HOLIDAY RESORTS
IS STAGING A
COMEBACK
TIMESHARE PIONEER STERLING
Timeshare pioneer Sterling Holiday
Resorts is staging a comeback
Sterling's Chairman Siddharth Mehta (in
lounger) with Vice Chairman Sidharth
Subramanian (far left) and MD Ramesh
Ramanathan
Timeshare pioneer made efforts to increase
revenues by adding new members, focusing on
nonmember businesses, and offering a wide range
of food and beverages options at resorts. A strong
social media strategy was drawn up, and human
resources were given top priority to make a
comeback.
Pankaj Gupta loved his annual vacation. The Bangalore-based businessman’s favorite destination was the
Nilgiri hills on the Karnataka-Tamil Nadu border. In 1996, when he heard of the concept of timeshare
vacations, pioneered in India by Sterling Holiday Resorts Ltd, he bought into it. He paid close to Rs 1 lakh,
which allowed him a week each year in any of Sterling's 11 resorts in the country, for the next 25 years. For
him, the added attraction was that Sterling had two resorts in Ooty - Fern Hill and Elk Hill. But his first
timeshare holiday in the summer of 1997 was a nightmare. One look at the rooms in both resorts, and his
family refused to stay there. From then on, he avoided using his timeshare. Like Gupta, some 86,000
members lost faith in the company. Sixteen years on, Sterling is fighting hard to regain it.
Started in 1987 by R. Subramanian, Sterling enjoyed smooth sailing in its early years. By March 1996, it was
selling 4,500 timeshare accounts a month through its 60 sales offices nationwide. It had 12 resorts - with a
total of 1,100 rooms - and occupancy was a healthy 65 percent. Using surplus cash, the company built up a
land bank of 175 acres in top tourist destinations.
"Vacation timeshare is a cash flow positive business model, where members pay up-front for holidays for 25 years," says Ramesh
Ramanathan, who was vice-president of marketing and sales during his first stint in the company, from 1991 to 1996. He rejoined the
company as Managing Director in 2011. "In 1996, we were generating a cash flow of Rs 500 crore a year through timeshare sales."
Healthy cash flows tend to feed outsized ambitions, and Sterling, too, fell prey to that temptation. It embarked on a Rs 500 crore fivestar resort project with two 16-hole golf courses in Noida, near Delhi. It leased 420 acres of land from the Greater Noida Development
Authority in 1994/95 for Rs 100 crore. Famous golfer Greg Norman was appointed to develop it, for a fee of $2 million. The grass for
the entire course was imported.
But in 1996, the market began to tank. India saw an explosion in the demand for white goods, triggered by the entry of multinational
manufacturers.
People chose white goods over future holidays. The competition also increased when the Mahindra Group entered the timeshare
business with the launch of Club Mahindra. "In just 18 months, our timeshare sales dropped from 4,500 per month to just 200," says
R. Mohan, Sterling's Senior Vice President - Finance. His company's cash flow collapsed.
"From being cash-rich, we began to borrow to fund the Noida project and run our
resorts. By March 2007, we had debt of Rs 200 crore," he adds. Things got
worse. The company cut its marketing spending and closed all sales offices
except in Mumbai. This hurt sales further, and they plummeted to five a month.
Resort maintenance began to suffer. Occupancy levels fell, and members
stopped paying annual amenities charges and maintenance fees. The company
began to default on payments to the Greater Noida Development Authority,
banks, creditors, and suppliers.
In 2000, the Greater Noida Development Authority canceled the land allotment.
Sterling lost everything it had invested in the project (one of the two golf courses
was ready in 1999). Legal challenges started to mount. Irate members hauled the
company to consumer courts, saying it had failed to develop resorts as promised.
Sterling faced 70 cases under the Negotiable Instruments Act for cheque
dishonor. Banks filed as many as 15 winding-up petitions. Some dragged the
company to the Debt Recovery Tribunal. "We had to appear in court and at the
police station every other day," says Mohan. He left Sterling in 2000 as he could
not handle the pressure (he returned to the company in 2005). Its share price
crashed to its lowest level of Rs 1.55 in September 2001.
