Exclusive interview with Sanjay Sethi, MD &CEO, Chalet Hotels Ltd
Sanjay Sethi discusses why the Indian Government should put the hospitality industry on the concurrent List and how sustainability concerns will drive hotels
Sanjay Sethi, MD & CEO, has put Chalet Hotels Ltd (CHL) on an aggressive path of development. Earlier last year, under his leadership, the group launched one of the most successful IPOs. The money raised will be used to expand into new territories: hotels with an old partner, Marriott International, as well as a property with Hyatt are in the pipeline.
The strength of CHL lies in hotel assets built in strategic locations in key metro cities, sustainable, efficient design that helps to increase ROIs, and development and incisive asset management. Sethi’s role in the Chalet is multi-faceted: besides business development on the asset end, he identifies new opportunities for the group, which has seen a sharp rise in growth, efficiencies and their EBITDA margin. In conversation with Hotelier India he talks about Chalet’s plans, how the industry has evolved, CHL’s sustainability measures, and what the industry expects from the government.
How has the hospitality business evolved over the last three decades?
The demand-supply proportion in the industry has changed drastically. We are in the positive demand upcycle right now, which is driven by a slowdown on the supply side. That is one side of the story. The second aspect of the story is that there seems to be a fair bit of distinction between the F&B side of the business and the room supply end. Many stand-alone F&B players are emerging on the scene, and we see that business is divided between hotels and restaurants. We are betting big on two or three things. The room side of the business will be the driving force of the hotel investments and the ROIs.
The second is the banquet side of the business, the MICE business, which will pay big for the industry in the future. The restaurant side of the business will have a much smaller impact on our bottom line. The right way to go is to limit the number of outlets in the hotels and let stand-alone restaurants do their bit. In Chalet, we have built hotels as part of a bigger complex and offer guests enough F&B options within the complex, across different price points and cuisines. We have an In-Orbit mall attached to the Bengaluru Marriott Hotel Whitefield and we have the ORB at JW Marriott Sahar, where over 28 F&B outlets and restaurants will be coming up, of which 17 or 18 are open.
How do you handle issues of food waste and sustainability? Do you, for instance, offer the food leftovers to a charity? What have been the steps taken on the environment front?
Once, we worked with Mother Teresa’s orphanages. But the fact is that the food leftovers from the previous night have to be stored in temperature-controlled conditions, which we did at the hotel. But once it leaves our hotels in the morning, we have no control over it. In one case, it so happened, that a hotel (not one of our hotels, but another brand) sent out the food to a children’s organization and the kids there came down with food poisoning. The hotel is not to be blamed because there is a lag time of four hours between the time the food leaves the hotel and is served to the children. Since then, we have decided to avoid sending out leftovers to children’s organisations.
Instead, we have a lot of community outreach programmes. Marriott, for instance, has its programmes for communities around their properties. On the Chalet side, too, we have a lot of programmes. We have developed some training programmes with an NGO with offices in Bangalore and Mumbai, under which we train some young people in soft skills and hospitality skills to make them employable. We are also trying to address the drinking water problems in the areas we are located in.
On the environment side, the group K Raheja Corporate has been very active in creating LEED-certified buildings for several years now. In fact, the last two hotels we built, Bengaluru Marriott Hotel Whitefield and JW Marriott Mumbai Sahar, are Gold LEED-certified.
We are also working on the energy conservation end and are assessing our hotels on their environment impact footprint; we plan to come up with programmes to deal with the carbon footprint. The image of the hospitality industry worldwide is of one that leaves a very high carbon footprint and we have to change that. We have already removed single-use plastic from our hotels. The next initiative we are launching is to remove all plastic bottles. Whatever food and paper waste we will generate in the hotels in the future will be used in the properties itself.
We have already reached a zero discharge space as far as water is concerned; whatever water is generated gets used in the hotels. We have water treatment plants and we use treated water in our flush tanks and for gardening. In the future, we want to move towards a complete Environmental, Social and Governance (ESG)-compliance and the management is quite emphatic on that front.
What do you think the Indian hospitality industry expects from the government?
The hotel industry needs to be brought into the Concurrent List of the government. That will ensure that we are mandated as an industry across states. Right now, while travel and hospitality are designated as industries by the centre, the states do not have consistency on that front. As a result, we don’t get benefits as an industry. One example I can give you is the cost of electricity, which is the second-highest cost for any hotel. And that differs so drastically across all states. For instance, in Maharashtra, it is as high as INR 14 to 15 per unit, whereas an industry would get it at INR four or five.
Then, as far as lending is concerned, we should get an infrastructure tag, which would ensure that we get loans for a longer tenure. We are a capital intensive business; it takes time to build hotels. You need longer periods to service the loans.
On a personal front, what has been your contribution to Chalet Hotels?
Chalet Hotels was always a well-run group. My role has been multi-faceted. I work on both asset management and development opportunities. Chalet’s EBITDA margin of 35% and occupancy of c.75% is superior to the industry average and is a testimony to the success of our asset management strategy. Further, with our high-end hotels, we are well placed to benefit from the imminent up-cycle in the industry. Also, our upcoming 588 keys and 1.12msf of commercial space will help drive growth going forward. We expect Chalet to report an EBITDA CAGR of 21% over FY18-21. We have seen steady growth and a sharp rise in efficiencies since 2017. Now with a successful IPO and adequate funds, we are looking at expanding our footprint. We are building Hyatt Regency Navi Mumbai Airoli, a 260-keys hotel at Airoli. Besides building hotels, we are also looking at buying ready properties in the right market at the right price.
*Read the complete interview in our upcoming February edition.*