From East to West: CG Hospitality

Rahul Chaudhary from CG Hospitality talks market opportunities and Sri Lanka’s tourism investment potential now.

Rahul Chaudhary of CG Hospitalty at the Taj Samudra in Colombo, one of the group’s first hospitality investments.

In 1934, Nepal was crippled by a catastrophic earthquake. From the rubble, commerce and social infrastructure emerged, including a row of shops along what is now known as the New Road. Mr. Bhuramull Chuadhary was one of the shop keepers who made a living importing textiles from India and was privileged to be able to sell them inside the palace, to the courtiers and the King’s people.

Fast forward two generations, and Binod Chaudhary, Bhuramull’s grandson, is the Chairman of CG Corp Global, a multinational conglomerate with 112 companies and 76 brands around the world. Nepal’s first and so far, only, billionaire, he is ranked 1,349th by Forbes on their rich list.

The story of Binod Chaudhary’s CG Group is one of entrepreneurial endeavours, ambition and great success. A legacy that Binod’s son, Rahul Chaudhary, Managing Director of CG Corp Global, aims to continue in his leadership of CG Hospitality, the fast-growing hotel and travel arm of the business.

His vision? To be a billionaire hotelier from Nepal with a spread from east to west and a hotel in every country he wants to visit over his lifetime.

 

A global expansion, with Sri Lankan roots

In 2001, Binod Chaudhary made his first investment in hospitality. In 2006, when his son Rahul Chaudhary joined the business full time there were three hotels. By 2018 they had 95 hotels, and in August 2019, at the time of writing, CG Hospitality has a portfolio of 132 hotels, 98 of which are in operation, the remainder signed and under development.

When talking statistics about CG Hospitality it’s important to say ‘at the time of writing’ since the group is signing new properties “literally every other week”. At present, they are opening close to 15 hotels a year and Rahul intends the rapid pace of growth to continue.

Almost twenty years ago, Binod Chaudhary’s initial hospitality investment was made in Sri Lanka, in the Taj Samudra, along with two Taj properties in the Maldives. At the time, Rahul says, “even Sri Lankans and Maldivians were not willing to invest in these assets.” His father’s bold move was to be the start of a long partnership with Taj and today, the group is probably one of Taj’s largest partners globally, with multiple properties in Sri Lanka, the Maldives, Thailand, India and of course, Nepal.

It was also the start of a long relationship with some of Sri Lanka’s hospitality groups, most notably Jetwing, when in 2008, before the end of the war, they invested in Jetwing Vil Uyana and Jetwing Seashells (now Jetwing Sea).

Rahul himself joined the family business full time in 2006, after finishing college where he exceled at sports and spent part of his summer vacations observing his father at work from a corner of the boardroom.

In the thirteen years since he joined, the portfolio of properties has grown by 4,300 per cent and expanded into 15 countries.

CG Hospitality key growth chartIn Sri Lanka, CG Hospitality now has a portfolio of 16 properties in various partnerships with CHC, Ekho, Jetwing and the joint venture with Indian Hotels Company Limited (IHCL) for their earliest property, the Taj Samudra.

CG Hospitality owns the global management company CG Hotels & Resorts, which manages and owns a range of mid-scale to luxury hotels through its own brands ‘The Zinc’ and ‘The Fern’.

The majority of CG Hospitality’s portfolio, around 70 per cent, are managed assets, the rest are owned or jointly-owned. Many international hospitality groups are steering clear of asset ownership, focussing only on the management side however, at CG Hospitality, “our strategy is not only asset light, we are investors and operators both. We look at ourselves as a one stop shop,” says Rahul.

“Our strategy was to start with investments first,” he explains, “but then we decided to spread our reach into different markets. If you just go through the investment route, the speed at which you can do that is not fast.”

To diversity into different markets at speed, they made investments in management companies. In 2015 they invested in Indian-based Concept Hospitality which had around 23 operating hotels under its management at the time. Today, they’re already at 67 in a period of 4 years. Other investments have been made in Thailand-based InVision Hospitality, which Rahul says provided 13 asset-light hotels, and in a management company called Alila. The latter expanded their footprint to 4 other countries however, this was sold at the end of 2018 to Hyatt Hotels Corporation.

While the amount of investment varies widely, one constant is that the company does not take minority positions. Rahul expects a ROI of at least 10 per cent every year and an IRR of 15-20 per cent, minimum.

For some time, a well-publicised goal has been to reach 200 hotels. Originally expected in 2020, the timeline for this has been revised to 2023, in part because the purchase of certain management companies – which would have added a sizeable number of keys in one go – did not proceed. Rahul isn’t concerned with the changing timeline, after all he says, “I’m still young”, but he is using the additional space to up the stakes; no longer just ‘200 hotels’, the new goals is “200 hotels including some of the world’s most iconic.”

Despite appearances from the impressive growth, it hasn’t all been smooth sailing. Given the chance to click his fingers and change one thing, Rahul would have considered certain investments in some newer markets more carefully before proceeding.

Looking to the future, he sees opportunities in the hospitality sector across a variety of markets and is keen to continue expanding the brand across verticals. “The opportunities are in the Indian Subcontinent, South East Asia, Middle East and East Africa. They’re there in the distressed asset space and in the mid-market space.”

