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.
Hotel sector: Where to? - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Oct 5, 2007

    Hotel sector: Where to?

    With the macro prospects still strong, increased business-tourist travel continues to propel hotel room demand. Business traffic in major metros has grown in line with increased economic activity. Foreign tourist arrivals for the months of July 07 and August 07 grew by 15% YoY. 3.12 m foreign tourists arrived from Jan 07 to Aug 07.

    Hike in room rates:
    During the quarter, major players have planned to shift to a single rupee tariff rate from a dual tariff structure. Strengthening of the rupee against the dollar has made a significant dent in the revenues of hotel chains across India. For instance, when the US dollar was ruling at around Rs 45, a US$ 200 rent would fetch Rs 9,000. Now, with dollar at around Rs 40, the same would bring in only Rs 8,000. Therefore, hotel majors are planning to introduce rupee pricing from October onwards, the time when most hotels change their tariffs. The move towards a single-currency pricing is to shield the players from a fluctuating dollar. All the major companies are planning to increase room rates by 15% to 25% across most locations. While the revision in Mumbai and Delhi could be up to 25%, in places like Goa and Kerala it could be as much as 30%. October sees the onset of foreign leisure travelers and hence the hike at leisure destinations is more than the metros to capture the benefits of higher tourist inflow.

    Dip in occupancy:
    Though the room rates are rising, the occupancies of branded hotels (three to five star) in metros are showing a downward trend. Room rates in metros like Mumbai, Delhi, Bangalore, and Chennai have jumped three-fold in the last three years and this has probably led to some pressure on occupancies. Hotel industry overall saw a 12-month average growth of 30% in 2006-07, whereas, occupancy growth, which had been 2.6% in the previous year, showed a marginal growth of 0.7% in 2006-07. New capacity to the tune of 30% came up in Bangalore, while in Hyderabad, the capacity increased by 50%. Bangalore has been the biggest loser with its occupancy rate lagging behind at 65% compared with 79% a year ago. Thus, along with higher rates, the addition in inventory led to lower occupancies. Also in Delhi, occupancies have dipped by 6% to 7% in the first five months of this fiscal (April to August) compared to the corresponding period last year.

    Place Current rooms Expected (3 to 5 years)
    NCR/Delhi 8,000 19,400
    Bangalore 2,414 12,882
    Hyderabad 1,442 8,700
    Pune 510 8,000
    Mumbai 7,400 11,600
    Chennai 2,440 6,300
    Kolkata 1,350 3,700
    Goa 2,252 2,632
    Source : HVS International Research
    Realty blues:
    According to the department of tourism, foreign arrivals in India increased 20% between 2005 and 2007. Besides, about 300 m domestic tourists travel to various destinations annually and that number is expected to grow by 10% to 15% over the next few years.

    The hotel industry has 110,000 rooms and a shortfall of 150,000 has been estimated. The industry has failed to keep pace with the exponential economic growth and therefore, a substantial demand-supply gap exists. Not surprising then that room rates are steep and room availability is low across cities with the situation getting worse in the peak season. The hotel industry will further get a fillip with the 2010 Commonwealth Games to be hosted in Delhi. The government has given approval to about 300 hotel projects. However, the fear is that only 75% of the demand will be met by projects that are on the anvil. Site, location, accessibility, visibility and proximity are critical factors for development of hotels. However, availability of quality sites is the biggest challenge.

    Apart from the location problem, the hotel industry is also facing problems like non-availability of trained or skilled people, rising manpower and operational costs, maintaining global services standards and lack of efficient contractors.

    Going forward:
    The continued demand-supply imbalance has led to exponential rate increases, resulting in inflated room rates across key markets in the country, some of which currently rank among the most expensive hotel markets in the world. However, occupancy rates are declining. The government is taking measures to increase supply. Location availability though, would continue to be a problem.



    Equitymaster requests your view! Post a comment on "Hotel sector: Where to?". 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

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    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.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    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.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    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