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Indian Hospitality Industry Final
 

Indian Hospitality Industry Final

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    Indian Hospitality Industry Final Indian Hospitality Industry Final Presentation Transcript

    • Indian Hospitality Industry Prepared By Mr . Mahesh Samala
    • Interdependence Tourism Sector Hospitality Sector Real Estate Sector
    • Tourism Sector
    • Overview
      • Important part of global economy.
      • Slack season: March to September
      • September-March period accounts 60% of the total tourist arrivals.
      • Focused largely on foreign tourists, with almost 70% of the business coming from this segment.
      • Inbound tourist expenditure per head is third highest in the world and even more than global average tourist spending.
      • the cumulative FDI into the hotel and tourism sector from 1991 to March 2007 has been US$ 517.83 million, representing 1.18 per cent of the total FDI in to the country.
      • Tourism is the third largest earner of foreign exchange for the country.
    • Key highlights Source: CRISIL Research 28.97 10.81 Growth (percentage) 2891.75 1.64 April-Aug 2007 2242.26 1.48 April-Aug 2006 44.35 8.33 Growth (percentage) 659.33 0.38 Aug 2007 456.76 0.35 Aug 2006 Tourist Arrival (Million No.) Forex Earnings ( $ million) Particulars
    • Tourist arrival Source: KPMG Research
    • Tourism Sector fund Allocation Note : * This fig. corresponds only to the provision for building tourism infrastructure, as against Rs 4,230 mn provided for the year 2006-07 Source : CRISIL Research n.a 5,200* 2007-08 n.a 29,000 Tenth Plan Outlay (2002-07) 8,300 8,300 2006-07 7,860 7,860 2005-06 5,000 5,000 2004-05 3,500 3,250 2003-04 Actual Expenditure (Rs mn) Budget Estimates (Rs mn) Year
    • Growth drivers
      • Discovering/Expanding new/niche markets
      • Booming economy.
      • Growth in IT enabled services & IT industry.
      • Rising stock indices.
      • Entry of low cost airlines.
      • Low Cost medical facilities.
      • Globalization & Liberalization gave it new impetus.
    • Contribution of Tourism Industry
      • Economic development
      • Infrastructure development
      • Employment generation
      • Community development
      • Restoration of culture
      • Environmental preservation
      • Promotion of harmony and understanding
    • HOTEL INDUSTRY India's hotel industry is experiencing an unprecedented boom, driven by increasing numbers of business and tourist arrivals. But how long can the good times last?
    • Overview
      • Revenue generated during F.Y.2006-07 was INR 604.32 bn
      • Growing at CAGR 11 % (2000-06)
      • Demand Growth CAGR 14 %
      • Outpacing Supply Growth CAGR 6%
      • Currently there are 1980 hotels approved by ministry of Tourism, Government of India with a total capacity of 1,10,000 rooms.
      • Unmet demand for hotel rooms: 150 000 rooms . Additional demand this year: 15 000 rooms.
      • Increase in average room rent for the entire hotel industry over the last year: 35 %.
    • Market Players
    • Types of hotels
    • EXISTING AND PROPOSED DISTRIBUTION TO HOTEL SUPPLY IN INDIA
    • PRIMARY DRIVERS OF GROWTH IN THE INDIAN HOTEL INDUSTRY
    • Emerging Hotel Concepts
      • Ecotel
      • Resorts
      • Motels
      • Floatels
      • Service Apartments
    • Ecotel
      • Environment Responsibility within hospitality industry.
      • Inspection is based on 5 separate inspections
      • 1) Environmental Commitment
      • 2) Solid Waste Management
      • 3) Energy Efficiency
      • 4) Water Conservation
      • 5) Employee education & community Involvement.
    • Resorts
      • Cater to leisure needs of tourist.
      • Usually located at hill stations or seashores.
      • It can be further classified :
            • Hill resorts
            • Health resorts
            • Beach resorts
            • Summer resorts
            • Winter resorts
    • Motels
      • A single building of connected rooms whose doors face a parking lot &/or common area with common parking.
      • They are located along the highways connecting important cities.
      • The feature distinguishing a motel form a hotel are
          • 1) Adequate parking facilities
          • 2) Cottage style accommodation
          • 3) Short duration of Stay
    • Floatels
      • A floating or a boat or a ship operating as a hotel.
      • All services are turnkey including catering, linens, housekeeping and security.
      • e.g. The Oberoi Motor Vessel Vrinda.
    • Service Apartments
      • This concept is slowly gaining ground in the industry.
      • They mainly target emigrant & long duration visitors [business & leisure].
      • Service apartments are preferred to hotels for the following reasons :
        • Business executives find them safe, convenient, affordable & well maintained.
        • They are larger than hotel rooms
        • No rental deposits required in this case.
        • They are beneficial for SME for their roving representatives.
