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    Equity Master Hotels

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    The hotel sector struggled in 2009 due to the global economic slowdown and terror attacks, but saw recovery in 2010. While demand increased, supply growth was limited due to the capital intensive nature of hotels and barriers like scarce land. The outlook is positive due to expectations of continued demand-supply mismatch and upcoming events, but performance depends on external economic factors. The government has taken steps to encourage tourism but needs to increase spending and reduce red tape hindering projects.

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    Equity Master Hotels

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    sridharwn
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    The hotel sector struggled in 2009 due to the global economic slowdown and terror attacks, but saw recovery in 2010. While demand increased, supply growth was limited due to the capital intensive nature of hotels and barriers like scarce land. The outlook is positive due to expectations of continued demand-supply mismatch and upcoming events, but performance depends on external economic factors. The government has taken steps to encourage tourism but needs to increase spending and reduce red tape hindering projects.

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    The hotel sector struggled in 2009 due to the global economic slowdown and terror attacks, but saw recovery in 2010. While demand increased, supply growth was limited due to the capital intensive nature of hotels and barriers like scarce land. The outlook is positive due to expectations of continued demand-supply mismatch and upcoming events, but performance depends on external economic factors. The government has taken steps to encourage tourism but needs to increase spending and reduce red tape hindering projects.

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    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    50 views3 pages

    Equity Master Hotels

    Uploaded by

    sridharwn
    The hotel sector struggled in 2009 due to the global economic slowdown and terror attacks, but saw recovery in 2010. While demand increased, supply growth was limited due to the capital intensive nature of hotels and barriers like scarce land. The outlook is positive due to expectations of continued demand-supply mismatch and upcoming events, but performance depends on external economic factors. The government has taken steps to encourage tourism but needs to increase spending and reduce red tape hindering projects.

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    Hotels - Sector Research & Analysis - Equitymaster

    Page 1 of 3

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    Home > Research It > Sector Info > Hotels - NOVEMBER 12, 2010

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    Hotels
    [Key Points | Financial Year '10 | Prospects | Sector Do's and Dont's] After witnessing good times for 3 years, the hotel sector had a tough 2009 due to the global economic slowdown and terror attacks. The travel & tourism growth in 2009 slowed down to just 1%. The global economic downturn impacted the Indian tourism and hospitality industry which saw a decline in the foreign tourist arrivals to India from 5.13 m in FY09 to 5.5 m in FY10, thereby resulting in a increase of 7% YoY. India occupies the sixty-second position among the top tourist destinations in the world for 2009. To encourage the tourism sector, the government in recent times, has taken some measures which will benefit the sector. In FY09, Rs 5.2 bn for development of tourism infrastructure was allocated. This figure is higher by Rs 970 m as compared what was allocated in the previous year. However, it is only 1% of the total government spending. RBI has allowed ECB upto US$ 100 m in January 2009, which would help in raising funds. The Centre and States are also working out a PPP (Public-Private-Partnership) model to increase hotel capacity. Government of India increased spend on advertising campaigns (including for the campaigns 'Incredible India' and 'Athithi Devo Bhava' - Visitors are like God) to reinforce the rich variety of tourism in India. The ministry promoted India as a sate tourist destination and undertook various measures, such as stepping up vigilance in key cities and at historically important tourist sites. According to the latest Tourism Satellite Accounting (TSA) research, released by the World Travel and Tourism Council (WTTC), the demand for travel and tourism in India is expected to grow by 8.2 % between 2010 and 2019. This will place India at the third position in the world. India's travel and tourism sector is expected to be the second largest employer in the world. Capital investment in India's travel and tourism sector is expected to grow at 8.8 % between 2010 and 2019. The report forecasts India to get more capital investment in the travel and tourism sector and is projected to become the fifth fastest growing business travel destination from 2010 through 2020. Key Points Supply We have a shortage of 100,000 guest rooms short in the country. This is expected to keep ARRs high for the next few years. Largely depends on business travelers but tourist traffic is also on the rise. Demand normally spurts in the peak season between November and March.

