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20 MAY, 2012, 10.00AM IST, ULLEKH NP,ET BUREAU

Why Captain Nair, chief of Leela Hotels, is so confident about his

Early last year, Captain CP Krishnan Nair, chairman, Hotel Leela Venture Ltd, which runs a chain of luxury hotels, was quoted chairman Mukesh Ambani, son of his "long-time" friend, the late Dhirubhai, would bail him out if there was a hostile takeover company. Nair was reacting to the talk of a likely bid by ITC. And he did flaunt his connections, a little.

Later, the story goes, Vivek Nair, Krishnan Nair's 60-year-old son, wrote to Mukesh on behalf of his dad to apologise for not making such a statement.

But then Nair's connections always run deep: Mukesh is said to have replied that "uncle's" wishes were his commands. Nair a smile, playfully adding, "Why should he bail me out?" He ends the topic, saying, "Like father, the son is also a very very good frien Connections, Connections

"Of course, Nair has friends in high places. He has endeared himself to people with the attention that he gives them," says a M closely watched the Leela Group for decades. Friends he has won over are said to include the Clintons, the Obamas, powe corporate heads.

For someone who started his hotel business at age 65, Nair's is an extraordinary story. But right now, he also has an extraordin profit-less quarters and ongoing negotiations with lenders.

That amount of debt on an annual turnover of Rs 526 crore would have scared most industry captains. But not Captain Nair 17-strong consortium of banks agreed to a debt recast formula earlier this week. The captain's confidence ultimately boils dow whether he's right or not this time is one of the most fascinating questions in Indian business now.

Nair insists you look at the good things to get a perspective on the future. Robb Report has named his Udaipur hotel as one o there were only two entries from India, the other being Amanbagh in Jaipur. Architectural Digest named The Leela Palace Delhi "The Leela is a chain leveraging the absolute luxury of traditional grand hotels, but also merging this with the best in contemp

watcher Phyllida Jay. Yo Leela Leela!

"For someone from a pro-Left background, he has built some of the world's most opulent hotels," says Nair's bureaucrat-friend Am Mumbai Industrial Development Corridor. "Taj, Oberoi, Leela. That is what they say when they talk of luxury hotels in India," says The Leela Palace Delhi.

Australia-born Graham Grant, general manager of the Leela Group's lakeside retreat in Udaipur who had earlier worked in luxury Gold Coast, says, "Versace showcased intimidating luxury. Luxury is as grand as anywhere else, at Leela, but it is not intimidating

The group, which launched its hotel business in 1986 often draws inspiration from local architecture, be it at the Leela Palace i royal palace) or at the one in Udaipur (Mewar palace) or at its upcoming Chennai property (Chettinad architecture).

The hype around the "Leela experience" has many buyers. A recent board meeting of Goldman Sachs was held on the ninth floo parlance, is "the flagship space of the flagship Leela hotel". Leela Delhi staffers boast about Tom Cruise spending time at its presi Britain's Prince Andrew couldn't resist the lure of the $6,500-a-night suite though he had the option of free accommodation. That MPs for being "reckless" with taxpayer's money is a different story.

Other well-known guests at The Leela New Delhi include Warren Buffett, the emir of Qatar and GE's Jeffrey Immelt. Says leade Leela offers the best mix of Oberoi and The Aman, a non-nonsense business hotel and an exotic retreat." The Flipside

But will the Leela Group pay the price for extravagance? "The economics of building properties is the key to profita PricewaterHouseCoopers. "This is applicable to any hotel group. If you can't justify the spend on a room with the charge you are for disaster," he says, emphasising that selling off a few properties - like the sale of its Kovalam hotel-could help Leela "deleverage Hotel Leela Venture is sitting on a debt eight times its annual revenues of 2011. "Backing such expensive properties with debt Chennai-based hospitality consultant who isn't authorised to speak to the media.

