10-08-2015, 02:36 PM
Prashanth Rao Aroor
MD & CEO at Intellistay Hotels P Ltd - Mango.Hotels
Building a Hotel Brand + management company requires the setup of heavy corporate structures of 5-10 crores a year. They start turning out EBITDA at 1000-2000 keys at a corporate level.
Meanwhile the scale-up is nowhere close to the peer markets in SA and AsiaPac given the 'Regulatory Arbitrage' of building in India.
The end result is we have a plethora of chains that have gone to 1000-3000 keys but nowhere close to the 10,000 keys which starts giving real marketing and pricing muscle and 'One Window' solutions. Those that have reached the magic number are sitting pretty at least where they dont have heavy balance sheets with heavy assets.
Now to add complexity, we have a slew of new age aggregators who are confusing the term 'Hotel Operator' by doing the function of an OTA but behaving like a brand and leaving a name and guarantees with the property. I believe the term that now denotes them is 'Hotel Network'. While they dont affect branded chains they do have a 10% common clientele for those at the bottom of the pricing band of Mid Scale and Budgets. These aggregators however have spectacular inventories which has it's benefits. Brands who manage whole hotels will take much longer to reach those inventories because it's not just about signing flags, it's about optimizing them and building a corpus for value addition, making the owners their primary client and able to invest in the long term for those properties. If you build your business on critical partnerships, build your partners business as if it were your own right?
Now lets take Brand A with 2500 keys and a corporate that costs 7 crores a year & Brand B with 3500 keys and a corporate of 8 crores a year. The per key per year cost of both corporate setups separately are: A: INR 28,000 per key per year and B: INR 22,800 per key. Both companies valuations would be similar multiples of EBITDA and at those key sizes there is no significant difference in intangible brand values.
If A and B had to merge, the combined corporate of A+B would have a lot of redundancy and could be merged at a collective 10 crores. Sales teams would merge, operations and development teams would merge. Only line managers may remain un-consolidated. So the new A+B would now have the 10 Cr a year corporate spread over 6000 keys which would be about 16,000 per key per year which is a significant improvement in corporate coverage which goes straight to the EBITDA. If A and B were differentiated, they would both exist or if they were similar they would probably take one of the names going forward.
The atmosphere and the math are compelling and brands are going to get into a phase of frenzied mergers. It's already begun. The next 3 years will see one grouping emerge as the largest inventory holder of hotels in India (NOT including 'Networks') and with a mix of format hardware specific hotels and a brownfield brand that covers the non-format space for full market breadth. The largest grouping is looking at a very rosy future as India builds point-point, implements GST and clears Hotel specific funding streams.
MD & CEO at Intellistay Hotels P Ltd - Mango.Hotels
Building a Hotel Brand + management company requires the setup of heavy corporate structures of 5-10 crores a year. They start turning out EBITDA at 1000-2000 keys at a corporate level.
Meanwhile the scale-up is nowhere close to the peer markets in SA and AsiaPac given the 'Regulatory Arbitrage' of building in India.
The end result is we have a plethora of chains that have gone to 1000-3000 keys but nowhere close to the 10,000 keys which starts giving real marketing and pricing muscle and 'One Window' solutions. Those that have reached the magic number are sitting pretty at least where they dont have heavy balance sheets with heavy assets.
Now to add complexity, we have a slew of new age aggregators who are confusing the term 'Hotel Operator' by doing the function of an OTA but behaving like a brand and leaving a name and guarantees with the property. I believe the term that now denotes them is 'Hotel Network'. While they dont affect branded chains they do have a 10% common clientele for those at the bottom of the pricing band of Mid Scale and Budgets. These aggregators however have spectacular inventories which has it's benefits. Brands who manage whole hotels will take much longer to reach those inventories because it's not just about signing flags, it's about optimizing them and building a corpus for value addition, making the owners their primary client and able to invest in the long term for those properties. If you build your business on critical partnerships, build your partners business as if it were your own right?
Now lets take Brand A with 2500 keys and a corporate that costs 7 crores a year & Brand B with 3500 keys and a corporate of 8 crores a year. The per key per year cost of both corporate setups separately are: A: INR 28,000 per key per year and B: INR 22,800 per key. Both companies valuations would be similar multiples of EBITDA and at those key sizes there is no significant difference in intangible brand values.
If A and B had to merge, the combined corporate of A+B would have a lot of redundancy and could be merged at a collective 10 crores. Sales teams would merge, operations and development teams would merge. Only line managers may remain un-consolidated. So the new A+B would now have the 10 Cr a year corporate spread over 6000 keys which would be about 16,000 per key per year which is a significant improvement in corporate coverage which goes straight to the EBITDA. If A and B were differentiated, they would both exist or if they were similar they would probably take one of the names going forward.
The atmosphere and the math are compelling and brands are going to get into a phase of frenzied mergers. It's already begun. The next 3 years will see one grouping emerge as the largest inventory holder of hotels in India (NOT including 'Networks') and with a mix of format hardware specific hotels and a brownfield brand that covers the non-format space for full market breadth. The largest grouping is looking at a very rosy future as India builds point-point, implements GST and clears Hotel specific funding streams.