The Leela Hotels’ Story, like that of India, is only Beginning, with a Promise of Multi-Decadal Growth Going Ahead
A live-wire that is strong on both Development and Operations, with some 35 years of experience behind him, with Starwood and then Marriott, an IIHM graduate who has led Leela Hotels over the last six years. Anuraag Bhatnagar, heading the hotel portfolio of the global investment firm Brookfield, believes in continuously learning on the job, there is never a dull moment for him. With 13 operational hotels, another 10 in the pipeline, he prefers quality and standards to maintain rather than just numbers. By 2030, he will have over 5,000 rooms all in pure ultra luxury play. Here, we catch up with him at the Leela Palace in New Delhi, with the hotel interiors speaking for the quality and dedication that its erstwhile owners, had enriched the hotel with. In conversation with Navin Berry, editor.
Navin Berry: What is your learning curve from Brookfield in six years? In terms of handling institutional finance, institutional capital, return on capital?
Anurag Bhatnagar: I would say a huge amount of learning. Because see, as a hotelier, I was very strong on operating metrics and operating fundamentals. But once I moved into Brookfield, I started having a lot more appreciation on deployment of capital, capital appreciation, return on capital employed, internal rate of returns. And you acquire an asset management approach towards your business. That’s if I was to say in one sentence that you, you have an asset management outlook that if, for example, 5000 crores of capital has been put to work. What is the return and the alpha that you are creating and the returns that you are generating? And how do you optimize that business to keep generating returns? And how you can compare your asset class versus other asset classes like commercial real estate, residential, to see what are the returns.
Secondly, being a global company, they are also into hospitality. Brookfield has more than 42 billion dollars’ worth, they have more than 180 hotels which they own as an asset, as a part of the real estate portfolio, including some iconic hotels like the Atlantis in Bahamas, the Conrad in Seoul and many other global locations. That also helps us have a global mindset in terms of real estate play. So, the learnings have been phenomenal and then taking the company to IPO, understanding the expectations of the market, understanding how the institutional capital works, how public currency can be used to grow your business, how to develop hotels from ground up; see, the highest and best use of land today is still residential, but how to get that return from a hospitality asset. All these have been huge learnings.
Navin Berry: When in our industry, we keep talking about responsible tourism, responsible luxury, you are extending that to responsible deployment of capital.
Anurag Bhatnagar: Absolutely, only if you responsibly deploy capital, can you do more mindful luxury and responsible tourism. Because ultimately, what you generate like today, as a listed company, and like I mentioned, we are PAT positive and are generating close to a very high number. It gives you the runway to be able to do more in terms of responsible tourism and responsible luxury.
Navin Berry: Tell me, in the hospitality industry, as you have seen it, we have transitioned in the last 20 -30 years from single owner properties to single owner or family driven, small chains, bigger chains. Is there a movement towards institutionalizing the entire industry as a whole somewhere? People going into an IPO, greater responsibility on their shoulders. They can’t just do things on their own.
Let’s take company X. It’s a family-owned thing. Father and family were driving it, all the businesses. Now suddenly they have an IPO of a thousand crores. So, then they become SEBI controlled, so and so controlled.
Anurag Bhatnagar: I would say in the cycle and in the journey of every organization, this is a critical milestone and could even be an aspirational milestone for a company. There is, as we have seen in the last few years in India, I can talk about the Indian sub-continent, we have seen institutional capital come at play, either at an asset level or even at a company level. We have seen of the listed companies in the hospitality space, at the minimum, there are two or possibly three or four which are backed by institutional capital. Like in our case, you know, Brookfield is 76% owner of Leela Palaces Hotels & Resorts even today, post IPO as well. So, there is a lot of merit in getting institutional capital.
If I talk about my learnings, I think the same kind of learnings can also transform how we evaluate our business. How we take decision making, what kind of approach that we have in terms of a business development, whether it is asset acquisition or asset light or asset right or asset heavy, all those decision-makings, and keeping that kind of a returns’ perspective. Because if I go back to my past career, most of our partners and counterparties, they always had this gripe that you guys run the hotel very well, but I am not making real money.
