"The money changing business is estimated to be US$ 2bn to US$ 2.4 bn." - Views on News from Equitymaster

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  • Apr 14, 2001 - "The money changing business is estimated to be US$ 2bn to US$ 2.4 bn."

"The money changing business is estimated to be US$ 2bn to US$ 2.4 bn."

Apr 14, 2001

Mr. Jayram Ketkar is the Managing Director of Tata Finance Amex Ltd. He is a rank holder chartered accountant and has 25 years of experience in the travel and tourism industry. He was earlier associated with Thomas Cook and played a key role in growing the business of the company. He now has accepted the challenge to build another travel & tourism success story. In an interview with Equitymaster.com, Mr. Ketkar spoke on the prospects of the travel & tourism sector. He believes the Government will have to give due weightage to the sector if it plans to make this industry a forex money-spinner.

EQM: What are your views on the prospects of tourism and forex industry in India? What are the major changes you expect in these sectors over the next five years?

Mr. Ketkar: By forex, I presume, one is referring to forex related to travel and the travel industry. If you look at the industry of travel and tourism one has to segregate the two categories, as one is travel related to business and the other is the leisure travel. Leisure travel directly relates to tourism and under this we have outbound and inbound tourism. As far as corporate travel is concerned, considering that the U.S economy is slowing down and that corporates are reducing IT spending, outbound corporate travel will be impacted. It is a question mark as to whether the slowdown in outbound corporate travel will have an impact on the entire industry. As far as inbound corporate travel is concerned India is still opening up and it could benefit as companies abroad look outwards for meeting their requirements.

With regards to tourism it is unfortunate, though not a criticism, that none of the Governments have looked at tourism as one of the largest foreign exchange earners for the country. And you will not see any emphasis given to tourism in the budget for the last four to five years. But take a country like Singapore that attracts six times as many tourists as domestic population. Of course, India cannot have those rates but we are consistent at 2 to 2.5 m tourists per annum and have not been able to grow fast. This is despite India having rich culture, heritage, natural beauty and so much more to offer. Though tourism has been recognised as an industry, more importantly, not enough focus has been given to the sector considering that it is next to the jewellery industry in terms of earning foreign exchange. We are not serious about either inbound or outbound tourism.

For outbound tourism there are a number of players that are concentrating on group tours. The earthquake could have an impact on outbound travel, as 30% to 35% of the group tour business comes from Gujarat. It is quite unlikely that the affected families will travel this year. Therefore, we do not expect a strong season starting April '01.

Further, the tourism industry is very sensitive. Anything going wrong, whether it is a perceived plague, Ayodhya or other smaller matters, immediately your inbound tourism gets blocked. Inbound tourism has grown slowly at 5% to 7% in the past but if things are put in place it can double every year for the next five years. Of course, one must keep in mind that the requisite infrastructure has to be put in place before that happens. We need a strong airline network, roads, hotels and other supporting infrastructure. If such infrastructure is not in place it will only lead to bottlenecks and tourism will not pick up.

Therefore, there will have to be a conscious effort on part of the State and Central Government. As I understand, tourism is a state subject. Hence, the state will have to provide the impetus and should not expect anything to come from the Central Government. Kerala is a good example. The state has appointed a consultant to help them develop a five-year plan for boosting tourism. Other states in India should take such steps to promote and sell themselves. India is not as aggressive as compared to other countries in such matters. This is where I think we are very slow. In dollar terms, inbound tourism has grown 4%-5%. This translates to a growth of 9%-10% in Rupee terms. I do not expect the industry to grow any faster in the next five years unless a conscious effort is made.

EQM: In money changing business, what is Tata Finance Amex's market share currently and what strategy will the company follow to increase this further?

