Has Sterling’s time come?

Overextended. Dissatisfied customers. Run down resorts. That has been its image for the past many years.

But Sterling Holiday Resorts, which has 19 resorts offering 1,523 rooms, has been turning things around.

Ramesh Ramanathan, Managing Director, Sterling Holiday Resorts India Ltd, says the company turned cash positive in the last quarter of the last financial year – the first time in 60 quarters. The trend should continue, he says.

But, he knows he is in for a long haul. Sterling wound up the March ’12 quarter with a net loss of Rs 5.91 crore. The comforting factor -- this was lower than the loss of Rs 17.97 crore the immediate previous quarter.

Says Ramanathan, “Being Ebidta positive is the start of a turnaround. We’ve got to turn around in the minds of our customers as well. We’ve got to bring back the credibility.”

He rejoined Sterling a year ago as its MD. He was its President in the nineties.

A turn around could take some doing, says a long-time customer. Launched in the mid-1980s Sterling was the pioneer in the time share industry which registered red hot growth in the period 1986 to 1995.

“People believed it had a product with a future,” recalls Ramanathan.

Decline but not fall

But they seemed to have been wrong.

Visiting the Sterling resort in the hill town of Yercaud a couple of years ago, exactly after a decade, this writer found the lights of Salem town through the night mist as magical as ever.

But the resort itself was a shambles. It epitomised the troubles Sterling went through.

P.R. Srinivas, an independent hospitality consultant, says Sterling invested in too many properties at one go and oversold its time shares. Even in the most advanced economies, overselling of time shares has been a problem, he says.

But now Sterling’s resorts are being renovated at a cost of over Rs 100 crore.

This also includes the cost of leasing new properties.

At Kodaikanal, its first resort has been renovated and rebranded as Kodai by the Lake.

Its Munnar resort has been renovated as well. Around 350 rooms of the company's resorts have been refurbished and another 400 will be done by March 2013.

The turning point came when Bay Capital Partners Ltd invested Rs 15.97 crore in early 2009.

The accumulated losses at the end of FY 2009 were Rs 203 crore.

Bay Capital continued to invest in the company - altogether Rs 78.24 crore - and today has a 32.72 per cent stake. Bay’s Siddharth Mehta took over as Chairman in July 2011.

Sidharth Subramanian, Vice-Chairman, and the founder’s son, who now owns a 15 per cent stake, recalls that at that time the company had 17 creditors and they could settle 12 lenders in one shot.

Says Sidharth, “IFCI was the last we had to settle debts with, which we did six months ago; we paid Rs 12 crore and closed it. And, for the first time since 1995, we’re a debt-free company.”

As he points out, once Mehta put in the money, Sterling could negotiate with the banks and settle debts.

Then about a year ago the Mumbai-based investor duo – Rakesh Jhunjhunwala and Radhakrishna Damani – invested Rs 120 crore in the company (in a combination of equity and warrants; with warrants issued to them to be converted soon each will have a 7.71 per cent stake).

Says Jhunjhunwala of his investment in Sterling, “Any buyer of a Rs 5 lakh car is a potential customer. The entry barriers for this business are high because you need at least 10-12 resorts to offer. There are only two players in the market. And, now Sterling has a good management so long term potential is good.”

Hanging in there

Recalls Sidharth, “The company expanded too fast in the mid-1990s. We didn’t see the crash coming; we bought many pieces of land during that time and the company landed up in a lot of debt. Nor could we dispose of the land as property prices had come down,” he recalls.

But two things stood it in good stead: keeping the resorts going and not selling the land. That land is going to come in mighty handy now.

It has 150 acres of land across 15 destinations, from Mahabaleshwar to Munnar, which will allow it to construct 2,000-plus rooms. “More importantly,” he says, “we’ve kept all our permissions to build in green areas alive all these years.”

Sterling is reconnecting with its existing member base of 65,000, many of whom are a disgruntled lot.

With renovated and new resorts, it expects its members to take it seriously again. Last year, it enrolled 2,500 members.

This year it expects to net 6,000 members. Greenfield resorts are at least 18 months away.

Mahindra Holidays, a company where Ramanathan was earlier the MD, has more than twice Sterling’s members at 1,45,000. It operates over 2,000 rooms across 40 resorts.

Sterling’s time share is 30 per cent cheaper than Mahindra’s but the latter’s resorts are superior.

Ms Radhika Shastry, Managing Director, RCI India, says Sterling’s turnaround has already begun but the real impact will be felt only next year.

“They were the pioneers in the business. Even when Sterling started nose-diving, they continued to service their members,” she says.

Debts wiped out, new investors and a new management: will Sterling deliver on its promise?

(With reports from Nivedita Ganguly in Mumbai)

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