Analysis Of The Indian Hotel Company Limited

The Indian Hotel Company Limited (IHCL) is an Indian based Hospitality Company which provides accommodation services in four different market segments globally. The company has its headquarters in Mumbai, India. It is listed in Bombay Stock Exchange (BSE).

Company strategies

The growth strategy of the company is to operate 20,000 rooms from the current 14,000, in 25 major destinations around the world. They target on a group turnover of US$ 2 billion, from which 33% would be from international operations by 2012.

Company operations

The company portfolio comprises of 4 brands; The Taj hotels which concentrates on luxury market, The Vivanta which is upper upscale, The Gateway hotels which is upscale and Ginger their budget hotels. The company operates India’s only wildlife lodges called Taj safaris in joint venture with CC Africa.

Company Background

The Indian hotel company limited (IHCL) was established in 1902 by Mr Jamshedji Nusserwanji Tata. In 1903 the first hotel Taj Mahal Palace was opened in Mumbai. The year 1974 saw an expansion of the company by opening its second property at Goa and went on adding properties at a rapid rate fuelled by the Tourism growth in India. Till date it has added 104 properties across the globe to its portfolio. The company is listed on Bombay stock exchange (BSE).Tata sons limited which is the parent company holds 28.5% equity capital in IHCL.

Parent Company

The Tata Sons limited was founded in 1868 by Jamsetji Tata. It has its presence in various sectors such as Steel, Automobiles, Information technology, Communication, Power and Tea. It operates in more than 85 countries across 6 continents. It has a group turnover of over Rs.124, 970 crores ($24.5 bn). It accounts for nearly 6% of the total market capitalisation of Bombay Stock exchange (BSE).

Stakeholders

Shareholders

Key people

Mr. Ratan Tata: Chairman of Tata sons Limited

He became the chairman of the Tata sons in the year 1981 which is the largest Indian conglomerate. The group comprises of companies namely Tata motors, Tata steel, IHCL, Tata consultancy services (TCS), Tata Power, Tata tea, and Tata Telecom.

He graduated from Cornell University in architectural and structural engineering and joined the company in the year 1962. In 1971 he was appointed as the director in charge of NELCO which was in strong financial crisis. His risk taking capability and vision made him the successor of JRD Tata.

Tata sons under his leadership made a number of acquisitions such as Chorus steel, Jaguar motors and Land Rover. This made the company’s presence in global market.

Mr. Raymond.N.Bickson : MD and CEO of IHCL

He joined IHCL in the year 2003 as chief operating officer of the luxury segment. In the same year he assumed the responsibility of MD and CEO of the company. He carries more than 30 years of international hospitality management experience. Prior to IHCL he worked nearly 15 years as a vice president and general manager for The Rafael group.

An American national, Mr. Bickson attended the École Hôtelière Lausanne in Switzerland and Advanced Management Programme at Harvard Business School. He is an active member of Leading hotels of the world and World travel & tourism council.

During his tenure, IHCL went through rapid expansion by acquisitions, managing contracts and joint ventures at domestic as well as international market.

Mr. Anil P Goel : Executive Director Finance

He overlooks the Taj Group’s Finance, Mergers and Acquisitions, Purchase and Legal & Secretarial function. He is a non-executive director for Taj GVK limited.

Mr. Abhijit Mukerji : Executive Director – Hotel Operations

He oversees hotel operations of the Taj Hotels Resorts and Palaces which include Taj Luxury Hotels – India and International, Taj Business Hotels, Taj Leisure Hotels, Taj Spas, Taj Trade and Transport and Indi travels.

Mr. Ajoy K. Misra : Sr. Vice President, Sales and Marketing

He represents Taj in industry organizations such as the World Travel and Tourism Council, India Initiative (WTTC II), World Tourism Organisation (WTO), Hotel Association of India (HAI), Bombay Chamber of Commerce and Industry, and the Confederation of Indian Industry (CII). He served as General Manager of the Taj President in Mumbai and Area Director in the Sri Lanka and Maldives region.

Mr. Prakash V. Shukla: Sr. Vice President, Technology and Chief Information Officer.

He is currently responsible for total IT deployments at the Taj Group and is on MD’s management committee.

