Never seen such bad times: PRS Oberoi

For PRS Oberoi, the grand old man of East India Hotels (EIH), the future looks grim, what with the current business trends less than encouraging.

He says the hospitality industry has seen bad times before — the Gulf war, Kargil, 9/11 — but things have never been this bad, with the double whammy of the Mumbai terror attacks and the global meltdown. Oberoi spoke to the media after the company’s 59th annual general meeting in Kolkata on Thursday. Excerpts:

To what extent have occupancies taken a hit over the last one year?
We have never seen such bad times. And now, the H1N1 virus. We have not yet seen big cancellations across properties, but if the swine flu is not controlled as we step into the next season starting September —which is the peak season for hotels — things can go out of hand.  

Delhi is currently at 60% occupancy though it should ideally be doing 70%. Mumbai is at 45%. Our resorts generally see forward bookings 3-4 months in advance but now, it seems, we will see them one month in advance.However, we expect things to look up from the winter of 2010-11.

By how much have average rooms rates (ARRs) been impacted?
The ARRs are now at Rs 9,500 and are not likely to come down further — but they are already down 30% from levels seen a year back.

Will your capex plans be on track, given the backdrop of the meltdown?
We are curtailing our capex plans and thinking along the medium term instead of the long haul. We will invest Rs 350 crore over the next two years in renovating properties damaged by the terror attacks in Mumbai, in bits of equity in various properties and flight kitchens. Around Rs 100 crore has already been invested.

We have 26% in the Trident Bangalore airport hotel, 17% in the two hotels coming up in Hyderabad. The properties in Dubai, Gurgaon, and Abu Dhabi (two hotels) will be managed by us. We have to be conservative and not go in for any capex commitments for the next one year or even longer, if required.

What is the cost of renovating your Mumbai properties destroyed by the terror attacks?
Around Rs 120-130 crore. The renovation costs, along with additional security are adding to our operational costs by Rs 5 lakh per month per hotel. There is a proposal to have Central Industrial Security Force (CISF) personnel at hotels too. We have added 40-50 additional security personnel in the larger hotels in major cities. The Trident, Nariman Point, re-opened in December 2008 while the Oberoi, Mumbai, will re-open in 2010.

Has your terror premium gone up since the Mumbai terror attacks?
No, because we were already insured against terror attacks. There has been no proposal from the government to increase terror premium. But, in future, it will depend on whether re-insurers increase their premiums. There are two heads under which insurance is calculated: a) properties damage insurance, b) business interruption loss. Under the latter head, we have received Rs 96 crore as compensation of which Rs 65 crore has been paid. But, these are provisional figures.

ITC, which has a 14.98% stake in EIH, is dangerously close to the trigger point of 15%, which would allow it to make an open offer. The ITC chairman recently indicated that his company is interested in managing Oberoi properties. Will you consider such a proposal?
Didn’t you hear what Deveshwar (ITC chairman) said the last time — that he has no intention of creating any problems for EIH? We have not heard from him, he has not spoken to me and so I don’t know what proposal he is talking about. It’s up to them to make a proposal and much will depends on the kind of proposal I get.

Will the EIH promoters increase their stake?
The EIH promoters have a 46.42% stake. Earlier, it was at 38%, then it was increased to 42% and it has been at about 46% for the last two years. We can only increase the promoters’ stake by 5% in a year, according to Sebi norms.