"It is true that the Leela group can service its debt through the sale of at least a few of its properties, but this kind of debt is with a Delhi-based consultancy. A top executive with a Mumbai-based bank says, "It is not that the group is going to go down. It is its land bank would help it a lot," he adds.

The Leela group has a huge land bank measuring 8.93 lakh sq ft across Pune, Bangalore, Chennai and Hyderabad. Hotel Le growth in revenues, had its debt-to-equity ratio, on a standalone basis, at 1.8 for the six months ended September 2011, against

for EIH, which runs the Oberoi.

In recent years, the Leela Group, which was earlier present in Mumbai, Bangalore and Goa, has spent Rs 3,400 crore for building and Chennai (under construction). It has also spent Rs 350 crore for land across Pune, Hyderabad, Bangalore, Agra and crore to set up a "business park" in Chennai. It is also looking at operating properties in Agra and Jaipur.

Captain's Strategy

Nair, a former officer in the Maratha Light Infantry, dismisses "expert takes" on debt problems as a display of an "Indian mentality "meaningful steps". He leaves it to his older son Vivek, vice-chairman of the company, to dwell at length on the corporate debt res

"When my son [Vivek] went to the central office of the SBI [key lender to the Leela Group] in Mumbai last week he was welco immediately picks up his phone to speak to finance director Krishna Deshik. After initial pleasantries, he insists Deshik alone "Don't leave it to anyone else," he tells him.

"Financial discipline is crucial," he says after hanging up. "They [banks] trust us because we have never defaulted on loans." company expects to pay the debt repayable in the next 3- 6 years in 10 years."

In a market where revenue per available room (RevPAR), a measure of a hotel's profitability, is expected to fall in the next few y According to Crisil Research, RevPARs across hotels are expected to fall by 8% in 2012-13.

But Nair isn't bothered. His belief comes from his life story. He says: a story of overcoming odds, thanks to, among others, the pow Textile Foray

Nair was first posted in Abbottabad (where Osama bin Laden was captured and killed last year) as a wireless officer during involved intercepting messages exchanged between the two major axis powers, Germany and Japan. When he took voluntary re was posted in Bombay as an ADC and principal staff officer to the Bombay Army Commander General. He took the "brave" decis firm, Rajarajeswari Mills as marketing officer based in Bombay.

Nair says he was inspired by his guru Swamy Sivananda to do that. "It [the handloom business] had to be modernised to save Nair. Along with other business representatives from across the country, he met the then prime minister Jawaharlal Nehru.

"He was initially reluctant to help," says Nair. But they persisted, and finally Nehru granted permission to set up the All India Handl to modernise all handloom units. "I knew Nehru was a vainglorious man. So I said we have technology from Hamburg, and he stressing that it was his friendship with the late VP Menon, civil servant and political adviser to the last viceroy of India Lord Moun handloom business.

By 1957, he was eyeing bigger opportunities. He wanted to set up a lace manufacturing plant in Bombay, and was in talks with Johnson Sheilds Co to enter into a pact to buy his lace-making machines. When he and his wife Leela met Mitchell in the UK, you. I want a reference." Leela suggested that Nair call "uncle VP".

"I realised she meant I should call Lord Mountbatten, who was very close to VP," recalls Nair. "I immediately asked Mitchell if Mountbatten picked up the call and I introduced myself... Krishna? VP's son? He asked. I didn't say anything [he laughs]. Moun started shivering..."