Mr. H.N. Shrinivas: Sr. Vice President – Human Resources

Mr. Shrinivas has worked for 18 years with the Taj in Human Resources, Learning & Development and Business Excellence functions. He holds a Master’s Degree in Social Work from the National Institute of Social Sciences, Bangalore, and a Masters in Industrial Law from Bangalore University.

Mr. Veer Vijay Singh : Chief Operating Officer – Upper Upscale Hotels

He is responsible for the Operations and Overall Performance of 36 hotels in 26 locations spread across seven countries under upper upscale category. He graduated from IHMCT&N, New Delhi and had the opportunity to enhance his skills by attending training programmes conducted by Cornell University Singapore, INSEAD & Harvard.

Ms Jyoti Narang : Chief Operating Officer – Luxury Division

Taj Hotels Resorts and Palaces

She is responsible for the overall development and operations of the luxury category hotels. When she was the Chief Operating officer for the upper upscale division, she was instrumental in pioneering the launch of Taj Safaris which is a unique concept that offers adventure tourist a distinctive wildlife experience. In 2008, Ms.Jyoti was appointed as the Chief Operating Officer of The Gateway Hotels, the new upscale brand of the group, and was involved in developing the concept and launching the brand.

Mr. P.K.Mohankumar : Chief Operating Officer

Gateway Brand

Mr. P. K. Mohankumar has over 35 years of experience in hotel operations with the Taj Hotels, Resorts and Palace. He is an alumnus of Institute of Hotel Management, Mumbai and has participated in several senior leadership workshops conducted by Harvard Business School, Michigan University, USA, Cornell University, Singapore and IIM, Ahmedabad. Currently, he is the Chief Operating Officer of the Gateway hotels, and is responsible for the operations and performance of 19 properties in India.

http://ehis.ebscohost.com/eds/pdfviewer/pdfviewer?vid=3&hid=102&sid=ce8939c4-8df1-4962-9afe-f373f4140a95%40sessionmgr112 accessed on 23 Nov

Sustainable Tourism

EARTH (Environment Awareness & Renewal at Taj Hotels)

The EARTH program was launched in August 2008, put forward to reduce the impact of the Hotel group’s daily operations on the environment. EARTH programme has received certification from Green Globe. Currently 55 properties under IHCL are certified and the company is looking forward to put all the hotels under the certification by 2009-2010. The company focus on improving energy efficiencies, water management, solid waste management which helps to reduce the strong impact on environment.

Porter’s five forces

Competition plays a major role in today’s world. Competition can have both beneficial and unfavourable effects. Competition for profits goes beyond established market rivals to include four other forces as well. They are Customers, Suppliers, New Entrants, and Substitute products. To understand industry competition and profitability, we must analyse the industry’s structure in terms of the five forces.

Threat of new entrants: New entrants can put pressure on prices, costs, and the rate of investment necessary to compete. Due to globalisation and rapid economic growth of Indian market a favourable market has emerged for International hotel chains. Hotel chains like Four seasons, Marriott International Inc., Starwood Hotels and Accor Hotels have recently came up with projects across India. New International hotels such as Shangri la, Mandarin, Movenpick and Ritz Carlton are in pipeline. Entry of non-hospitality companies into hotel sector can be a threat; such as Reliance Industries. Due to dilution in the market the profitability of IHCL can be at stake.

Bargaining power of suppliers: Suppliers have more power if they have the monopoly or do not depend heavily on the industry for its revenues. As hospitality industry is hugely labour oriented, their trade unions and labour suppliers are powerful. As hotels chains are looking for rapid expansions and prime properties, the power of property owners is high. Inbound tour operators are having an upper hand as they provide huge volume of business to the hotels. Infrastructure suppliers have moderate power over the company.

Bargaining power of buyers: Powerful customers demand more value by forcing down prices for better quality and more services. This results in higher operating costs thereby bringing down profitability. Corporate clients due to their huge volumes have negotiated rates. Company had to come up with loyalty programme for retaining customers which incurs costs.

The threat of substitutes: A substitute does the same or a similar function as an industry’s product by a different means. The threat of a substitute is high when it offers an attractive price and service to the similar industry’s product. Luxury serviced apartments, camping and lodges are in demand. The Government’s introduction of bed and breakfast hotels can really be a threat. Web 2 which enables video conferencing is an emerging product which can be a threat to MICE (Meetings, Incentives, Conferencing and Events)

Rivalry among existing competitors: Rivalry among hotel chains results in discounting of price, new product launch, advertising campaigns, and improvement in service. If there is high rivalry the profitability of the company can be affected. The hotel products are highly perishable, which creates an urge to cut prices and sell the inventory below its profitable rate to cover the fixed cost.