“Hospitality is a very capital intensive business. The biggest way you’re able to realise returns is by selling an investment. No other space in commercical space and real estate can make as more money than hotels with a capital gain.”

Geographic diversity is already a hallmark of the group. In Q1 2019, a new Taj opened in Nepal and their next opening is in Dubai in October, followed by Bhutan in Q2 2020. Investments in Vietnam, a country experiencing remarkable growth rates in arrivals, are under consideration, as well as potential purchases of hotels in Kenya.

Rahul is approaching the future with a three-pronged strategy for growth beginning with investments in key cities. Second is investments in asset-light companies or asset-light assets, which could be given to one of their existing companies to operate. The third approach is to grow the business through the fund route.

CG Hospitality has already launched a fund in India focussed on the mid-market space to cater for the growing demand from India’s middle class and is embarking on a Europe fund.

While the geographical focus remains on the Indian Subcontinent and South East Asia, Rahul is not ruling out any locations, “We’re also looking at Europe and if we can find an investment opportunity of an asset-light company in any of these markets, then we’ll go there as well.”

Meghauli-Serai_CG_hospitality_nepal

Meghali Serai, a 100% owned property, managed by Taj Safari has been welcoming high-end tourists 2016, the target demographic that Chaudhary believes Nepal needs more of.

 

Nepal and the new Sri Lankan landscape

Rahul believes that the evolution of Sri Lanka’s tourism industry is one Nepal can look towards for reference, particularly in its development beyond being a cheap backpacker destination. The Sri Lankan
government and many in the industry here have voiced that the right approach is target lower-volume, higher-spending tourists who can provide maximum economic benefit with minimal environmental impact.

“Nepal I believe, is going through a similar process that Sri Lanka went through 10-15 years ago,” says Rahul. “We touched 1 million tourists back in November 2018, but the majority of that 1 million is unfortunately not the quality traffic.”

The establishment of the Meghauli Sarai property is clearly a source of great pride. The 100 per cent owned property, managed by Taj Safari, has been collecting ‘best in the world’ accolades since it opened in 2016. Commanding rates of $700 per night room only is “almost completely unheard of in a place like Nepal” and drives niche and quality traffic.

“When people come to a new country, they want to explore other cities as well. So a property like this has a positive ripple effect, whereby other hotels and cities slowly benefit.” In the near future, Rahul would like to see Nepal become a focus travel market for investors as well as for travellers.

Of course the tourism landscape in Sri Lanka has changed dramatically in the last three months.

“I know Sri Lankans are incredible people, always positive and optimistic. But hospitality unfortunately is not always optimistic and positive. There are a lot of things that need to fall in place before you know you’re going in the right direction.”

Rahul believes Sri Lanka was “heading in the right direction, with all the fundamentals in place,” but the terror attack in April has turned the industry on its head. In the short term, the travel advisories and the ongoing state of emergency have crushed international arrivals, but the damaging impact on how Sri Lanka is perceived as an investment destination has the potential to linger long after the tourists return.

“It’s unfortunately what happened,” says Rahul, “but it was a wake-up call, a rude awakening. It showed the flaw in the fundamental requirement a customer or a traveller asks for, which is safety and security. It’s something that many countries and even hotels around the world take for granted.”

The balance between comfort and security, a fundamental underpinning the hospitality industry was broken by the attacks.

“In any recovery, when there’s a wound it leaves a scar. Recovery is not going to happen overnight. It’s a gradual process and a lot of thinking needs to be done in terms of the strategy going forwards.” He says the question for Sri Lanka to consider is, once you pick yourself up from a fall, how do you adopt a strategy to ensure you don’t fall into the same trap again?

Protecting and managing the perception of the market through PR is one answer to this. To illustrate this Rahul highlights the example of Dubai – about where there are many negative news stories – “but the way Dubai is able to protect its image, growth and offerings – what is there for tourists – is quite phenomenal.” The end result: people still go there.

 

A Survival Mindset

For the short term at least, it looks like Sri Lanka will be taking a backseat in CG Hospitality’s growth plans. While positive about the opportunities on offer, Rahul is “cautious” about getting into further investments here.

In analysing the post-Easter Sri Lanka market, he says, “As bad as it sounds, where there is war there is opportunity.

“Right now, Sri Lanka is a brilliant investors market. Every day I get tonnes of hotels that are for sale, and in terms of the market itself, it couldn’t get lower.

“Having said that, I would be a little cautious to get into an investment in Sri Lanka because while things will get back on track, will it be tomorrow, or next year?”

India suffered a major terror attack in 2006 and Rahul believes the ripples are still being felt, as in America from 9/11. “Even today, the Indian market has not gone back to its glory like it was before. It’s an emotional response that yes, we want things to go back to normal, but how and when that is going to happen is anyone’s guess.”

Considering himself a “hotelier first”, Rahul is prioritising his existing hotels and ensuring their survival, over new Sri Lankan investment opportunities. “It may be an investor and buyer’s market, but for a group like ours, which already has 16 hotels to consider, I would like to be a little bit careful.”

“First I want to make sure the existing ones are doing well, standing on their own feet.

“But let’s see – never say never. If you get a good opportunity in the market, we’d love to look at it, but look at it with a pinch of salt.”

Hospitality Insider Issue 4