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Hotels: Beyond the metros... - Views on News from Equitymaster
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  • Jul 11, 2006

    Hotels: Beyond the metros...

    Historically, India has been a six city market for the hospitality industry, including the four metros of Mumbai, Delhi, Kolkata and Chennai and tourist hotspots like Jaipur and Agra. However, the rise in economic activity across the country has led to an increase in demand in several other smaller cities including Ludhiana, Chandigarh, Ahmedabad, Pune, Cochin, Bangalore and Hyderabad. The expanse of tourist destinations in India is thus, now growing. On the corporate tourism side, cities like Hyderabad, Bangalore and Pune are giving tough competition of late. In this article we analyse the dynamics of major cities with respect to their tourism potential.

    Occupancy rates: Due to the spurt in tourist inflows, all India average occupancy rate increased from 72% in FY05 to 75% in FY06. Throughout last year and the beginning of this year, the occupancy rates have touched new highs. The sustenance of demand all through the year has also reduced the effect of seasonality. In April 2006, the occupancy rates in Goa touched 88.9% to reach the numero uno position (displacing Delhi). Hyderabad and Pune followed with 82% and 81% respectively. Mumbai hotels showed minor improvements at 69.7% in April 2006 from 69.5% in the same month last year.

    RevPAR and ARRs: An economy on the roll can only mean good news for the hospitality industry. In March 2006, average revenue per available room (RevPAR) as well as average room rates (ARR), on a year-on-year basis, grew at a phenomenon 41% across 10 key Indian cities. The tech city Bangalore, continued to retain its position with the highest ARR of Rs 13,111 for April 2006, Hyderabad registered the highest growth in the ARR (55% YoY). Bangalore also led the list by registering RevPAR of Rs 9,736. However Agra scored the highest in terms of RevPAR growth.

    Demand Supply: According to a recent study by hotel monitoring body HVS International-India, while Hyderabad, Mumbai, Goa, Chennai and Bangalore occupy top slot for hotels, emerging markets for the hotel industry include Pune, Cochin, Chandigarh and Ahmedabad. In the Indian hotel industry, room demand has been outpacing supply over the past two years, particularly in the premium segment. We expect the trend to continue. For example, Hyderabad will need 8,000 rooms by 2009, while the then will be around than 5,400 rooms. In Goa, demand by 2009 will be as high as 6,500 rooms, but supply will not cross 2,800 rooms. In Chennai, the projected demand of 7,500 rooms will far outstrip supply at 5,000, and in Bangalore, while demand will be anywhere between 14,000 to 20,000 rooms, supply will not be more than 6,800 rooms. To add to this, with the 2010 Commonwealth Games in the capital, Delhi alone will need to augment 10, 000 more rooms to the existing 6,500 rooms.

    Conclusion: Room demand growth will be strong at 8% to 10% per annum against a supply growth rate of 4% to 6% over the next two years. This equation would improve ARRs and thereby drive the industry's profitability amid high operating leverage. We expect the key markets of New Delhi, Mumbai, and Kolkata to experience higher ARRs because no additional supply is expected in the near term. New cities such as Hyderabad, Pune and Jaipur are also likely to be some of the fastest growing markets.



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