Hotelogix co-founder Aditya Sanghi on consolidation in a pandemic impacted hospitality industry

Hotelogix, AxisRooms and RepUp, providers of technology solutions for the hospitality sector, announced their merger on Tuesday via a no-cash, stock swap transaction. 

The merger aims to create a full stack suite of software solutions for hotels and resorts, in areas of service automate, end-to-end operations management, distribution, reputation, marketing, and guest-facing technologies. 

In an interview with TechCircle, Hotelogix CEO and co-founder Aditya Sanghi spoke about the merger and plans ahead. 

Edited excerpts:

What is the current structure of Hotelogix?

The current structure is basically we have Hotelogix Pte which is a Singapore-headquartered company. And under it, there is Hotelogix India… We were HMS Infotech when we started in 2008. But in 2017, the structure got shifted to the latest structure. That's when Singapore based venture (capital) fund Vertex Ventures also came in to fund us. With that our structure got flipped, changed to Hotelogix Pte, a Singapore holding company, with Hotelogix India as the operations India entity. It is a subsidiary of Hotelogix Pte… There is also a subsidiary in the US. 

And now in this merger basically AxisRooms and RepUp are coming under Hotelogix Pte. 

There are a bunch of investors, all structured under Hotelogix Pte, Singapore. Everyone is now a part of Hotelogix Pte, Singapore.

Tell us more about the financial arrangement with AxisRooms and RepUp in the deal.

The deal is a stock swap deal… None of the companies are at a level that they can acquire and grow. Basically the spirit is a merged entity, going forward. The entity happens to be Hotelogix Pte. So, AxisRooms’ and RepUp's stocks are being acquired by Hotelogix Pte. 

It remains to be seen whether these multiple entities will continue to exist, because you can have multiple entities continuing. There is no decision on that right now. Right now with  Covid-19 and everything it is very, very difficult to get all these things initiated. Have to focus on business right now. So we'll look at all this later. 

The plan is to hire, rehire people who must've left us. It's only a growth story that we're looking at, not a story to optimize and cut down.

The travel industry has taken a big hit due to the Covid-19 pandemic. How did it play out in Hotelogix’s business in particular?

If you're asking about the Covid-19 impact, the whole impact started mid-March. No one had any clue before that. No travel had stopped before that. No one was taking this seriously, globally... There are good indicators in the market that tell you that no one saw it seriously coming. ITV Berlin, which is the biggest travel tech show in the world, was supposed to happen in April. And it got cancelled only on 30th of March, just 10 days before the event. No one saw it coming to this extent. 

Everyone was slightly apprehensive about what's going to happen. But no one really changed their travel plans, from our perspective. Hotels, we saw in our own books, were at 80-90% occupancy till mid March, which suddenly plunged to zero. As an industry player, I can safely say that the shock came only in March. Business went down by 50% immediately. 

How are your contracts with clients designed? Are they subscription based? Annual based contracts? Does that as a factor represent the kind of business degrowth you’re mentioning?

Depends. I mean there is a segment, which is an enterprise, more organized segment, group hotels and stuff like that. They have more long term contracts, yearly contracts and stuff like that. But these small hotels that are on Hotelogix or even on AxisRooms, they are on month-on-month. So, there was immediate impact.

Take us through the business recovery process so far into August. How has that panned out?

Now we are seeing a revival. And see, Hotelogix is a must-have technology, because hotels have their important data in it, the transactional data in it. So anyone who's adopted a PMS and has shut down and the moment they start, we see the immediate first recovery, from that perspective. So I can safely say that the business went down by 50% in the beginning of April, and now it has come to 65% or so of our business. 

What we did was that we basically, for hotels, we gave them some discounts. We gave them moratoriums in the sense that they can pay later. But a lot of hotels, they got shut, where they didn't know what their future would be. So those are the hotels that we lost. And we think that if they will restart as businesses, they will come back to us. 

There’s a lot of apprehension in the industry that you’re at, given the travel restrictions. How does the strategy of such a consolidation fit into the scheme of things?

The deal (merger) talks were on for almost a year now. Covid-19 had nothing to do with it. But we think that the pandemic has made it more relevant. The reason I say that is that we clearly think that as the pandemic goes, the competition will reduce. A lot of other competitors may or may not exist after this. 

Also, there aren't new hospitality technology ventures that are getting funded. So for the next five years, we have a reduced competition. And in this reduced competition, if we go with this power of full stack, there is a serious chance of winning the market... Contactless has become huge from nowhere. Who thought that India will ever use contactless, who thought contactless kind of technology will be used in Southeast Asia… We always thought that it was a human touch mass market. But now contactless, in every industry has become an absolute must. 

So, when you have such diverse technologies under you, the ability to respond to the market with agility and with the vision of strength becomes very, very strong. 

Tell us about the leadership team synergies, post merger.

All the founders have taken on specific roles. They will report to me. We have Pranjal (Pranjal Prashar, founder and CEO, Repup) who is taking up the product. Ravi (Ravi Taneja, co-founder and COO, AxisRooms) is taking up operations. We have Anil (Anil Kumar Prasanna, CEO, AxisRooms) taking up new market development alliances. We have Prabhash (Hotelogix co-founder) taking up SMB business. Yet to be completely structured, but at a high level, the roles are defined.

How soon do you think the merged entity will become profitable?

So unit economics are extremely good. Hotelogix clocks a unit economy of almost 80% of gross margin. So unit economics are very good, but we've always been burning, investing, and trying to burn for growth. We see a good path to profitability because the share of wallet with the same customer is going to increase. Today let's say with RepUp alone or with AxisRoom alone, or with Hotelogix alone, he was buying one or two technologies. Now we can sell five or six technologies. So that's where you start optimizing your expenses and maximizing your profits. So we see a very clear cut path to profitability within this financial year.