27-11-2012, 05:55 PM
INDIAN HOTELS INDUSTRY
INDIAN HOTELS.doc (Size: 6.27 MB / Downloads: 136)
An uneasy calm prevails in the global markets; consumer confidence low Over the past few quarters, the global economy has been affected by various natural, social and economic headwinds; the earthquake
in Japan during March-2011, the floods in Thailand during October-2011 or the civil unrest in the Arab countries and most importantly
the ongoing economic crisis in the EU. Despite these upheavals, foreign tourist arrivals (FTA) to India grew by 8.8% to 62.9 lakh tourists
while international tourist arrivals grew by 4.4% to 980 million travellers during CY2011 (Calendar year - Period ending December-11).
The pace was however significantly slower than the 11.8% (FTA) and 7.0% (international travellers) of the previous year. Growth in
arrivals to Africa and the Middle East was weak while arrivals to Europe, Asia, the Pacific and Americas led the international traveller
growth during CY2011. With strengthening regional business ties, South and South-East of Asia witnessed strong intra-regional demand
during the period.
As is the case with industries that depend on discretionary spending, the performance of the hotels industry is intrinsically knit with the
economic growth. However, we have in the past witnessed periods of decoupling between the hotels industry and GDP growth;
particularly during periods of recession and the early phases of recovery. During the economic down cycle, the faster pace of
deceleration in the hotels industry, as witnessed during 2009, can take the industry to deep troughs. While the climb during the initial
phases of recovery is faster than the economic revival, a strong underlying economy is a pre-requisite for a sustained recovery.
Large Global brands remain committed to India
With 740 million domestic travellers (in 2011) and over 6.3 million FTAs, India, after China, is considered one of the most lucrative hotel markets in the world and has the
second largest construction pipeline in Asia. Growing affluence and the increasing role India is expected to play in the global economy are likely to drive both leisure and
business travel in the coming years. For most global hotel majors a significant part of their hotel pipeline is centred on faster growing developing markets like India. India
has an estimated 1, 70,000 hotel rooms of which around 60,000 are branded. Even with the expected addition of another 60,000 hotel rooms (across segments) over the
next three to five years, the industry is expected to fall short of meeting the long term demands of an economy growing at 7-9% p.a.
India has often been cited as one of the most lucrative albeit difficult markets to develop properties in. Bureaucratic red tape, corruption, multiple licenses, complex
approval procedures, exorbitant land cost, all of which leads to a long development cycle of 3-5 years adds to the cost. The average development cycle for India in the
premium segment is around 0.5-1 year longer than for the general Asia pacific region1. Despite which, India houses all the big hotel groups (top ten hotel majors listed in
the table below) in the world under multiple brands/prices. Of the top twenty global brands (in terms of number of hotels), around 18 brands are already present in
India.
For a global hotel major, a local developer with hands on experience in navigating the Indian real estate market is a positive. For bulk of the development international
hotel majors are banking on a seasoned local developer with whom they have developed properties in the past. IHG however recently took a 24% stake (around 30
million USD) in Duet India Hotels Group to build 19 Holiday Inn Express hotels over the next five years. Carlson bought out its long term local development partner RHW
Hotel Service while the Choice group proposes to consolidate its position in India by buying out its Indian development JV partners. From the perspective of the Indian
property owner/developer, particularly with a number of first time hotel developers entering the market, the association with a strong management partner from the
planning stages is imperative. A brand tie up in the early planning stages provides clear cut plans for construction, room specifications, floor plans, dining facility and a
globally appealing décor. Further, for an inexperienced developer, the presence of a reputed management partner provides experience and a global distribution reach.
The hotel, being part of a global brand, provides an international traveller an expectation yard stick with which to judge rooms prior to booking them. Some of the recent
announcements by global hotel majors for their proposed expansion plans in India are captured in the table below.
BUSINESS PROFILE
Incorporated, in 1902, by Jamshed N. Tata of the Tata group, Indian Hotels Company Limited (IHCL) is India’s largest hospital ity company. IHCL and its subsidiaries are collectively
known as the ‘Taj Hotels, Resorts and Palaces’. Taj Hotels Resorts and Palaces comprises of ~112 hotels (excluding Ginger properties) with 13,606 rooms at over 55 locations
across India and globally (in the Maldives,Malaysia, United Kingdom, United States of America, Bhutan, Sri Lanka, Africa, the Middle East and Australia). The company proposes to
increase its inventory to ~15,843 rooms across 130 hotels by the end of 2012-13. With the promoter group holding 33.6% stake in the company, IHCL is listed on the BSE and
NSE.
The Taj Hotels Resorts and Palaces is grouped into four distinct business segments - Luxury (Taj Mahal/Exotica), Upper Upscale (Vivanta), Upscale (Gateway), and
economy/budget (Ginger) categories to provide consistency across the different hotels and standardise offerings. Of these, the luxury properties in metro and key leisure
destinations are largely in the books of IHCL while the rest are held through subsidiaries and associates. The Group also ope rates a number of properties on pure management
contracts. During 2010-11 the company reported a 15% growth in operating income to Rs. 2,891.7 crore at the consolidated level with net losses (after minority interest) of Rs.
87.3 crore. The same at the standalone level stood at Rs. 1,673.5 crore and a profit of Rs. 141.3 crore.