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.
Increasing room supply - more talk, less action - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Apr 28, 2000

    Increasing room supply - more talk, less action

    The entry of foreign hotel chains into the country, especially in the five star metro hotels will have an impact on the future room supply scenario, however not in the medium term. Five star room supply has grown by only 3% in the last three years. This slow growth in room supply has benefited the existing hotel companies.

    The metro cities of Mumbai and Delhi account for a major chunk of revenues and profits (varying from 70% to 100%) of these hotel companies. Hence majority of foreign hotel chains are keen to take advantage of the business opportunities in these cities and hence plan to set up shop here. The number of hotel rooms to be set up these chains seems tremendous at this point from plans announced by them. Majority of these international hotel chains are entering into only marketing and management tie-ups with land developers or real estate companies to have huge land banks at their disposal.

    In Mumbai around 100% capacity additions are planned over the next five years as 3,294 new rooms are planned, with this the capacity is expected to go up to 6,249 rooms from the current 2,955 rooms. In Delhi the capacity is likely to go up by 1,370 rooms in the next four to five years an increase of 35%-40% from the current level of 3,960 rooms.

    Existing capacity Rooms New expansions Rooms Scheduled
    Taj Mahal 583 Taj, Wellington Mews 250 2003-2004
    Taj President 310 Taj, Airport Hotel 350 2001
    Oberoi 337 Intercontinental 400 2002
    Oberoi Towers 575 Regent expansion 400 2000
    Orchid 245 Marriott 400 NA
    Leela Kempinski 423 Rennaisance 450 NA
    Ambassador 123 Marriott Executive Residence 250 NA
    Holiday Inn 191 Sheraton Hotel 394 2002
    Regent 100 Hyatt 400 2002
    Marine Plaza 68      
    Total 2,955 Total 3,294  

    Existing capacity Rooms New expansions Rooms Scheduled
    Hyatt Regency 518 Grand Hyatt 450 2000
    Imperial 204 Maurya Sheraton
    100 2001
    Inter-Continental 444 Nikko Hotel 200 2000
    Le Meridien 355 ITC-Ansal Hotel 220 2001
    The Park 224 Trident Hotel 400 2004
    Park Royal 214      
    Oberoi 287      
    Taj Mahal 300      
    Taj Palace 422      
    Vasant Continental 134      
    Maurya Sheraton
    Hotels & Towers
    Claridges 162      
    Radisson 256      
    Total 3,960 Total 1,370  

    From the point of view of existing hotel companies these are long term concerns as many of these hotel projects are in early stages of inception, or stand delayed. A primary reason for the delays is the current downturn in the Indian hotel industry forcing many companies to go slow on expansions. For instance, the recently opened Regent hotel in Mumbai expansion stands delayed due to cost escalations and funding problems. Also another problem is that these tie-ups do not always work out as the owners and the operators may not agree on many of the issues pertaining to running of a hotel. As per press reports the Hilton group had entered into tie-up with Bharat Hotels (a Delhi based Hotel company), but this fell through because of differences between the two groups. Bharat Hotels earlier had a tie-up with Holiday Inn, then Hilton and now Intercontinental. This affects the operations and smooth running of a hotel property.

    As many of the projects stand delayed new room supply should not be an issue for existing hotel chains atleast for the next three to four years. On the demand side occupancy rates in the metro cities is expected to pick up in the next year with the improvement in the overall economic and business scenario. Hence the prospects for existing hotel companies does look bright over the next three years.

    On valuations terms, Indian Hotels Company Ltd is trading at price to earnings multiple of 9.3x and EIH Ltd is trading at 6.7x (both on FY99 earnings). This is low as compared to multiples of 20x-25x they commanded a few years ago.



    Equitymaster requests your view! Post a comment on "Increasing room supply - more talk, less action". 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

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    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.

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    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