If you look at individual owners, they would hear as a brand you guys are doing very well. All you are interested in is the fee income from me. But I am not able to service my debt in many cases. Financially, I’ve not been able to take out anything from the asset. So now you see that changing and the moment you have institutional capital that is deployed, you obviously there is, you become more disciplined in your approach towards capital deployment of your CapEx utilization and how you monetize the assets.
I will give you an example. We doubled the performance of The Leela Palace Jaipur in two years. We treasure hunted assets in The Leela Palace Bengaluru. We converted a storeroom into ZLV, which is India’s and world’s one of the finest bars in the world, Asia’s top 50 bars consistently. ZLV 23 is a speakeasy bar in The Leela Palace Bengaluru. We converted a parking area into a ballroom, which is generating 26 crores of revenue, year on year, at the minimum with a 60% flow through.
Navin Berry: Was some of this post COVID?
Anurag Bhatnagar: This was all during COVID and during COVID because we didn’t shut down. But not learning from COVID. But this was a part of our asset management approach. I’m giving you examples. Like we had those terrace suites. Now these terrace suites were earlier terrace rooms. We had a massive terrace in The Leela Palace Bengaluru. 26 of them opened into the gardens. We just greenified them even more and converted them into long-stay terrace suites. And we obviously generated a lot of business through that product categorization. We converted two of our floors in The Leela Palace, New Delhi, into Royal Club floors, into Royal Club rooms, because we have the largest rooms. So, better appreciation of square footage in terms of what could have been a potential realization from the square footage. That comes into play when you have institutional backing and learnings from the same.
Navin Berry: Your own chain now, phenomenal results for the first nine months. What is the anticipation? Where is Leela going in terms of a commercially responsible, productive company? Where do you see the growth from 3,500 keys? 13 operating hotels and a pipeline of 10 hotels.
Anurag Bhatnagar: And out of those 10, 6 are going to be under our ownership and 4 are managed.
Navin Berry: Okay, so when do these ten open?
Anurag Bhatnagar: So I’ll give you a kind of a snapshot. So right now, as you correctly said, we have over three and a half thousand keys that are operating across 13 operating hotels. We have 10 hotels in various stages of development in a pipeline. Out of these 10 hotels, 6 are under our ownership, which includes the asset that we acquired in Dubai. So, we have our own hotels now in Dubai. We are coming up with greenfield projects and brownfield projects in Agra. One kilometer from Taj Mahal, then another in Ayodhya on the Saryu River, another great location.
We are coming up with Bandhavgarh, just outside the buffer zone, an amazing wildlife destination. We’re coming up in Ranthambore in Fort Khatoli, which is a 400 -year-old fortress. And in Srinagar, the best location possibly in the country on the Dal Lake, with 13 acres of what used to be erstwhile Centaur Dal Lake. The Centaur Dal Lake has been acquired by Leela for a 60-year concession agreement.
Navin Berry: Is the old Centaur Hotel? Is this going to be luxury as well?
Anurag Bhatnagar: Yes, yes, yes. This has been acquired from JKDTC – Jammu and Kashmir Tourism. Owned by us. Leela is only into luxury. I think the biggest differentiation is our singular focus on luxury. There is no non -luxury brand of Leela. There is no Leela Lean or Leela Light. Our whole ecosystem has been created and further strengthened to deliver on luxury, whether it’s a food and beverage or wellness or amenity program or hiring program and training and all of that is all ecosystem is towards luxury.
So, from 3,500 keys at this point in time, we are already contracted to become 5,100 keys by FY 30. That being said, we are already looking at several opportunities, which if they fit our portfolio requirements, the luxury ecosystem, create a network impact for the rest of our hotels, we are evaluating all of them.
Navin Berry: I’m not a finance guy, but on a room base of 3500 keys. And you look at bigger chains around. The return in terms of money per room is phenomenally, I think, higher in your case?
Anurag Bhatnagar: I have not done the math exactly, but I think it seems to be in that direction because I can talk in terms of the margins. There are two facts that I would like to bring to your attention. One is Leela enjoys a 40% Rev Par premium. This is over the luxury market and this is not me telling you. This is CoStar and STR reports. It’s out in the public domain. So, at an absolute value, if I talk about the first nine months, Leela’s Rev Par premium is 4700 rupees. Rev Par premium over the luxury market in India. So that’s a data point for you to absorb, reflect upon. The second thing is Leela has the highest net promoter score.
