Tourism and hospitality, 2013


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Tourism and hospitality, 2013

  1. 1. August, 2013 Tourism & Hospitality, 2013 NITIN PAHILWANI Chartered Accountant
  2. 2. Content 1. 2. 3. 4. Overview Indian Tourism and Hospitality Regularity and Compliance Hotel Transactions Key Facts · 66.95 Lacs FTAs in 2012-13, Growh of 2.8%, from 65.14 Lacs. · ` 99,594 Cr FEEs in 2012-2013, Growth of 19.1%, from ` 83,607 Cr. · US$ 18.32 Bn FEEs in 2012-2013, Growth of 5.6%, from 17.35 Bn · DTVs of 1036 Mn in 2012, Growth of 19.9%, from 865 Mn in 2011. · ` 17,777 Cr [US $ 3259 Mn] of FDI inflows in 2012-13. Highest ever in any financial year. Cover Image by K. S. Sodhi []
  3. 3. Tourism Travel & Tourism’s importance to the wider economy of any country and it continues to grow in 2012 as well. As per World Travel &Tourism Council, Its total contribution comprised 9% of global GDP (US $6.6 trillion) and generated over 260 million jobs, 1 in 11 of the world’s total jobs. International tourist arrivals grew above expectation by 5% in H1-FY 2013 compare to same period of 2012 to almost 500 million as per latest UNWTO World Tourism Barometer. ITAs were 1.035 billion in 2012, surpassed 1 billion for the first time in history in 2012. Emerging Economics regained the lead with 4.1% over advanced economics 3.6%, with Asia and Pacific showing the strongest results with increase of over 7%. On the similar line, International tourism receipts at 1,075 USD recorded increase of 4% growth in real terms. America saw highest increase of 7% followed by Asia and Africa at 6% and 5 % respectively. & Hospitality 2013 Europe saw growth of 2% while Middle East saw drop by 2%. China ranked at the first place in tourism source market in terms of expenditure, followed by Germany and the US. In terms of job creation, one dollar spent on Travel & Tourism is more powerful than one dollar spent in other sectors across most of the 20 countries. The only countries where this is not the case are those in which agriculture remains a significant employer (such as China, India, and Indonesia). Of the increase of 66 million T&T jobs forecast worldwide in the next 10 years, 62 percent are expected in the Asia Pacific region, an expected overall growth rate of 1.9 percent per annum from 2012 to 2022. Within the region, India and China were directly responsible for 48 percent of T&T jobs worldwide during 2011, compared with 43 percent across all other sectors of the economy Page |1
  4. 4. Tourism & Hospitality 2013 Indian Tourism and Hospitality India, a country blessed with diversity, both in terms of culture and geography, India has always been a fascinating nation to tourist. Owing to its diversity it attracts tourists from all over the world. Tourism and Hospitality has continued to be a critical sector for economic development and for sustaining employment. The Indian economy has once again come under cloud with key economic indicators like Current Account Deficit (CAD) and consumer inflation remaining above the comfort level of the Reserve Bank of India (RBI). And recent Food Security Bill has widened the deficits. The Indian Rupee has changed from ` 54.4/$ in April 2013 to ` 66-67/$ in August 2013 resulting in more than 20 % fall. The macroeconomic condition is expected to delay monetary policy easing by RBI. With depreciation in INR, Outbound travels are now become far more expensive which will give boast to Domestic and Inbound travel. It certainly has huge impact on balance sheets overleveraged in foreign currency loans. Government initiatives taken to upgrade and expand the country's infrastructure like airports, national highways, rail and ports already had a positive impact on the sector. Inclusion in definition of “Infrastructure Lending” and changes in ECB policy by RBI is a positive move for the sector. Many states have come up with their state tourism policies. The Sector generates more inclusive growth than other sectors and is sensitive one that is prone to any and all events global, regional or local. According to the Travel and Tourism Competiveness Report 2013 published by the World Economic Forum, India ranks 11th in the Asia Pacific region and 65th in World Travel and Tourism Competiveness Index, 2013 compare to 68th in 2011 As per WTTC, The direct contribution of Travel & Tourism to GDP, in 2012, was ` 1,919.7 billion (2.0% of total GDP) and is forecast to rise by 7.8% p.a. from 2013-2023 to ` 4,360.6 billion. While the total contribution of T&T to GDP, in 2012, was ` 6.385.1 billion (6.6% of GDP) and is forecast to rise by 7.9% p.a. from 2013-2023 to `14,722.3 billion. Page |2