Internal environment of the company:

The internal environment of the company can be divided into two types they are Tangible and Intangible resources.

Tangible resources include assets which can be seen and felt, like physical properties, Yachts, Flights, and other fixed assets which spread around 5 continents.

The intangible resources are the one which cannot be seen or felt but play a major role in the business like the brand value, Leadership style, Human resource etc.

IHCL being the subsidiary company of Tata Sons Limited, which has a company background since 1868. IHCL itself operates in hospitality sector in India for last 108 years, and have the market share of 22% in India shows the brand value of the company. In terms of leadership style the company has a style of innovations and pioneer of Luxury property and wild life lodges (Joint venture with CC Africa) and budget hotel chains (Ginger Hotels), Spa resorts and properties in India.

The human resources in the company is around 20,000, which includes permanent staff, Fixed term contract workers and other Executives and Corporate staff. The company has various staff development program such as TMTP (Taj Management Training Program) SPEED PLUS, HOMT for standardization of operations throughout the company.

External Environment:

It can also be called as Operating environment. Factors which influence organizations opportunities and risks; such as conditions, entities and events consists of its external environment.

PEST Analysis

Political:

Political instability in some parts of India made foreign investors cautious; in turn brought down investment from abroad and business travel. Due to the recent terror attacks on hotels in Mumbai, there has been a drastic drop in tourists arrivals. Most of the Embassies have send travel advisory regarding African and Asian countries which has reflected tourist inflow. As Government of India has reduced the tariffs and duties on various items, trade relations have improved. It encouraged travel and trade which resulted in growth of hotel industry. The Ministry of external affairs has implemented visa on arrival for several countries in an effort to promote tourism. The government has released a five-year tax holiday to promote the growth of new hotels. External Commercial Borrowings have been eased by the Ministry to elucidate the problem of liquidity being encountered by the hotel industry due to economic slowdown. The Ministry of Home Affairs has agreed to grant Long Term Tourist Visa of 5 years duration with Multi-entry facilities carrying a condition of 90 days on each visit to the nationals of the following 18 countries which are France, Iceland, Germany, New Zealand, Luxembourg, Japan, Netherlands, South Korea, Belgium, Argentina, Finland, Brazil, Spain, Chile, Switzerland, Mexico, Norway, and Vietnam on request of tourism ministry.

Economical:

Early 1990’s saw economic liberalization which led to a boom in the hospitality industry. The Government has allowed Foreign direct investment and Foreign institutional investment; which favours business travel. Compared to other South East Asian countries; tax structure in India is very high. Inadequate infrastructure facilities like Airports, Communication facilities and commuting facilities is a challenge for the Tourism sector. The effect of recession is causing serious problems for many hotels especially luxury hotels in particular. Hotels in certain global markets, mainly those operate in leisure sector, are less affected. All geographies are not equally affected by recession.(have to include graph from the site quoted in link , leading hotels of the world)

Social:

Indian customers are highly sensitive to price. A lot of them tend to compare services offered with price. Hoteliers face a challenge to design price strategy in each sector. There is a conflict between local community and hotels on space availability especially at beach destinations. The company has got an advantage of world’s largest concentration of young educated work force and thus decreasing the labour costs. Two religious communities being Hindus and Muslims have religious sentiments towards beef and pork which is consumed by foreign tourists. This raises conflicts between the organization and religious groups. Large scale tourism operation results in environmental pollution and an increase in carbon emission.

Technological:

The launch of E-commerce has revolutionized the hotel sector by reducing cost and increasing functionality. The introduction of Global Distribution System allows customers to access current time availability of products. The growing influence of video conferencing has got negative impact on MICE (Meetings, Incentives, Conference and Events) division. It is possible to get critical information on clients and products while away from desk due to wireless technology. This has improved customer relationships, saved time and increased revenue and profit.

Indian Tourism Scenario

Despite a drop in FTA’s in India due to economic slowdown, domestic tourism has showed an impressive growth of 15.5 % in the year 2009.Domestic tourism supported the industry during unfavourable condition.