So, our net promoter score is 86. The third data point which is again in the public domain is that our operating margins are 49%; EBITDA margins. You combine the three, on the top line, on the revenue side, we have a 40% premium on Rev Par and also 40% premium on TRAF par, total revenue per available room. So, that premium plus we convert this revenue by a margin which is again the highest of 49%.
So, at an absolute value in CY25, we declared Rs 700 crores of EBITDA. In CY26, we are growing mid to high teens from our declaration. For the nine months, for instance, looking at the nine-month track, we are very much on track to close mid to high teens growth over a CY25 number. So, if you do the math, and we have three and a half thousand keys in operation, including our managed portfolio.
Navin Berry: Does this give you more money in your kitty to invest?
Anurag Bhatnagar: It absolutely creates a stronger balance sheet. It gives us more opportunities to deploy to buy more, invest more, the right asset at the right time.
Navin Berry: See, if you look at the map of India, do you see some critical gaps, for instance, Mumbai?
Anurag Bhatnagar: So, in Mumbai we have actually three hotels. We have one which is already operating, which you know, the Legacy Leela, which has been there near the airport. The second one, which is going to be our first branded residences, the Leela Luxury Residences. This is coming up in Andheri, in the airport ecosystem. This is going to be the first of its kind, Leela Residences attached to a club and next to a commercial parcel. 60 two-bedroom and three-bedroom apartments. So, this is going to be a live play, a very nice club, over six acres. Live, work, and play ecosystem, first of its kind in India that we are coming up with. We have the third one, which is going to be a new building coming up in BKC which is going to be 250 keys Leela Palace. It will open in FY 29 to FY 30 in that year; this hotel is also 50 % owned by us.
So, this is how we use our balance sheet capacity and our internal accruals or the high profit rate generated to invest to create value for all stakeholders.
Navin Berry: And any other gaps which you’re seeing like for instance, just heard you say Ranthambore, you’re going to be there. So, are you moving into the wildlife segment?
Anurag Bhatnagar: So, wildlife is a big area. So, if I take a step back and see our strategic directions, where so firstly, we are only focused on luxury. Now within luxury, we are moving into experiential luxury where the consumers are moving. If you look at India today, where are our guests traveling? So, wildlife is a big foray for us. Second, we are moving into the mountains. We have two products coming up.
One is Leela in Kashmir in Srinagar, which is 170 keys. It’s large for Srinagar. It used to be 220 keys, but we are now increasing the floor plate and the room size to reduce the number of keys. It’s 13 acres of land and it is adjacent to the SKICC. So, there is a lot of demand even from a good convention centre standpoint. SKICC, we’ll have a collaboration with them but it’s going to be managed by the current operators.
Navin Berry: Who’s the current operator?
Anurag Bhatnagar: JKTDC. That’s an opportunity for us, especially catering, food and beverage, and event space management. So that’s there. So, the next segment that we are entering, like I said, is the hills. Between Sikkim, again, 17 acres in the Himalayas. Great location. This will also have a big wellness zone. Sikkim is going to be 140 keys. It is location specific like Agra is 100 keys, Ayodhya is 100 keys, Sikkim is 140, Ranthambore is 45 keys, Bandhavgarh is 40 keys, including tree houses.
So, depending on the location and the market and see our focus has always been how do we deliver the highest and the best guest experience and create memories for them. This has been the starting point. So even when we take a decision on an asset, we first think how do we create the service design and the service style to make sure that beyond just the real estate thinking in terms of how many keys to have, how many square meters and to build up the area and all of that, we also look at service design and experiential programming in a big way. So that’s how we make decisions and how many keys to have. It also has to be value accretive.
Because if you look at how we look at how we envision and how we take a decision on investment, all our new assets are coming at a high YOC of 16 to 18%, in some cases over 22%, in terms of yield on cost.
Navin Berry: Where are the other gaps that you see?
