Teji Mandi Explains: Hotel companies adapt to the asset-light model!

As people open up to travel and leisure activities after a couple of years, hotel companies are adapting the asset-light model to expand faster and grab a pie of the market! Read to know more!

Teji MandiUpdated: Wednesday, June 22, 2022, 04:23 PM IST
article-image
Representative Image | pixabay

What’s Happening?

To begin with, an asset-light business model is where companies transfer the non-core assets to third parties to focus on their core competencies.

Major Indian hotel companies are realigning their business models from asset-heavy to asset-light or are managing properties under their brands and not owning the real estate.

The asset-light business model will help them expand faster without putting much pressure on their balance sheets. The change comes as companies are looking to grow their revenues through income from managing hotels.

Know The Major Players

The asset-light model is being followed by global chains such as Marriott, Hilton, and Accor. Domestic players adapting this route include ITC Hotels, EIH, and Indian Hotels Company Limited (IHCL).

ITC Hotel owned versus managed ratio is expected to come down to 40:60 by FY24 from the current 46:54 in FY22. For EIH, the share of managed properties will also increase. The owned versus managed ratio for IHCL will change to 50:50 by FY25 from the current 54:46.

Current Inventory breakup: Owned versus Managed

IHCL- 29:71

EIH- 45:55

ITC Hotels-46:54

What’s In It for Investors?

According to a Motilal Oswal report, management contracts generate around 70% operating margins. Following an asset-light business model will also mean lesser debt burdens and more resources for brand building, digital innovation and customer engagement. Lower debt levels also mean lesser outgo in financing costs, which ultimately transfers into increased profit figures.

(To receive our E-paper on whatsapp daily, please click here. To receive it on Telegram, please click here. We permit sharing of the paper's PDF on WhatsApp and other social media platforms.)

RECENT STORIES

NIA conducts searches at 13 locations, seizes knives, hate message pamphlets from houses of Amravati...

NIA conducts searches at 13 locations, seizes knives, hate message pamphlets from houses of Amravati...

Maharashtra Cabinet expansion: BJP to get lion’s share with 28 ministerial berths, 15 to Shinde...

Maharashtra Cabinet expansion: BJP to get lion’s share with 28 ministerial berths, 15 to Shinde...

Mumbai: Bombay HC adjourns ED’s plea by 2 weeks in connection with probe against businessman...

Mumbai: Bombay HC adjourns ED’s plea by 2 weeks in connection with probe against businessman...

Mumbai updates: IMD issues heavy rain alert for Maharashtra from July 6 to 8

Mumbai updates: IMD issues heavy rain alert for Maharashtra from July 6 to 8

Traders to protest against a 5% GST on unregistered brands on July 8

Traders to protest against a 5% GST on unregistered brands on July 8