India’s performance in tourism sector has been remarkable. During the period 1997 to 2009, India perceived an increase in the Foreign Tourist Arrivals from 2.37 million to 5.11 million. Because of global slowdown, terrorist activities and H1N1 influenza, growth rate in FTAs during 2009 fell by 3.3 per cent. The global tourism fell by 4.3 per cent. The plummet in India was less than that of the scale of global slowdown.

Foreign Exchange Earnings (FEEs) from tourism increased from Rs. 10511 crore in 1997 to Rs. 54,960 crore in 2009. The growth rate in earnings in 2009 vis-a-vis 2008 was 8.3 per cent. The percentage share of India in International tourism receipts has nearly doubled in past 12 years.

Solutions:

The Company has got only insignificant investments at political instable locations. To prevent future security threat the company has sought advice of security experts and invested heavily on improving security infrastructure.

To reduce the conflict between local community the company has come up with corporate social responsibility. For instance the company works closely with NGO’s to develop and train underprivileged housewives to earn their livelihood. The company tries to promote Indian culture by encouraging local artisans and craftsmen. This helps the local community in broadening their own outlook. Foreseeing sustainable tourism IHCL has come up with EARTH initiative to reinstate its vision and to preserve nature.

To overcome the revenue loss due to video conferencing the company came up with new strategy of marketing in- house video conferencing facilities for corporate clients.

SWOT ANALYSIS

Strengths

IHCL has a very dominant position in Indian hospitality industry with largest distribution of hotels around the country. Its key advantage is the established ‘Taj’ brand name. It has got a much diversified hotel and brand portfolio catering to different market segments which helps in capturing wider customer base. The company has got sales and marketing reach globally. The parent company being Tata sons limited which is one of the largest companies in India is an added advantage. Their presence in every segment namely luxury, upper upscale, upscale and budget allows more flexibility and stability. They have a well-diversified business model of subsidiaries, associates, joint ventures and management contracts which help in reducing risk and fuels faster growth. This asset light policy will help in revenue stability during economic turndown. Presently 45% of IHCL hotels are operated through joint-ventures, 40% are management contracts and 15% are owned in part or full by IHCL.

Source: Adapted from HotelierIndia Nov 2010, Press Release

The company has introduced a strong loyalty programme which helps in retaining customers. The company’s alliances and partnerships have helped it in entering into new markets such as wildlife lodges and air catering. They have the advantage of very strong corporate purchase chain whereby they can considerably reduce raw material cost. As the parent company is present in the production of FMCG’s they are able to procure items in a much competitive price. The company even have introduced loyalty programmes in conjunction with all leading airline companies.

Weakness

The less established brand name of the company in international scene can be viewed as a weakness. Nearly 75% of the company’s income is generated by domestic operation resulting greater dependency on Indian market. In domestic market even though company has its presence in more than 15 states; 66% of their revenue and nearly 90% of profits come from top six hotels in four cities. Even slight fluctuation in the country’s economy can affect profitability. The high dependency on higher-end luxury market can also be viewed as a weakness. Nearly 54% of the revenue is generated by these properties. Comparative size in line with international chains and insignificant international presence is a setback. The hotel industry in India is heavily staffed. In spite of international average 1:1 in India it stands at 2.1:1. Investments in acquiring international hotels have resulted in huge debt for the company.

Opportunities

Rapid growth in inbound and domestic tourism is a great opportunity for the company. Domestic tourism is growing at a phenomenal rate of 15.5% annually. Growing demand for budget and mid-segment hotels due to the growth of Indian middle class can be viewed as an opportunity. Healthy salary increases in corporate world is expected to create demand for leisure tourism. Launch of incredible India in both domestic and international market to promote destinations can be a boost in business. The introduction of medical visa may promote more volume and extended stay in all key destinations. The company’s entry into new markets such as wildlife lodges, luxury residences, and spas will create new growth prospectus. Budget airlines now have connectivity across the country with competitive rates and attractive offers which will inspire domestic tourism. Increased business opportunities in India again have paved path for growth of conference and event tourism.