Anurag Bhatnagar: I would say like Jaisalmer – we are adding this year, as a matter of fact that’s going to be strengthening our Rajasthan circuit and overall system.
Navin Berry: What about Goa?
Anuraag Bhatnagar: Now, Goa as a market, it’s oversupplied at this point in time, but there’s always a headroom for an ultra-luxury experience. Because the market in India is so phenomenal, so while there may be a crowd, at a level below luxury with oversupplied Goa but at the ultra-luxury segment in Goa, it is definitely a market of interest. We are also looking at certain cities where we believe in the next few years, there could be interest.
So, you know we are looking at opportunities in India which are either within driving distance of major airports where we can create a very high experience resort and a retreat or in cities which have high potential.
Navin Berry: Now you mentioned Dubai a little while ago. Looking at any other foreign destinations?
Anurag Bhatnagar: We do get a lot of requests for foreign destinations but we have to be very very mindful again of our time and our deployment of our capital and our current projects that we have in our pipeline. There’s so much opportunity in India today that we are exploring in terms of the space that we speak about that has to be value -added. If you look at Dubai, Dubai is a great value-added deal for us.
I have 25 % of ownership, I have 100% of the management agreement, literally for a very long tenure, plus my capital gets recycled in less than three years. The 80 million of capital which includes my procurement cost of 40 and 50 odd million and 20-25 million of capex that I do to upgrade the asset, gets converted back to the sale of residences. So basically, after three years, my capital is returned back to me but I still have 25% of ownership till perpetuity and a long-term management agreement. So, it’s a very value accretive deal for me plus the location on the Palm Beach Jumeirah, 23 acres of prime real estate is one kilometer of beach frontage.
That’s a very high demand market so I think what we have to do is to create our own benchmarks. Like in India, we have a 40% Rev Par premium over the rest of luxury. We definitely intend to continue the same story outside of India as well.
Navin Berry: Tell me India’s growth story in hospitality. I mean at the moment there’s a lot of euphoria all around. Till when do you think this will last?
Anurag Bhatnagar: If you ask me honestly, I think we’ve just started. Euphoria is very valid. Two-three data points. First of all, on the luxury side, and I think you like numbers, there are only 29 or 30,000 luxury keys including three and a half thousand to four thousand keys of Leela – that’s the luxury universe. I’m talking only about luxury. Secondly, the new supply which has been announced by all the brands on the luxury side is growing at a CAGR of 5 to 7 percent average.
Demand is growing 12 to 14 percent. So, demand is 2x of the luxury supply, point number one. Point number two, our inbound is literally absent. But despite not having the inbound, we have still, as you know very well better than all of us, that we are not even reached 80% of pre -COVID levels in this cycle. I mean, there will be a day, when at least we start getting as many numbers, as Vietnam gets or Sri Lanka gets today. That’s a huge opportunity.
Navin Berry: In fact, there is a lot of opinion that we should promote India only for the icing on the cake market.
Anurag Bhatnagar: Absolutely. Because of the level of service that we give, I agree with this opinion, because the quality of our assets on the luxury side and I am talking about industry at large and sector at large. If you look at some of our assets in Leela, I mean the Leela Palace, Udaipur, on Lake Pichola, the Leela where we are sitting, the three and a half acres in Lutyens, Delhi, those kinds of assets, iconic, with so many barriers to fresh entry to more such, anywhere. So, these iconic destinations give you the level of service that we provide in India, the warmth and personalization that is there.
Navin Berry: Just coming back to an earlier observation, you made about growing as Leela, as a company, and you said we are choosing where to enter or not, because we want to be mindful in our growth. What are these limiting factors, in your opinion?
Anurag Bhatnagar: More than time is the focus. So, we are not limited by our capacity in that sense we have got very strong teams which have capacity and competency and resources available to grow at x plus 20 percent x plus y percent whichever way. The only limitation or the filter to our growth is three things. Firstly, the location. Like every other Leela Hotel, if you look at Kovalam, Ashtamudi, and Hyderabad, we have the best location in the city.
Navin Berry: So, your limitation is the choice of the property offered.
