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Leela Group Announces Five New Hotels, Rs 108-cr Net Profit

After reporting a Rs 108-crore net profit, the 20-year-old hotel chain has unveiled a plan to spend Rs 1,014 crore on expansion and refurbishments over the next four years, says Sourish Bhattacharyya

After extending their exclusive management contract with Kempinski Hotels in Berlin , the Leela Group has unveiled an ambitious plan to add 1,543 rooms over the next four years in existing properties and in five new hotels - one each in Gurgaon, Udaipur , Chennai, Hyderabad and Pune.

The expansion (coupled with a major refurbishment of The Leela Kempinski, Mumbai, the group's flagship hotel opened in 1986) will cost the hotel chain over Rs 1,000 crore, but the Leela Group President, Peter Leitgeb, said that it would be financed entirely by "very strong cash flow conversions" (the company expects to close this financial year with a net profit of Rs 108 crore), foreign currency conversion bonds (FCCBs) and the money owed by HUDCO.

Leitgeb had just returned from what he called a "financial road show" in Europe and the US to raise the awareness about the company among leading FIIs. But, to use his words, he didn't have to work too hard because " India is the flavour of the decade."

On the alliance with Kempinski, Europe 's oldest hotel group established in 1897, Leitgeb said the Leela Group's strategic partner will get a percentage based on performance, but he declined to go into the specifics. "The better the performance, the higher percentage," was all that he was prepared to indicate. The Kempinski Hotels, for the first time, will hold their worldwide annual sales and marketing meeting in India later this year, after opening their first office here.

"They will tap the enormous potential of India 's outbound market," Leitgeb said. "I fail to understand why other European and American companies are not looking at this market." Outbound India , in term of numbers, is "like EU on the move," he said, adding that the executives of the Leela Group and Kempinski may eventually make joint sales calls to get a share of the outbound movement.

The Leela Group's expansion strategy is based on two lines of thinking - one, to add rooms in overheated markets so as to reduce 'the turn-away factor', and two, to enter under-served (Chennai and Udaipur) and emerging (Pune) markets. The luxury hotel chain has also entered into a strategic alliance with the Kumarakom Lake Resort to buttress the offerings at its new acquisition, The Leela Kovalam Beach, and to position Kerala as a destination of experiences - sun and sea at Kovalam and ayurveda plus backwaters at Kumarakom.

In Mumbai, the company, in a drive to enhance its RevPAR (Revenue Per Available Room), which is already No. 2 in the metropolis after JW Marriott, has flagged of the Phase III involving 111 rooms of a major renovation programme costing Rs 104 crore. As Sanjoy Pasricha, Vice-President, Sales and Marketing, The Leela Group, explained the hotel was built at a time when in-room facilities like the four-feature bathroom and Plasma TV were not known. The refurbished hotel will have these features as well as platform beds, custom-made mattresses and a minimalist look. Also to be added are a Chinese restaurant and a spa.

In Bangalore, where the average room rate (Rs 20,000) and incredibly high occupancy (80 per cent) can become a major liability in the long term, The Leela Palace is rolling out 144 new guest rooms at an investment of Rs 40 crore. The Mumbai as well as the Bangalore projects are slated for completion this year.

Among the new hotels, the first to take off, and likely to challenge the invincible Trident Hilton (which is posting the highest ARRs in Delhi-NCR), will be The Leela Kempinski at the 1km-long Ambience Mall on the National Highway-8, Gurgaon. Positioned to tap the IT and financial sector markets (which yield a heavy long-stay business), it'll be the first Leela-managed hotel with 319 rooms (each room will sprawl over 45 sq. m. and have walk-in shower stalls) and suites, 90 serviced apartments with variable bedroom options, and 15,000 sq. m. of shopping space.

It'll have Delhi-NCR's fifth Pan-Asian restaurant, besides the obligatory spa, and will open in 2007. Observers are skeptical whether a hotel in a shopping mall will be able to dent the Trident Hilton business and that of the upcoming Oberoi property, which will officially be the NCR's first Vilas. Pricing ultimately will be a key factor in deciding where the Leela property will be able to position itself in the market. Maybe Radisson and Sarovar Park Plaza have more to fear from The Leela in Gurgaon.

Also positioned to tap the expansion of the IT industry to centres outside Bangalore will be the hotels in Chennai, Hyderabad and Pune. The Leela Kempinski Chennai, which is being built with an investment of Rs 327 crore (350 rooms and suites, opening in 2008), will be the city's first seaside hotel on seven acres of pristine beach (the second longest stretch in the world) on the Marina waterfront.

"Chennai is going to be the hottest destination in India ," said Leitgeb. Given the steady movement of IT companies on the road to Mahabalipuram, he's bang on target. Leela's next target will be Hyderabad 's Banjara Hills, where the three Taj-GVK hotels are in a position to offer three pricing options to different levels of the market. With the city's new convention centre, which opened last year with a major ADB conference, and the airport being the first off the starting block in the modernization programme, the cyber city, which is also getting a major biotech hub, is poised to be the dream destination of hoteliers. The Leela Kempinski Palace , Hyderabad (300 rooms and suites being built at an investment of Rs 310 crore), is expected to be commissioned in 2010.

Pune, which is strategically located on the Knowledge Corridor emanating from Mumbai, is another strong market, where the two existing hotels have been recording 90 per cent occupancy. The Leela's 260-room hotel there (investment: Rs 135 crore) is slated for a 2009 opening as well.

Outside the IT circuit, the group's only foray will be into Udaipur , a luxury travel market that is currently under-served, despite the Lake Palace , Udai Vilas and Arvind Singhji Mewar's heritage hotels. The Leela Palace Kempinski, Udaipur , will target the MICE market with its 80 oversized deluxe rooms and conference facilities facing the Lake Pichola . And the Rajasthan Government, assured Pasricha, is building a dam just to ensure that the lake never dries up.

Well, at the moment, The Leela Group's thirst for expansion shows no signs of drying up.

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