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Hotels Sector Analysis Report 

[Key Points | Financial Year '16 | Prospects | Sector Do's and dont's]

  • Tourism has now become a significant industry in India. It is a sun rise industry, an employment generator, a significant source of foreign exchange for the country. Tourism in India is the third largest foreign exchange earner of the country. The booming tourism industry has had a cascading effect on the hospitality sector with an increase in the occupancy ratios and average room rates.
  • As per world travel and tourism Council (WTTC), India is one of the favorite tourist destinations from the year 2009 and will continue to be one of the favorite till 2018. Further, the Travel and Tourism Competitiveness Report by World Economic Forum, has ranked India at the sixth place in tourism and hospitality.
  • The tourism and hospitality sector is among the top 10 sectors in India to attract the highest Foreign Direct Investment (FDI). According to the data released by Department of Industrial Policy and Promotion (DIPP), the hotel and tourism sector attracted around US$ 9.2 billion of FDI between April 2000 and March 2016.
  • The Indian government has also taken several steps to make India a global tourism hub. The government has initiated ‘Project Mausam’ under which it has proposed to establish cross cultural linkages and to revive historic maritime cultural and economic ties with 39 Indian Ocean countries. Further, the government plans to cover 150 countries under e-visa scheme by the end of the year. The government has also introduced e-Tourist Visa (e-TV) for 150 countries as against the earlier coverage of 113 countries (source: Ministry of Tourism).
  • The hotel industry in India thrives largely due to the growth in tourism and travel. Due to the increase in tourism with rising foreign and domestic tourists, hotel sector is bound to grow. There is an emergence of budget hotels in India to cater to the majority of the population who seek affordable stay. International companies are also increasingly looking at setting up such hotels. Imbalance in increase in tourists both domestic and foreign not been supported with equal number of rooms is a latent source of opportunity for growth.

How to Research the Hotels Sector (Key Points)

  • Supply
  • It is expected that the hotels industry is expected to fall short of meeting the long term demands of an economy growing at 7-9% p.a. Regarding the supply from foreign nations, around 40 international brands are said to enter the country in the next five years (as per Cygnus estimates).
  • Demand
  • Largely depends on business travelers but tourist traffic is also on the rise. Also, there is seen an increasing demand for medical tourism. Demand normally spurts in the peak season between November and March.
  • Barriers to entry
  • Economic risks, high capital costs, competition in the industry, poor infrastructure facilities and scarcity of land.
  • Bargaining power of suppliers
  • Limited due to higher competition, especially in metros.
  • Bargaining power of customers
  • Higher in metros due to increasing room supply.
  • Competition
  • Intense in metros, slowly picking up in tier-2 and tier-3 cities. Competition has picked up due to the entry of foreign hotel chains. Also, there is an increasing competition from the startups/online industry due to the increasing penetration of the internet.

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Financial Year '16

  • The international travel and tourism industry continues to be one of the largest global industries and a major engine of economic growth. At present, 1 in every 11 people worldwide are employed by the tourism sector, with the industry generating US$ 7.2 trillion or 9.8% of the global GDP in 2015.
  • After facing strong headwinds from an adverse demand environment, there was noted a subtle yet evident recovery in hotels business in Indian during FY16. This was seen as the pace of room addition slowed down and domestic demand stood supportive.
  • As per a report by World Economic Forum (WEF), India was ranked 12th in the Asia Pacific region and 55th overall in the list of the world’s attractive destinations. Further, the Travel and Tourism Competitiveness Report by World Economic Forum, has ranked India at the sixth place in tourism and hospitality.
  • As per the most recent data, Foreign Tourist Arrivals (FTAs) in India increased 11.8% YoY to 6,70,000 tourists in August 2016. Further, Foreign Exchange Earnings (FEEs) from tourism increased 13.1% YoY to Rs 129 billion in August 2016 (source: Ministry of Tourism).
  • As per the Ministry of Tourism, the number of tourists arriving on e-Tourist Visa (e-TV) during the month of August 2016 reached a total of 66,097 tourists. This meant a growth of 196.6% on a YoY basis. The growth here was attributable to the introduction of e-TV for 150 countries from 113 countries earlier.
  • Domestic travel spending also witnessed impetus, attributing 82.5% to the direct Travel & Tourism GDP. The appreciation of the US dollar has made international travel unattractive to many who are now seeking to travel within the country for holidays.
  • FY16 also saw the first Incredible India Tourism Investment Summit 2016. The event was organised from September 21-23, 2016. The summit witnessed signing of 86 Memoranda of Understanding (MoU) worth around Rs 150 billion for the development of tourism and hospitality projects.
  • The 2016-17 Union Budget allocated Rs 15.9 billion to infrastructural development and promotion which is a 70% hike over the previous year.

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Prospects

  • In the long term, the demand-supply gap in India is very real and that there is need for more hotels. The shortage is especially true within the budget hotels and the mid-market hotels segment. There is an urgent need for budget and mid-market hotels in the country as travelers look for safe and affordable accommodation. Various domestic and international brands have made significant inroads into this space and more are expected to follow as the potential for this segment of hotels becomes more obvious.
  • As per a report by ICRA, the domestic hotel industry is estimated to touch US$ 1.8 billion by 2016, from US$ 0.8 billion presently. The growth is expected to come from the rise in online bookings. Hotel bookings is one of the least penetrated segments in the travel categories in India. Online bookings account for 16% of the hotel bookings currently and is expected to grow to 25% in 2016. It is estimated that 8.4 million Indians are likely to book hotels online by 2016, up from 3.5 million in 2014.
  • With a rise in online competition, popular models have come up with online travel agents (OTAs) offering a single marketplace for all travel-related needs. There are also seen meta search engines like TripAdvisor and MakeMyTrip, that operate like travel discovery platforms. Further, online accommodation reservation services like Oyo Rooms have gained popularity. Apart from this, branded hotels are seen operating direct bookings through their websites.
  • Apart from the above, the Indian government has realised the country's potential in the tourism industry and has taken several steps to make India a global tourism hub. The “Clean India” campaign and development of inland waterways for transport and tourism are projects that have gained momentum over the previous year. Additionally, programmes such as “Make in India” and the “Smart Cities” initiative have highlighted the Government’s support to skill development and investments in Hospitality and Tourism.
  • Apart from the above initiatives, the government has proactively sought foreign investment from countries such as China, the United States and Japan, leading to an increase of business related travel to the country.
  • It should be noted that that the base for tourism in India is still very low. The spurt in demand for hotel accommodation over the last few years has inflated hotel rooms in the country. However, a number of international brands across all hotel segments are planning to or have recently entered the Indian market. Furthermore, domestic hotel chains, too, are embarking on strong expansion and development plans across all hotel segments.

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Related Links for Hotels Sector
Quarterly Results | Sector Quote | Over The Years

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.

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