    • CRITICAL FACTORS TO DRIVE FUTURE GROWTH AND PERFORMANCE
    • Challenges of Hotel Industry
      • The 3 challenges that clearly emerge for the industry are :
      • 1) Managing Demand
      • 2) Optimising Customer Mix
      • 3) Optimising channel Mix
    • Managing Demand The hotel industry is inherently prone to fluctuating demand with Occupancy Rate (OR’s) in certain period 10 – 20 % lower than annual average. Source: Crisinfac Annual review of Hotel Industry 2006
    • Managing Demand
      • A) Seasonality of Demand :
      Domestic airline Load factor Directorate general of Civil Aviation Foreign Tourist Inflow FHRAI Tourism Statastics
    • Managing Demand
      • B) The weekend phenomenon
      Average daily OR: City wise Average daily OR: By Hotel segment Source: FHRAI Hotel Survey 2006
    • Managing Demand
      • C) Preference of hotels to maximize RevPAR through ARR growth over OR (Occupancy Rate)
      • 1) It raises the overall industry ARR levels
      • 2) Revenue growth achieved at no extra cost.
      • 3) Favorable impact on bottom line
    • Managing Customer Mix
      • Challenges :
      • A) Customer Mix governed by product offerings, brand positioning, segmenting & location
      • B) Hotel employs tie ups, promotions, targeted pricing etc.
      • Options :
      • A) Revenue can increased by strategic customer segmentation & offer management.
      • B) This hidden opportunity has potential to boost revenues by 3 to 5 percent.
    • Managing the Channel Sales Mix
      • Challenges :
      • A) Increase in online bookings has restructured the sale channel mix for hotels.
      • B) Compelling channel partners to reposition & restructure themselves.
      • C) Large number of intermediaries which are integral part of system result in
      • i) Higher Complexities
      • 11) Lower Profitability
      • iii) Commoditization of hotels
      • Options :
      • A) Maximize profitability through optimization of channel mix & minimization of
      • intermediaries.
      • B) By optimizing channel mix could result in intermediary cost by 1 to 3 percent.
    • Real Estate Sector
    • Overview
      • Second largest employer next only to agriculture
      • US $ 12 billion industry
      • Growing at about 30 % per annum
      • Housing sector contributes to 5 %of the country’s GDP
      • FDI Inflows: (from 1991 to June 2007 )
        • Housing & Real Estate:US$ 1123 million
        • Construction Activities (Including Roads & Highways):US$ 1875 million
    • Growth Drivers
    • FDI in Real estate Sector
    • Indian Real Estate- Catalyst for Growth
      • With Indian economy growing strongly, requirements of housing, commercial and industrial infrastructure bound to rise.
      • More than 367 Million Sq. Ft. of additional office space needed by 2012-13 ( Estimated by Ernst & young)
      • 4.7 million housing units would have to be completed by 2030 ( Estimated by Deutsche Bank)
      • Asian Development Bank estimates requirements of 10 million units by 2030
      • Indian Ministry of Tourism forecasted requirements of 2.9 and 6.6 Million hotel rooms to meet the tourism and business by 2010 and 2020 .
      • Fast growing Medical tourism will become US$ 2 billion industry by 2012 and will require huge investment in Health Services sector.
      • Booming retail trade sector needs 13 Million sq. Ft. of space by 2008 end in top eight large cities in India
    • Challenges: Real Estate Industry
    • Projected investment by segment Residential, 67 % Commercial, 16 % Hospitality, 10 % Retail, 7 % Projected investment by segment (2008-2010)
    • Projected demand by City Chennai, 17 % Mumbai, 12 % Bangalore, 26 % Kolkata, 5 % Pune, 8 % NCR, 21 % Hyderabad, 11 % Projected demand by city (2008-2010)
    • Funding Options
    • Funding Options Strategic Investment Private Equity Initial Public Offering AIM/ Overseas Listing REIT
    • Strategic Investor
      • Merits:
      • Valuation based on long term business plan.
      • Global and or/domestic expertise.
      • Moderate return expectations.
      • Demerits:
      • Joint Management of operations.
      • Business Sensitivity/confidentiality issue.
      • Recent Transaction traffic:
      • Around 8- 10 investments aggregating ~ USD 16 bn.
    • Strategic Investor Source: KPMG 10,000 To develop an integrated township of 40,000 acres Residential Al Nakheel - DLF 4,000 A JV engaged in Pan India projects in residential, commercial, infrastructure & hospitality sectors integrated master plans & SEZ Mixed Use Emmar - MGF 300 For developing 100 Hotels , 10,000 rooms in next 10 years Hospitality Emaar MGF - Accor 220 To acquire & develop 7 properties in the country by 2010 Hospitality Rattha Group - Ascott 550 To develop 75 hotels & serviced apartment over next 7 yrs, subject to necessary approvals Hospitality DLF - Hilton 720 To construct 28 hotels in partnership with Marriott Hospitality Unitech – Marriot Amt Invested (USD mn) Details Project Type Company
    • Private Equity Investor
      • Merits:
      • Negotiable deal; valuation based on view of future.