Siddharth Mehta, who runs Bay Capital Investment Ltd, took a 35 percent stake in Sterling Holiday Resorts in 2009 and became its Chairman. “Sterling
has an interesting portfolio of assets in great locales, and the domestic tourism sector is under-penetrated in India. I see an opportunity there,” says
Mehta.
The Rs 50 crore he brought into the company was used to settle the remaining debts. By 2010/11, Sterling was almost a zero-debt company, with most
legal issues resolved and its focus shifted to operational turnaround. Siddharth and Vice-Chairman Subramanian reached out to Ramanathan, who had
launched Club Mahindra after leaving Sterling in 1996 and, as its CEO, made it the market leader. He had quit Club Mahindra earlier in 2011.
What he saw on his return stumped him. "There was no sales organization, no marketing set-up, no banker, an outdated IT system that ran on Sybase,
occupancy levels of just 11 percent, no presence in digital media, and, most worryingly, an organization that exhibited a total lack of energy," he says.
To infuse energy into the company, he drew up a mission statement seeking to make it the market leader again. He also devised a strategy to rebuild
credibility and customer confidence and increase cash flow.
In October 2011, investors Rakesh Jhunjhunwala and Radhakrishnan Damani each took a seven percent stake in the company. Ramanathan used the
money to renovate resorts and re-establish credibility among members. "We spent Rs 95 crore to renovate rooms and common areas," he says. Today,
466 of the 1,109 rooms the company owns are renovated. The rest will be completed in 2014/15.
Ramanathan began to take new resorts on lease in locations such as Goa, Thekkady in Kerala, Corbett National Park in Uttarakhand, Gangtok in
Sikkim, Karwar in coastal Karnataka, and Dharamsala in Himachal Pradesh, even though the company's occupancy levels were low then so that
members could have better options. This added 541 rooms, taking the total room tally to 1,650, with 21 resorts in 19 destinations. A 50-seat call center
was started and a new information and communication technology backbone was implemented. “We wanted to ensure that from reservation to the
experience at the resorts, customers were satisfied,” he says. A strong social media strategy was drawn up, and human resources were given top
priority.
On the financial side, efforts were made to increase revenues by adding new members, focusing on nonmember business by starting a hotel sales
division and offering a wide range of food and beverages options at resorts. Simultaneously, expenses were attacked.
The 3Cs strategy seems to have worked. Sterling Holidays made its first quarterly profit - Rs 62 lakh - in 16 years during the first quarter of the current
financial year. Arrivals have increased in renovated resorts, and overall room nights for the company have increased from 158,000 in 2010/11 to
201,000 in 2012/13. Average occupancy was up from 19 to 43 percent in the same period. The company's online presence is growing, too - in 2012/13,
its website got 1.47 million visitors, and its Facebook fan count crossed 200,000. In the same year, it added 3,409 new members (averaging 285 a
month), up from 1,135 in 2010/11. The hotel sales division's revenues rose to Rs 29 crore, from Rs 8 crore in 2010/11.
Many old customers have started holidaying with Sterling again. The company is cash flow-positive, and losses have shrunk from Rs 41.31 crore in
2011/12 to Rs 20.2 crore in 2012/13. The company hopes to make a profit in the current year. The stock market has responded, and the company's
stock trades at around Rs 65 a share.
"The revival at Sterling is interesting," says Kaushik Vardharajan, Managing Director at HVS South
Asia, a hotel consultancy company. "But they need to keep the member-to-room ratio at a level that will
offer customers the flexibility to choose their holiday destination. To keep customer satisfaction levels
high, Sterling needs to keep adding more resorts, and preferably lease them." As far as expansion is
concerned, Sterling is sitting pretty, as its land bank - now 150 acres - gives it the potential to add
2,000 rooms at a low capital cost.
After 16 years, Gupta and his family returned to stay at the Fern Hill resort in Ooty this April. They were
in for a pleasant surprise. "The rooms were great, and so was the service," he says. "We thoroughly
enjoyed our stay. We are looking forward to our next holiday." That should be music to the ears of
Sterling's management team.