Mr. Ketkar: One has to understand that Tata Finance Amex is a year old company and we have just penetrated the market, therefore, it is very difficult to say what probably could be our market share. Though, we have recently acquired a company TT Forex with about 21 locations. Further, we have our own 20 locations. We have completed the network through these companies only this March and are now present in retail, corporate and wholesale foreign exchange (buying in wholesale from Banks, Hotels and other moneychangers). All these operations have started in the last six months. Our total infrastructure of 41 locations was set up over the last one year with the last branch opening this March. With this set up I would imagine we have made a dent in the market. The coming year would be important for Tata Finance Amex as now we are equipped to penetrate the market.

In the money changing business there are no statistics available but to put a number, the industry size is estimated to be US$ 2 bn to US$ 2.4 bn. Of this, the travelers cheques business is estimated to be US$ 1 bn to US$ 1.3 bn

EQM: What is your unique selling proposition as compared to say Thomas Cook in money changing business?

Mr. Ketkar: This is a business of brands. No doubt Thomas Cook is an equally strong brand. But I must add that the Tata in-house business is quite substantial. Earlier, American Express had only four locations and they wanted to expand while Thomas Cook already had 49 locations. These are now two equally strong brands. People have a choice and can exercise their preference. Remember most of the products sold by the players in this industry are generic and therefore it is important to build a brand. Consequently, one must establish strong service levels, ethics, trust and transparency with the brand. In this regard, Tata has a strong brand name.

As per our study, 70% of the travellers' cheques encashed in India are American Express. Therefore, it is quite natural that somebody holding Amex travellers' cheques would be more comfortable encashing them with Amex. To meet this requirement we have rolled out more branches across the country, as mentioned earlier. We are in wholesale, retail and corporate segment.

EQM: Has the decision of RBI to increase Basic Travel Quota for leisure and business activities had a beneficial impact on the outbound travel. What are the prospects for this segment?

Mr. Ketkar: Yes, the increase in basic travel quota has helped increase the number of tours. As people meet their other aspirations they are then looking to also travel abroad. So, yes, the prospects for leisure travel are good. People may start first by traveling to the near-by locations (Dubai, Singapore etc) and then to other regions like Europe and Americas. Therefore, the increase in quota will positively impact outbound leisure travel.

The basic travel quota currently is US$ 5,000 per year per person. Earlier it was US$ 500 and then increased to US$ 3,000 and now US$ 5,000. For business travel also the quota was on per day basis but now it US$ 25,000 per trip. The quota is not at all a constraint anymore and one does not have any reservations.

EQM: What do you see the business mix of the company in the next 2-3 years in terms of foreign currency business, and others. Does the company have plans of expanding its services in the area of corporate and leisure travel management?

Mr. Ketkar: Over the next two to three years Tata Amex is going to concentrate on retail and corporate travel business. Also, on the retail and wholesale money changing business. Therefore, as we penetrate the market, the contributions from these various businesses will emerge, only then can we talk of a revenue mix.

EQM: According to you, what would be the one thing required for making this industry boom?

Mr. Ketkar: If the tourism industry has to boom the respective authorities will have to concentrate on providing the necessary infrastructure first. I think this is the most crucial, especially, for inbound travel. This would definitely help India's foreign exchange earnings and give a boost to the industry. There are industry associations, travel agents association, tour operators association, moneychangers association, hoteliers association etc. All these are there but they look after their individual interests. There is no cohesive force bargaining for the industry.

EQM: What are the company's capex plans over the next three years. What new products has Tata Amex planned in future?

Mr. Ketkar: The company has completed most of its capex plans in the current year. However, I would like to mention that this industry is not a capital-intensive industry. Except, the investment in IT if you will. Tata's are also looking at getting into the travel agency business. It is being looked at and if it comes through it could have a favourable impact on our business, as there could be some cross selling.

We are not providing travel loans, but Tata Finance had thought about providing this service. However, the size of loans is quite small and hence the servicing cost per transactions is high. Hence, it is not very feasible.

EQM:question How do you spend your free time?

Mr. Ketkar: I like watching television. It could range from BBC to National Geographic. My interests are varied.

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