When Ramesh Ramanathan returned to Sterling Holiday Resorts as its Managing Director in 2011, having served as its President 20 years earlier, the first thing he did was to hire 400 more rooms to add to Sterling’s inventory then of 1,200 rooms. It was a counter-intuitive move but Ramanathan knew it had to be done, even if the company was tight on cash. The existing resorts were shabby and faith in the Sterling brand had eroded; occupancy was only 20 per cent. “We had to tell people we were changing and hired resorts in Thekkady, Goa, Lonavala and a few other places,” he recalls.
Bold moves
Sterling didn’t have the luxury of returning to the market after restoring the resorts; time was of the essence. But, now, things are more on an even keel: of the 1,200 rooms, 1,000 have been refurbished and Sterling expects to finish with the rest this year. In the meantime, Sterling has added an additional 800 rooms. “We could paint, polish and make small corrections, but I took the more difficult path of gutting these resorts completely and rebuilding them from scratch. It meant a cost of ₹24 lakh a room, but it had to be done. As we had hired many resorts initially, we had to make do with readymade rooms, but now we are customising our new resorts to our standards and specifications,” he says. It helped too that after Ramanathan joined Sterling, big-time investors Rakesh Jhunjhunwala and R. Damani (along with the earlier promoters) had invested ₹125 crore in the company and it got a vote of confidence and a much-needed cash infusion.
Sterling stuck to its leitmotif of counter-intuitiveness by setting up resorts off the beaten trail. “We knew that people wanted new experiences, and not re-visit the same old places.” It was a risk worth taking. New resorts came up in Karwar in Karnataka, in Anaikatti in Tamil Nadu, Dindi, on the banks of the Godavari in Andhra Pradesh, in Daman, Sariska and one resort in Shirdi as well.
Wayanad, Panchgani and Mount Abu will open soon. Sterling now has 31 resorts and 1,953 rooms. Occupancy has gone up from 27 per cent to 66 per cent while members have gone up from 60,000 to 85,000. Acquisition of Nature Trails, an adventure holiday company, last year, with five nature-based locations in proximity to Mumbai and Pune, also opened vistas to a whole new holiday experience.
After the takeover of Sterling by travel company Thomas Cook in 2014 (after which Sterling was delisted from the stock exchanges) the association with a global brand brought more stability to the holidays company. Now Sterling, he says, is working on a whole lot of new things. Ramanathan knew that with room inventory increasing, and member growth taking time, Sterling changed the business model from vacation ownership only to a mixed use model, allowing non-members to book a room. However, rooms for members always comes first. “We are the single largest holiday service providers now on travel web sites such as Goibibo, makemmytrip.com. It also put us at the right end of the competition, hotels included, as the brand is now right upfront,” he elaborates.
Making its money work
The other thing Ramanathan did, much against his grain, he says, is not invest in conventional marketing but take the social media route. The money was invested in refurbishing resorts, in IT – both hardware and software — and in building its network.
Now, with most parts of the jigsaw in place, Ramanathan wants to reposition the brand as a provider of experiences and discoveries. “To make a statement is easy, but to transform the entire organisation is easier said than done,” he admits. For example, he says, Sterling is working intensively on experiences at a destination. In Yercaud, for instance, while the known tourist spots are par for the course, Sterling is looking to combine a whole lot of other things to give the flavour of the hill town: a half-day tour which could include a nature walk, breakfast on the way, a visit to a coffee estate, a taste of a local delicacy, a bit of local shopping,
“The thought is to combine different needs of customers. We are working on ideas and identifying that sort of thing in our resorts,” he adds. The holiday company also wants to keep in touch with its customers, even when they are not on one. “We can keep in touch with them broadly in areas related to travel and entertainment, movie tickets or discounted rates at restaurants. The world is changing, and it’s more about not doing the same things. We want Sterling to stand for a special experience,” says a gung-ho Ramanathan.
Sterling also changed its accounting system to focus on cash flows, even at the cost of rapid member growth. It collects 40 per cent of the cost of ownership of a time share upfront, from just 15 per cent earlier. At the lowest rung, it means a customer forking out ₹90,000 to buy a time share. “But, we are retaining more, earlier we used to lose 30 per cent of customers after they made a primary investment. Now 80-90 per cent stay with us as they have made a serious investment. We are also after them to go on a holiday,” explains Ramanathan.
IIFL Institutional Equities in a research report gives a thumbs up to Sterling’s turnaround. It says with the renovation exercise largely complete all key business metrics are now beginning to show rapid improvement. It points out that Sterling’s room inventory is likely to increase to 2,700 by FY 18. Mahindra Holidays, the industry leader, now has approximately 3,000 rooms on offer. IIFL also says that Sterling moving its realisations forward should be an added booster for revenue growth. IIFL points out that Sterling has 85,000 members for its 2,000 rooms whereas Mahindra has more than two lakh members for its 3,000 rooms. This offers Sterling room to grow rapidly. “Increasing occupancies can lead to a sharp expansion in operating margins,” the reports says.
Sterling has already invested ₹270 crore in refurbishing its rooms and this year it expects to invest at least ₹100 crore in Greenfield resorts: 120 rooms in Wayanad and a similar-sized resort in Coorg. In Goa, it plans a third resort. Plans are afoot for resorts in Kanha, Bandavgarh and Mount Abu as well, by leasing out fully-fitted resorts. A huge land bank of 261 acres around the country offers more scope for expansion. It’s no holiday really, for a holiday services company.
(The article first appeared in The Hindu BusinessLine.)