Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Hotels: Yet another strong year… - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Jan 10, 2008

    Hotels: Yet another strong year…

    The hospitality industry witnessed another year of strong performance in 2007 and in this article, we shall examine the factors that contributed to this growth and some of the challenges that this sector faces.

    Inflows continue: India continued to witness cheering trends in the tourism sector in 2007. Upto October 2007, 3.9 m tourists visited the country, registering a growth of 12.7% YoY. Foreign exchange earnings (in dollar terms) touched US$ 9.2 bn (till October 2007), a growth of 17.7% YoY.

    Government efforts: The Indian hospitality sector aspires to become the forerunner of India's economic growth with support from the government. The Ministry of Tourism actively followed the National Tourism Policy formulated in 2002 by the government to build up tourism in the country in an organised manner and make it the main engine of economic growth. Marketing campaigns created by India's tourism ministry - titled Swagat, Visit India, Explore India, and now Incredible India, were extensively used to promote Indian tourism. In the Budget 2007, five-year tax holidays for new star-category hotels and convention halls coming up in the National Capital Region by 2010 were announced. Further, a conditional 10-year tax holiday for all tourism projects in the country is being planned. The Ministry has sanctioned 225 projects and utilised Rs.4.6 bn for upgradation of infrastructure facilities at important tourist destinations. Even public-private partnership is being planned to develop infrastructure projects.

    High rates, low occupancy: Exorbitant room tariffs took a toll on occupancy rates in five-star hotels. With room rates ruling at around Rs 13,000-17,000 per night, occupancy levels in most metro markets except Mumbai witnessed a dip. While room rates in Delhi, Bangalore, Chennai and Hyderabad witnessed a 20% to 25% jump, occupancy levels dipped in the range of 4% to 11%. With the weakening of dollar against the rupee, hoteliers feel there is more value for money earned in rupees and hence have decided to price their services in rupees. Hotel rooms in India's leading cities today are among the most expensive in the world, as demand has grown rapidly but supply is lagging behind. The continuation of the high rates could hamper demand in the long term.

    The Indian hotel market continues to suffer from limited supply. There are an estimated 105,000 hotel rooms in India - a number comparable to that of Manhattan. Considering that the expansion plans of hotels are already in process and are also in the planning stage, the tourism authorities expect an addition of 80,000 rooms by 2009. That could still meet just over half the projected demand; leave alone the growth potential during this period.

    As a result of the high room rates in branded hotels, unregulated, unorganised hotels and guesthouses segments have emerged. Stringent land policies, soaring property prices and other legal formalities are some of the factors discouraging the real estate industry from bringing more hotels required for the tourist arrivals. Further there is also shortage of land and the problem of high rentals. Hence the companies are venturing in to new business models. The companies are also building budget hotels and are tying up with real estate developers. Some companies have even signed joint ventures with Indian railways. Service apartments are also the latest trend witnessed especially in centres with IT and ITeS business.

    Going forward…
    The importance of the tourism and hospitality industry for the Indian economy is apparent. As per WTTC, Indian tourism demand will grow at 8.8% from 2004-13, which would place the country as the third-most rapidly growing market in the world, after Montenegro and China. However with tourist arrivals of 4 m as compared to China's 45 m, Singapore's 7.5 m and Spain's 55 m, the number is very small amidst a huge supply crunch. In the long term, for the growth of the industry to be sustained, issues like poor infrastructure, high levels of taxation need to be solved. Land development, less of paper and legal work, faster execution is needed to meet the growing demand. Adding rooms at a faster pace would also stabilise the room rates and not have a negative effect on potential demand in the future.



    Equitymaster requests your view! Post a comment on "Hotels: Yet another strong year…". Click here!


    More Views on News

    Indian Hotels: Domestic Operations Performs Well (Quarterly Results Update - Detailed)

    Oct 17, 2016

    Indian Hotels has reported a 5.6% YoY increase in the consolidated topline and a consolidated loss of Rs 1,695 m for 1QFY17.

    Indian Hotels: Recovery Still Far Away (Quarterly Results Update - Detailed)

    Mar 28, 2016

    Indian Hotels has reported a 13.2% YoY increase in the consolidated topline and a standalone net profit of Rs 1.2 m for the quarter ended December 2015.

    Indian Hotels: A good operating performance (Quarterly Results Update - Detailed)

    Nov 24, 2015

    Indian Hotels has reported a 13.2% YoY increase in the standalone topline and a standalone net profit of Rs 1.2 m for the quarter ended September 2015.

    Indian Hotels: Exceptional gain boosts bottomline (Quarterly Results Update - Detailed)

    Aug 28, 2015

    Indian Hotels has reported a 10.2% YoY increase in the consolidated topline and a consolidated net profit of Rs 348 m for the quarter ended June 2015.

    More Views on News

    Most Popular

    This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process)(The 5 Minute Wrapup)

    Aug 17, 2017

    A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.

    The Most Important Innovation in Finance Since Gold Coins(Vivek Kaul's Diary)

    Aug 10, 2017

    Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.

    It's the Best Time to Buy IT Stocks(Daily Profit Hunter)

    Aug 16, 2017

    The IT Sector could be in an uptrend till February 2019. Are you prepared to ride the trend?

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms