East but also in India, the United States, in Europe and in the Middle East. Members of the ‘Fans of MO’ and ‘Oberoi One’, comprising a total of 700,000 members today, will be entitled to benefits in hotels of both brands. Besides, the listing of O&MO on the brand websites of both brands offers the traveller visiting either website to select from over 50 finest hotels across the world . Prior to the pandemic, the total visitor count to the two websites was nearly 1.5 million per month which, in our view will increase as the O&MO alliance gets more publicity and visibility.
Going ahead, do you see more such strategic alliances between Indian hospitality players and overseas peers?
Vikram Oberoi: Whilst it is difficult for us to comment on possibilities in the industry which are hypothetical, we feel an alliance such as O&MO is unique and possible only with two brands sharing similar values and vision with a single minded pursuit - in this case the desire to offer exceptional experiences of luxury hospitality to our discerning and loyal guests.
By when do you see the domestic hotels segment returning to pre-Covid levels in terms of revenues and occupancy? How is The Oberoi Group placed in this regard?
Vikram Oberoi: This needs to be seen in the context of different market segments and the positioning of different hotels in the market. Hotels in sought-after leisure locations are already doing very well since the easing of the lockdown. This is especially true for resorts and properties that offer the luxury of space and with expansive gardens. Guests are looking for a much needed break, with a sense of peace and tranquillity. There is also strong demand in leisure as well as city locations by other key segments such as social functions. Corporate events and general Corporate travel is seeing some green shoots with the number of Covid cases in India on the decline, and with increasing air travel. With the second wave back in the west, one is unsure on when international corporate and leisure travel will resume, but with increase in hopes of launch of the vaccine there is reason for optimism in the near future. Under the circumstances, The Oberoi Group has been trending well, going by recent RevPar comparison trends vis-à-vis competition.
What are the key steps that have been initiated at EIH to reduce costs during this challenging phase of business? Is there a greater focus on back office automation, artificial intelligence, solar panel to bring down costs?
Vikram Oberoi: EIH has taken this phase as an opportunity, especially in looking at ways and means to optimize costs. Several steps were already initiated last year, including creation of The Oberoi Centre of Excellence (‘TOCE’), with the purpose of streamlining operational processes and reducing dependence on human capital for repetitive activities. Our entire Finance, Procurement and IT functions have been revamped under the aegis of ‘TOCE’, which supports not only seamless, integrated accounting and procurement procedures across all units of the group, but is also an enabler for digitized systems at our guest facing areas of Front Office and Food & Beverage. Our ‘green’ initiative ensures an entirely paperless environment in operations which is tied up to our control and accounting processes at the backend. A number of areas have already seen the implementation of AI and Robotics, which has increased our efficiencies manifold, besides enhancing accuracy. Several properties will have the majority of their power from solar plants - this should be in place before the onset of the next financial year. All in all, we see a permanent reduction of fixed costs by over 20%.
“Revenge tourism" (frustrated and restless holiday goers suddenly going on a spending binge ) is a phrase that has been thrown a lot during the lockdown period. Is it for real and if yes which segment will be the primary beneficiary? Leisure destinations like Rajasthan, Punjab and Karnataka have been the first to gradually attract domestic leisure guests. Goa and Kochi have also seen an increase in weekend hotel/leisure demand.
Vikram Oberoi: We have seen a spurt in demand for our resorts in leisure locations including Rajasthan, Chandigarh and Himachal Pradesh post the lifting of the lockdown. We have had guests who have been looking to travel and unwind after being confined to their homes owing to the lockdown, as well as social events, with the maximum number of guests restricted by government policy from time to time. Besides these segments, we have also seen interest among staycationers at our city hotels and also demand for social events.
Analysts believe the pandemic’ impact on hotel revenues and occupancy rates will create several m&a opportunities when the health crisis is over. Customers will vote for hygiene and familiarity , bigger brands will push the smaller ones in a corner and there will be a scramble for revenues when demand returns to normalcy. Do you concur ? Will smaller players be forced to sell out in India and will Oberoi group participate in such opportunities?
Vikram Oberoi: It is true that there is strain on business, especially in case of individually owned hotel assets. Under these circumstances, there could be consolidation of businesses in some form or the other. Whilst it is too early to comment or speculate on such opportunities, this may offer options on the table for larger chains to consider. At The Oberoi Group, our hotels are always well planned and bespoke, hence any such option would need to meet our Group’s ethos. In any case, all the projects already announced by The Oberoi Group are on and we have clear focus and plans for the foreseeable future. Speaking about hygiene, we were among the first to introduce the highest and most exacting safety and hygiene protocols across our hotels, hosting our standards on our website for the benefit of not only travellers and guests, but to the community at large. Our guests have consistently appreciated the depths of hygiene measure at our hotels.
India will soon enter its busiest travel season, which usually begins in November. According to a white paper on domestic leisure demand by STR , The months ahead are crucial for the segment and there might be an opportunity for hotels to reposition their offerings to attract this set of travellers. With the uptick seen in domestic leisure, the white paper anticipates “ Diwali will deliver hope of an improvement in hotel performance.” How optimistic are you as a hotelier?Vikram Oberoi: We are optimistic of the upswing in the hospitality industry once vaccines are readily available by the first half of 2021. However, even today with advances made in treating COVID-19 and the corresponding declines in mortality rates, there is a steady increase in demand for air travel, an increased propensity of domestic travellers to venture out on leisure travel and to attend social events. The festive season does enhance travel trends at leisure locations and we hope too that Diwali will usher in hope and optimism going forward.