Key hotels in city plan to check out, few check in

The hospitality groups that are attempting to de-risk their businesses include Asiana, Leela Palace, Taj Gateway, The Legends and the Thulashi Park. 

Business uncertainty and overborrowing seems to be the bane for hospitality operators in Chennai. And a few star hotels and hotel chains have been struggling to sustain their operations for some time now. For over a year, Hotel Asiana on OMR has been on the look-out for a buyer. “The State Bank of India has given a valuation of Rs 225 crore but the lull in the hospitality sector and a bad market are reasons for us not being able to close the sale deal,” confirms a senior official of Asiana, who shared the reasons leading to the current distress, on condition of anonymity.

While the process of due diligence is on, potential buyers from Dubai, Mumbai and Chennai have been evincing interest. “For the last six months now, nothing has materialised owing to the current scenario,” the official said, citing no major industrial development over the last three years as one of the reasons for the hospitality business taking a hit. 

The cyclical nature of the industry, high maintenance (timely and periodic renovation) and rising costs (including overheads to sustain operations) are among the key factors that have led to the distressing situation of the hospitality segment, he added.

Meanwhile, hospitality veterans DTNext spoke to, say that running the business has been a daunting experience. “No money, no manpower and maximum uncertainty have impacted all those in the business,” says T Nataraajan, CEO, GRT Hotels and Resorts. 

Pointing to last year’s December deluge and this year’s Cyclone Vardah among the factors adding to the industry’s current woes, he says those in business are looking at international locations (Pride Hotels going to Adis Ababa, Ethiopia, Residency Group foraying into Maldives, Leela going to the Middle East and Marriott Group expanding international footprints) to de-risk their operations or evaluating partnership management models to prevent the heavy losses being incurred by the hoteliers. 

Asiana, for instance, clocking Rs 10 crore profit on an annual revenue of Rs 36 crore in the initial phase is finding it tough to sustain. It is learnt that its current annual revenues stand at less than Rs 30 crore. Despite being a landmark hotel in the IT corridor, the standalone brand failed to bring onboard any international partner, leading to the decision to shut shop.

Apart from business challenges, the capital-intensive hospitality sector typically must go through a 10-year gestation period. Industry veteran R Rangachari, who is also advisor to The South India Hotels and Restaurants Association (SIHRA), says, “Apart from policies, the licensing regime and the expected three to five-year break-even period have all taken the sheen off the sector. 

Besides clearances from the Corporation and ‘No Objection Certificates’ from the Pollution Control Board, hoteliers end up coughing exorbitant sums to get bar licenses.” The prevailing rates to get bar licenses are in the range of Rs 35 lakh (for a 3-star) to Rs 55 lakh (for a 5-star hotel). 

Says an industry insider “We need to get 43 licenses to start a hotel business. There is no support from the Government also. To sustain, hoteliers are either eyeing business conducive locations and countries with a booming tourism industry such as Sri Lanka and Maldives (business is easy and come with guaranteed customers) or they keep borrowing till a point when the hardest decisions have to be taken.” Demonetisation, he goes to add, has made banks flush with funds, which is why lending activity will be on an upswing.

Meanwhile, the market is abounding with information about hoteliers looking at disposing off their existing ventures or raising money through stake sale. Leela, for instance, has been courting investors for over two and a half years now. 

Others on the de-risking route include the family-owned Thulashi Park (positioning itself as a 27-room value budget luxury hotel) and the boutique hotel The Legends, in T Nagar. Despite numerous attempts, the managers of these properties could not be reached for an official confirmation. While the star-category hotels have contributed a room capacity of more than 8,000 rooms, the non-star hotels have added a sizeable number taking the overall room capacity to the 20,000 mark, says Rangachari. The association has approached the Centre and the State for tax breaks for 2 and 3-star categories and incentives.