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    13/06/2011

    Hotels - Sector Research & Analysis - Equitymaster


    Barriers to entry High capital costs, poor infrastructure facilities and scarcity of land especially in the metros.

    Page 2 of 3

    Bargaining power of Limited due to higher competition, especially in the metros. suppliers Bargaining power of Higher in metro cities due to increasing room supply. customers Competition Intense in metro cities, slowly picking up in secondary cities. Competition has picked up due to the entry of foreign hotel chains. TOP Financial Year '10 The sector began the year FY10 on a weak note. There was a fall in foreign tourist in the first half of the year as a result of the economic slowdown. However, towards the second half of the year the demand picked up. Moreover, in spite of the economic slowdown, demand from domestic travellers continued to be strong. Rising tourist inflow and higher occupancy kept the hotel companies afloat after the slowdown. The foreign tourist arrivals were higher by 11.5% YoY in FY10 after a fall of 6% in FY09. Existing hotel companies, new foreign players and real estate players continued with their expansion plans. Prospects were looking good, until the sector faced a double blow. The worst financial crisis in many decades, high oil prices and a slew of militant attacks hit the hotel industry. When the Indian tourism and hotel industry had just started gaining recognition worldwide, it was hit by a double whammy. The first being the global credit crisis and the second, the terror attacks on the iconic hospitality landmarks; the 'Taj Mahal Palace and Tower Hotel' and the 'Oberoi Trident'. During 1HFY10, lower corporate spending, fluctuating dollar and the credit crisis did impact occupancy rates across India. However, a strong recovery was witnessed during 1HFY10 across the country except for Hyderabad. Hyderabad witnessed a slow recovery due to the Telengana issue. The room rates however, remained lower than that in FY08. With the terror strikes (26/11) during the onset of the peak season, things got murkier. This prompted the Indian government to ask hotels to slash their prices in the hope of keeping demand stable. This coupled with cost pressures, liquidity crisis and regulations concerning the real estate sector made funding for hotel projects difficult. The unrealistically high land prices and government red tapism also resulted in hotel projects taking longer to fructify. The hotel companies faced cash flow pressure, thereby affecting their expansion plans. The balance sheets of the hotel companies were under stress on account of acquisitions of land banks and rising debt levels. TOP Prospects The outlook for the looks very promising this year. Demand levels are likely to improve in 2010/11 as economic growth gathers momentum and companies increase spending on travel. With expectations of healthy salary increases within the corporate world, discretionary spending is expected to increase further, especially on leisure travel. In the long term, the demand-supply gap in India is very real and that there is need for more hotels in most cities. The shortage is especially true within the budget and the mid market segment. There is an urgent need for

    http://www.equitymaster.com/research-it/sector-info/hotels/

    13/06/2011

    Hotels - Sector Research & Analysis - Equitymaster


    budget and mid market hotels in the country as travellers look for safe and affordable accommodation. Various domestic and international brands have made significant inroads into this space and more are expected to follow as the potential for this segment of hotels becomes more obvious. The cash crunch may lead to a stop or delay in the completion of projects as well as a revision of the project expenditure. As per KPMG, only 60% of hotel projects announced in key metros are operational as per schedule. Developers have also diverted their plans in favour of commercial or residential buildings due to liquidity crunch and higher land prices leading to a longer breakeven period. Considering all these factors, industry estimates that just over half of the planned 0.1 m new rooms will finally be built. Hence, considering the demand supply mismatch, the new room additions will not create an overhang. Thus, we believe that the existing players would benefit from the continued demand-supply mismatch once the economy revives. Further, with events like the Commonwealth Games planned in Delhi in 2010, the hotel industry will benefit. The number of foreign tourists is expected to reach 10 m during 2010. IPL has also come as a shot in the arm for the hotel industry. While the long term fundamentals remain strong, the sector is highly dependent on external factors which could possibly mar its performance. TOP Views Research Reports: Hotels Sector | All companies

    Page 3 of 3

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