Anurag Bhatnagar: Second is, obviously in case of a management agreement, the partner. It’s very, very important to have alignment of thought processes because we are in the space of ultra luxury. So, if we decide that this is the quality of the palace, this is the build quality, these are the aesthetics, this should be the design narrative, this is the Leela way. So, it’s very, very important to have a partner who understands and appreciates you. And let me tell you, more and more people, after seeing Leela’s performance and the alpha that we have created, are coming to us. Our most recent acquisition signing with Jaisalmer is a live example. This is a 30-acre beautiful property in the sand dunes which will be launching at the end of this year. It’s an operating hotel but the owner is spending a lot of capex to upgrade it. It’s the Godwin group. They are into hotels in North India. This would be their first foray into luxury because they also understand the runway that lies ahead for luxury in India.
Navin Berry: And where are the differentiating factors in your quest for luxury?
Anurag Bhatnagar: So I think if you see any luxury brand coming to India, like you’ve seen many international operators have tried to come to India, many brands have come. Firstly, getting the right location is a limiting factor for most people. At Leela, we have the first-mover’s advantage. We still have access to certain locations and all of that. Second, is having an ecosystem of aesthetics, design, technical services, operating teams, capabilities on ground. Then thirdly, access to capital. That becomes a big limitation for many companies and many brands who have tried to come to India. How many people have that kind of access to capital today? And then deploying capital to get the right end-goal, the mindful use of capital. Today, if you look at an average spend on a luxury room, you need to get your right value to get the right return. You need to have an ecosystem, a perfect sales and distribution system, a very strong operating platform where you can look after the guest to command that pricing power and a power of a brand so that you can command those kinds of rates. So, these things take years to perfect.
Navin Berry: And you are saying India’s growth story, at least in the luxury, super luxury, is intact?
Anurag Bhatnagar: Multi-decadal. I would say not just the next three to five years, I would be more than optimistic. Obviously, God willing but multi -decadal. Just another data point for you. In 2019, there were 70 million households who could have consumed luxury. This is a report given by many analysts. It is expected by 2028 there will be 220 million households which can consume luxury – 3x the growth. Research has shown when the economy moves from a 3 trillion or 4 trillion economy to a 7 trillion economy, the wealth creation through GDP in the ecosystem is phenomenal. Even if 1% of India and we think 1.5 % of India can consume luxury today. You know, 1% of India and you have seen the Hurun reports of wealth creation in India. And with the amount of travel India is doing, both domestic as well as international, the exposure, the education level, the awareness, consumption of experiences, it’s a multi-decadal growth story for India in the luxury space.
Navin Berry: Where do you see India’s tourism going?
Anurag Bhatnagar: I think we need to market ourselves a lot better. The India story is, I would say, is grossly under-marketed as an industry, as a sector and obviously with the support of the government, we need to get a much stronger story going out. We need to have a much stronger India narrative. Although we have a very strong reputation now globally as a great economy, great partners to do business with, the recent moves have also given India big impetus hopefully; but, overall, our tourism stories is grossly undersold; but what’s happening in domestic tourism, just see the phenomenal run-up after COVID.
Navin Berry: Where do you think this money is coming from domestically?
Anurag Bhatnagar: The households, 70 million households who earned 46 lakhs per annum, average gross, which is the filter, to now 220 million households, where the household income is more than that, you know. Look at this generation, if I give you a Leela example, the average age of our customer has come down significantly. It used to be in the early 50s earlier. The consumer of luxury age group is around 37!
Navin Berry: How about the food business and your restaurants?
Anurag Bhatnagar: Our food and beverage business is currently between 35 to 38% of my total top line. So, it’s a very big segment of our business. We have 69 restaurants, bars and lounges in our ecosystem. Most of them are award winning and there’s a lot of focus. We’ve got chefs, we’ve got F&B directors, there’s a lot of international exposure and some very successful events.
Four of our brands have become very strong Leela brands. You are aware of the Le Cirque, which is operating very well. Then there is Jamavar. which is there in most of our hotels. The ZLB23 that was launched in Bangalore as a speakeasy bar, like I mentioned earlier, used to be a storeroom that we converted. The Library Bar in New Delhi has become a standalone brand in itself.