"Krishna is my boy. That is what he told him.... So he agreed to sell us four machines. That is how we started Leela Scottish Lace big entity." He adds, "It was we who introduced the 'Bleeding Madras' fabric and other handlooms such as Cheese Cloth and especially the US." Starting Anew

In 1986, Nair was 65 - an age when businessmen usually retire. He says overseas travel - and meetings with great hoteliers life, and it was then that Leela suggested that he get into hotel business. "Near the Sahar airport [in Mumbai], there are no good That was the beginning of a journey, recalls Nair. "Well, I don't want to talk about unhappy occasions. Because I always seek happiness," he says of the initial hurdles in acquiring

Mumbai used to visit his hotel in the suburbs "just to have a look at this wonder [The Leela Bombay]". Indian Hotels: An Overview 8%: Expected rate of fall of RevPARs (Revenue per available room) in 2012-13

20%: Rate of rise in rooms in 2012-13 in India - this is a record high. The earlier highest increase in supply in a year has been 15% 11%: Rate of rise in demand for rooms in 2012-13 56%: Rate of decline in occupancy levels in hotels. These levels will be historic lows

The rest is history. Five years later, he set up his second hotel in Goa. "But that was the year of the first Gulf war," son Vivek soon we started making gains."

Much earlier, the then Karnataka chief minister Ramakrishna Hegde, a friend of Nair's, wanted him to set up a hotel in Bangal modelled on the Mysore Royal Palace, was launched in 2001, a few months after the 9/11 attack. "It was a bad year," says Vivek the Federation of Hotel & Restaurant Association of India.

"We had more rooms than two of our rivals in the city. And we deliberately charged as high as Rs 8,000 per suite... we could do luxury," says Vivek, adding that the hotel became profitable soon. "We were a debt-free company within years of building those thr Small, Big Steps

Like his dad, Vivek, too, has a penchant for long conversations. Seated on the ninth floor of Leela Palace Delhi, he talks in his b World is Flat, which on page 1 mentions The Leela Palace Bangalore.

"He mentions the Leela thrice in the book," he says, and talks at length on many topics: the problems facing the Indian hospitali his father, new properties, and more. Finally, he comes to the core issue: the huge debt.

We are going to take a multi-pronged approach, he insists. To begin with, his company is going to dispose of land assets in selling "non-core assets", and expects to pocket `120 crore in the process. In Pune, he won't sell off the land, but will join han upmarket residential apartments. "We expect to earn Rs 220 crore through this alignment", Vivek says.

In Bangalore, the group will tie up with property developer Prestige Group to build "Leela Residences", which will be sold to individ located next to its hotel property in the city, the plan is to offer dwellers five-star services for a fee.

The project is expected to be completed in three years, and the company expects to net Rs 225 crore. Vivek adds that the com exchange for management rights, as it did for its Kovalam property in Kerala. It sold the resort for Rs 500 crore. According to couldn't refuse".

Vivek talks about another plan: the light asset strategy. This means the group will look at managing others' properties. Curren Gurgaon and in Kovalam. "We are looking at securing 10 such 'management only' properties in a year," says he.

Besides, it will also sell its business park in Chennai. Apart from this, "thanks to the CDR programme, we plan to replace says. Vivek expects to make some gains if the government awards infrastructure status to the hotel industry - something that will h cheaper loans. Typically, companies fearing loan default apply to the CDR cell to seek relaxation of their repayment schedule and Too Young to Perish

"The Leela group is also looking at finalising a large-scale development consisting of hotels, serviced apartments and conven company in Bangalore," Vivek adds, without elaborating. It will also create a sub-brand in the non-luxury five-star segment as says without disclosing more details.

"We expect to be debt-free within the next 10 years," he declares. The conversation veers towards the Delhi property. He says the up to the last Commonwealth Games - 27 such plots were up for grabs to build hotels. The Leela plot was the only plot auction offered on lease. The government's idea was to use the proceeds to construct ministerial bungalows and buildings for bureaucra paid upwards of Rs 600 crore for land," he says.

"I am confident," Vivek says, "because all 17 lenders have approved our debt recast." PK Sethi, senior executive vice-president, with the implementation of the envisaged strategy (debt recast), the company is "expected to improve its performance and service

The senior Nair is even more confident. He concludes the lengthy interaction with ET on Sunday in his office at Leela Bombay b won't bring him down. "Don't worry. Be happy. Let's eat," he says. And he tucks into a lunch of dosa and methi fish curry with gust

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