Threats

Growing presence of international hotel chains such as Marriot international, The Four seasons, Accor group, Shangri-La, Dreams resorts and spas etc. can be considered as growing threat to the company. The expansion plans of Indian hotel chains like ITC India limited, The Leela group, The East India Hotel Company and The Lalit may affect the market share of the company. Due to the arrival of international airline operators and affordable international travel, there has been massive growth of outbound tourism mainly to south East Asia, Europe and Australia. This has increased risk for domestic leisure segment. Due the company’s portfolio of foreign currency debts, it is vulnerable to fluctuations in currency and interest rate risks. The debt equity ratio of the company shows drastic hike from the previous years which can really be a threat .

Source: Adapted from Annual Reports

“Debt to equity ratio indicates how the firm finances its operations with debt relative to the book value of its shareholders equity” (Fabozzi and Drake 2009 pp80). This indicates the comparison of equity and debt the company is using to back its assets. If the ratio is high then the company is said to be chancy as it is financed more by with debts and it might become even worse if the interest rates are high.

The company stands at a threat as the debt equity ratio shows a trend of escalation from .52 to .99 within a span of 4 years.

Strengths and Opportunities

Due the company’s presence across the country in different market segments it can capitalize the growth of domestic tourism. As the company has a well-established budget and mid-market segment hotels, it can benefit from the growing spending power of Indian middle class. Only IHCL has presence in wildlife lodge segment which shows growing demand every year. Loyalty programmes in tie-up with leading airline companies have resulted in greater exploitation of tourism growth in India. Company’s entry into wellness tourism by establishing Spas in its existing properties can milk governments plan to issue medical visa.

Strengths and Threats

By virtue of the company’s loyalty programmes and corporate tie-ups they would be able to hold to their market, even though new international players could stand a threat. IHCL have huge expansion plans in answer to other domestic hotel chains. By their plans to expand internationally it can lower the risk of outbound tourism.

Weakness and opportunities

Since domestic travel became cost effective, domestic leisure tourism turned robust and distributed, consequently reducing risk of concentration of revenue from key city hotels.

Weakness and Threats

To oppose the dependence on high end luxury market, the company has entered into budget segment which is stable comparing to the later. The company have international expansion plans other than existing properties outside India so that it will be resistant to domestic economic fluctuations.

Diversification

The IHCL has diversified its operation in hospitality sector from the hotel operation to other sectors like Air catering, Spa operations, Wild life lodges, Yachts, Charted Flights and Taj Khazana.

TajAir

TajAir is a charter flight operating company owned by IHCL, the subsidiary company of Tata Sons Limited4 pioneer aviation operator in India. TajAir at present owns 3 Air craft’s which can be chartered by guests for domestic and international air travel.

Ginger Hotels

The Ginger Hotels are self-service budget hotels operated by IHCL which targets mid-market sector.

Spas

Jiva Spas the subsidiary of IHCL which operates at more than 25 Taj hotels at 20 different destinations which offers different rejuvenating treatments and massages.

Taj SATS

Taj SATS is an air catering division of IHCL in collaboration with Singapore Air Terminals which caterers to domestic and international flights operating from 6 different cities.

Taj Safari

Taj Safari is a wild life lodge which operates in collaboration with CC Africa which is one of its kinds in India.

Taj Khazana

Taj Khazana is a signature boutique store of Indian handicraft, Jewellery and garments which operates at selected IHCL properties.

Current Situation

The Company has decided to raise Rupees 850 crores by issuing shares and warrants to the promoter company Tata Sons Ltd to fuel its rapid expansion plans.

Since the market is strong now the company has decided to raise its room tariffs by 10-15 percent.

The company announced the roll-over of 19 hotels under its new brand Vivanta by Taj Hotels and Resorts. The introduction of Vivanta which is a brand architectural exercise by the company will be slotted in the 5-star upper upscale segment in the Indian hospitality industry.

To exploit the on-going spree by Indian households on food and beverage spending, the company has rolled out several new F&B outlets in collaboration with world renowned chefs and restaurateurs.

To meet the current demands, they have invested a major share in Serviced Apartments, Wildlife lodges and Spas.

To achieve their goal of generating 33 per cent of total revenue from international operations, they are engaged in Management contracts and Joint venture oversees.

To capitalize the high demand of mid-market segment, IHCL has unveiled more than 20 budget hotels across India named “Ginger Hotels”

In order to recover the loss of revenue due to the dip of tourism in India, the company has gone into a new strategy of putting hold on salary hike and the incentive for the executives and freeze new recruitment in the company and predicts a profit of 15 cr.