The Hindu Business Line : EIH to take management contract route for growth

Mr P.R.S. Oberoi (right), Chairman, EIH Ltd, with his son Mr Arjun Oberoi, (centre), Deputy Managing Director, and Mr S.S. Mukherjee, Vice-Chairman & Managing Director, at the company's 54th AGM in Kolkata on Wednesday. - Parth Sanyal

Kolkata , Aug. 18

EIH Ltd, a member of The Oberoi Group, has decided to pursue an active growth strategy by acquiring management contracts in India and abroad.

Briefing newspersons here on Wednesday after the company's 54th annual general meeting, Mr P.R.S. Oberoi, Chairman, said the future strategy is to pursue the management contract route, with special focus on West Asia and the Asia Pacific regions, and also the home turf.

Not willing to give out any names at this stage, Mr Oberoi said talks were on with several parties in the region for contracts. Fresh investments in the hotels sector internationally have virtually ceased post 9/11. The current trend among some of the world's largest hotel chains, such as the Hilton Group, is veered towards management of hotels for a fee, said Mr Oberoi.

The group is exploring the market possibilities for service apartments, especially in areas such as Bangalore.

On the possibilities in China, Mr Oberoi said there was nothing on at the moment. But he said that China would emerge as a major market for new ventures in the hospitality sector.

Mr Oberoi said the group plans to continue strengthening its marketing efforts across the globe to optimise worldwide brand recall through specialised public relations companies in the US and Europe.

The group's Chairman confirmed that it would pay attention to the development of the existing hotel properties, including the ones whose construction has already been taken up, especially on the home front. Mr Oberoi admitted that since the hotel business involved real estate dealings, it was prone to collection of NPAs. Hence, management contract is a safer and a profitable option, which is also the current international trend, he said.

"In the last three years, investments in the hotel industry has practically come to a standstill all over the world," said Mr Oberoi.

According to Mr S. S. Mukherjee, re-designated as Managing Director, building a new deluxe hotel was a capital-intensive venture, and there were always limits on this for a single investor.

Mr Oberoi clarified that as per the new business strategy of growth through management contracts, things will eventually come into the projected revenue stream vis-à-vis investments. He said organic growth would be achieved through the two main brand classifications - the Trident Hilton and the Oberoi.

Pointing out that business in the first four months of the current financial year has shown a marked improvement compared to the same period the previous year, he said that sales increased by 19 per cent as on July 31, 2004. Operating profit increased by 57 per cent during the first four months of the current fiscal.

Mr Oberoi put the current room occupancy rates of the Oberoi hotels at around 70 per cent, with enough scope for an upward climb because of the co-branding strategic alliance with the Hilton group.

Mr Oberoi announced the appointment of Mr Vikram Oberoi as Deputy MD - Operations, and Mr Arjun Oberoi as Deputy MD - Development.

"Their expertise and knowledge of the hospitality industry after a decade's association with the Oberoi Group will now be available to the company on a full time basis."

Earlier, responding to shareholders' queries over rising interest costs on total loans amounting to Rs 842 crore, the Chairman said their concern was being looked into and efforts were on to reduce the cost of funds.