So, there is already a Library Bar in Bangalore. We are converting the bar in Chennai. We take the atmosphere, we take the style, we take the signature dishes, so that you can correlate to your library bar experience.
Navin Berry: And the crystal?
Anuraag Bhatnagar: God bless the founders and the erstwhile owning company. The choice of art, the choice of crystal, the books, the authenticity in design, always, that is so hard to replicate today. Indeed, these are magical and have become our standard to pursue.
So, we are very, again, we are very, very conscious. See, a brand can only be preserved if it is authentic. The moment you start compromising on the brand and that’s what is the philosophy even in F&B. The Jamavar, that we have opened in Jaipur today, is going to have the same signature dishes that you will find in Jamavar in Bangalore or in New Delhi, same style. Because your guests travel through all your portfolio. We are trying to standardize all our main popular dishes. So, there is a Leela signature way of serving.
Navin Berry: Your spa?
Anurag Bhatnagar: Spa, the brand Aujasya, that we started a couple of years back, which was our wellness brand, which focuses on wellness as a way of life. Aujasya, as you mean, you know, is vitality for life. That started off as a nutrition brand. As a plan where you could have Aujasya meals. Now we’ve expanded that brand even more to include a spa and wellness treatments.
Navin Berry: You had your own product range added recently?
Anuraag Bhatnagar: Own product range that Anjali and her team had created. The first Aujasya spa wellness zone was launched in Jaipur last year in December. The second one is coming up in Bangalore and then eventually the Aujasya spas will be across all Leela hotels. Because again, what we are creating is the entire wellness programming.
Navin Berry: How are the two Leela big properties in NCR region doing, your managed properties?
Anurag Bhatnagar: Ambience has had a great year. They have grown in high double digits. They are commanding a great premium like the rest of our hotels. They have a massive food and beverage business as well. The coffee shop, Spectra, is definitely one of the best. And there’s, again, a lot more focus on F&B that’s going on. There has been some significant capital that was deployed, not just to enhance the guest areas, but even the back of the house and associate areas which were significantly enhanced. Our property in East Delhi, the prime address of East Delhi, the Leela, that again, had a great run. High double-digit growth on Rev Par, year on year. Our partnership is amazing with the Ambience group. And we look at growing and expanding with them even more.
Navin Berry: East Delhi has picked up, to need a property like yours? Did it come up before time?
Anurag Bhatnagar: Significantly. It’s like, if you see the numbers that are prevailing for East Delhi and what we are budgeting for next year, these are significantly higher. I think it was underserved in the sense of marketing in some sense, because there was this perception that East Delhi is different from South Delhi.
But if you see the infrastructure creation in that area, plus, I would say a mindful marketing and the fact that the Leela brand now got the focus on F&B, the focus on events and we have attracted many events because it is one of the best convention destinations in Delhi today. Even today, it has one of the best convention and conference facilities in Delhi today. And plus, let’s not forget, it’s just two and a half hours or less than three hours away from Agra. So, a significant part of our business in East Delhi today, in that asset, Leela Convention Shahdra, comes from travel trade. So, they have almost 55 to 60 rooms per day, because tourists stay in that hotel and then travel to Agra? So, because of its location.
Navin Berry: And do you think once the Noida airport is open, it will suddenly become probably the closest luxury hotel?
Anurag Bhatnagar: Yes, like I said, every Leela hotel, the minimum room size is 42sqm. The ballroom is one of the biggest and the best that we have in that area. And the number of suites, almost 18-20% of the inventory is suites. And the restaurants are doing very well there. So yes, that hotel has been a transformation story.
Navin Berry: So, what would be your winding up sentiment?
Anuraag Bhatnagar: Ultra Luxury story is only beginning, and Leela Hotels have a strong contribution to make in that narrative going forward. We are best equipped, given our international exposure and availability of capital; our team is experienced and most capable.
ABOUT THE AUTHOR
Navin Berry, Editor, CS Conversations, over five decades has edited publications like CityScan, India Debates and Travel Trends Today. He is the founder of SATTE, India’s first inbound tourism mart, biggest in Asia.
Blogs at: https://www.csconversations.in/nb-blogs