      • Expertise through other investee companies.
      • Limited to board reprentation.
      • Demerits:
      • High return expectations in a limited time frame.
      • Defined exit mechanism within 3-5 years.
      • Recent transaction traffic:
      • Around 30 deals aggregating ~ USD 1.9 bn.
    • Private Equity Investor Source: KPMG 600.0 NA DLF Assets DE shaw, Lehman Brothers Jul- 07 167.0 13.5 % Anant Raj Industries GIC, Morgan Stanley Dean Witter, Quantum (SOROS) May- 07 152.0 10 % Oberoi Constructions Morgan Stanley Jan- 07 350.0 15 % RMZ AIG Apr- 07 100.0 NA QVC Reality IL & FS Apr- 07 40.0 5 % Indiabulls Real Estate Ltd. Oberon (Farallon Capital) Jul- 07 Amount ( USD Mn) Stake Investee Investor Date
    • Initial Public Offering
      • Merits:
      • No management control.
      • No exit issues.
      • No business sensitivity/confidentiality issues.
      • Demerits:
      • Valuation based on market conditions.
      • No inputs.
      • QoQ expectations of growth & returns.
      • Recent transaction traffic:
      • Around 8 listing totaling ~ USD 3.7 bn.
    • Initial Public Offering 114.31 x 11.0 % 126.7 Sobha Developers Dec- 06 61.84 x 18.3 % 220.2 Parshvnath Developers Dec- 06 81.05 x 10.0 % 80.0 Akruti Nirman Jan- 07 3.23 x 10.3 % 2296.9 DLF Jun- 07 6.60 x 14.0 % 371.0 HDIL Jul- 07 68.26 x 10.3 % 138.0 Omaxe Aug- 07 5.75 x 21.8 % 194.5 IVR Prime Aug- 07 1.91 x 10.1 % 214.7 Puravankara Aug- 07 Response received Stake Dilution Amount Raised Company Date of Listing
    • Initial Public Offering 25 % 13 % One Month Return 23 % 16 % Two Month Return 82 % 37 % Six Month Return Realty Index Sensex Returns
    • AIM Listing/Overseas Listing
      • AIM stands for Alternative Investment Market.
      • The Company gets listed on LSE ( London Stock Exchange)
      • It enables a companies from around the world to raise the capital to grow.
      • The company get listed on highly efficient, transparent & well regulated market.
      • The companies get accessed to worlds deepest & most liquid pool of investment capital
      • Benefits :
      • 1) Less entry barriers
      • 2) No minimum requirements with respect to initial equity required, market capitalization, & trading history.
    • AIM Listing/Overseas Listing
      • Merits:
      • No management control.
      • No exit issues.
      • No business sensitivity/confidentiality issues.
      • Demerits:
      • Valuation based on market and the project prospects.
      • No inputs.
      • Expectations based on project completion.
      • Recent transaction traffic:
      • 6 companies have raised ~ USD 2.7 bn on the AIM market.
    • AIM Listing/Overseas Listing -15 % 500 Trinity Apr- 06 -26 % 759 Hirco Apr- 06 -6 % 464 Ishaan Nov- 06 2 % 714 Unitech Dec- 06 -27 % 274 Dev Properties Jan- 07 25 % 325 Ascendas Aug- 07 Return since listing Amount Raised(USD Mn) Name of Company Date
    • FDI Equity Inflow
    • Leading the pack…. Indian companies had a higher return on equity than other countries in Asia.
    • Gains in world stock exchanges
    • Government initiatives
      • The “Incredible India” campaign.
      • Open skies policy.
      • New airports.
      • International conventional centers.
      • Reduction in travel cost.
      • Reduction in taxes on hotel industry.
      • Extension of infrastructure status.
      • Introduction of M-Visa.
    • Future Outlook
      • Prospects :
      • 1) WTTC estmates : International tourist inflow by 2020 would be 20 mn.
      • 2) India accounts for 0.5% ow world tourism & expected to grow at 4% till 2010.
      • 3) Open sky policy & “ Incredible India” campaign improved outlook for India.
      • 4) Rising disposable income, cheaper airfare & better connectivity would continue to increase demand for rooms.
      • Threats :
      • 1) Changes in global Geopolitical situations
      • 2) The heightened demand for land from real estate has led to steep escalation of prices
      • 3) Shortage of manpower huge challenge.
    • Concluding Remarks….
      • Since there is a lot of potential for growth & development of Hotel sector.
      • It needs to be infused with fresh inflows of capital.
      • The fund raising options are as follows
      • Strategic investment, Private Equity, IPO, AIM & REIT.
      • The key considerations for the above fund raising alternatives are :
          • Valuation Expectations
          • Industry Experise
          • Management Control
          • return expectation
          • Exit Mechanism
          • Confidentiality issue
          • Transaction structuring
    • THANK YOU