  5. 5. Tourism Travel & Tourism directly and indirectly supported 39,512,000 jobs (7.7% of total employment). This is expected to rise by 2.1% p.a. to 48,592,000 jobs (8.0% of total employment) in 2013. India’s share in International Tourist Arrivals was 0.64%, ranked at 41st, and 12th Five year plan targets to increase the share of ITAs to at least to 1% by the end of 12th Plan requiring annual growth of about 12%. Considering the country’s potential, No. of Tourist Arrivals are on lower side Real Estate and Construction have become costlier than before. With slowing economic growth, an increase in rooms supply and growing competition from foreign player is & Hospitality 2013 hurting the Indian companies. During last year, four listed hospitality companies sought for Corporate Debt Restructuring as there was mismatch in cash flows and debt service requirement. The Govt is considering extending “Infra Status” to all hotels with capex of ` 250 crores & above. During last few years, many foreign hotel brands forayed into India and now even expanding into Tier-I and Tier-II cities. Mid-Market and Budget segment is on the charm for hoteliers to expand. As per Indian Economic Survey, 2013, Hotels and Restaurants sector contributes to 1.5% share in India’s GDP in 2011-12 Image Courtesy: K. S. Sodhi [] Page |3
  6. 6. Tourism Hospitality & 2013 Foreign Tourist Arrivals contributes to almost 61% share in 2012. During 2012-13, 66.95 lacs Foreign Tourist Arrivals (FTAs) in India compared to 65.14 and 59.2 lacs in 2011-12 and 2010-11 respectively, registered the growth of 2.8% and 10% over the corresponding previous years. Top Source for FTAs in 2012 Malaysia, 3.0% Australia, 3.1% Japan, 3.3% France, 3.7% Foreign Tourist Arrivals (in Lacs) 70 65.14 65 60 Others, 39.5% Germany,3.9% Canada, 3.9% 66.95 USA, 15.8% Sri Lanka, 4.5% 59.2 UK, 12.0% Bangladesh,7.4% 55 Source: Ministry of Tourism, India 50 2010-11 2011-12 2012-13 Further, Events like Egypt public riots, war situation against Syria and US Travel warning to its citizen will divert foreign tourist to south asian location. Source: Ministry of Tourism, India US was the top source country for India in term of FTAs in 2012 with 15.8 % share followed by UK 12.0% and Bangladesh 7.4%. Top 10 source countries for FTAs in India, 8 6.9 7 6 5 3.72 4 6.99 6.88 5.76 5.25 4.52 7.5 6.4 2012-13 4.56 4.15 4.32 2011-12 2010-11 3 2 April May June July Aug Sept Oct Nov Dec Jan Feb Mar Page |4
  7. 7. Tourism & Hospitality 2013 Foreign Exchange Earnings During 2012-13, ` 99,594 crores of Foreign Exchange Earned (FEEs) from Tourism in India compared to `83,607 and `66,095 crores in 2011-12 and 2010-11 respectively. This is significant growth of 19.1% and 26.50% over the corresponding previous years. In USD terms, Foreign Exchange Earnings in 201213 from Tourism were US$ 18.32 billion compared to US$ 17.35 and US$ 14.52 billion in previous year 2011-12 and 2010-13. 120,000 17.35 18.32 14.52 100,000 80,000 60,000 40,000 20,000 - 66,096 83,607 99,594 2010-11 2011-12 20 18 16 14 12 10 8 6 4 2 0 INR (Crores) USD (Billion) 2012-13 Source: Ministry of Tourism, India Page |5
  8. 8. Tourism & Hospitality 2013 Domestic Tourist Arrivals Domestic tourist visits have been on an upward swing from more than a decade. The Number of domestic Tourist Visits to States/UTs registered an increase of 19.87% during the year 2012 over 2011. During the year 2012, the number of domestic tourist visits to states/UTs was 1036 million as compared to 865 million in 2011 and 748 million in 2010. West Bengal 2.19% Others 15.50% Gujarat 2.36% Uttarakhand 2.59% Andhra Pradesh 19.96% Rajesthan 2.76% Tamil Nadu 17.77% Madhya Pradesh 5.14% Maharashtra 6.40% Uttar Pradesh 16.25% Karnataka 9.08% Andhra Pradesh has occupied the first rank with 206.8 million DTVs in 2012, whereas Tamil Nadu, which was at third rank in 2011, has moved to the second place with 184.1 million. Uttar Pradesh which was at first rank in 2011 has moved down to third place with 168.4 millions DTVs. Source: Ministry of Tourism, India Domestic Tourist Arrivals will be continued to grow further from here. It has been driven by the rising purchasing power of the growing middle class and foreign travel become costlier because of rupee depreciation. Page |6
  9. 9. Tourism & Hospitality 2013 Visa on Arrival In January 2010, Government introduced “Tourist Visa-on-Arrival” Scheme for tourists from five countries viz Japan, Finland, Luxembourg, New Zealand and Singapore, visiting India for tourism purposes. From January, 2011, Govt had extended this scheme to six more countries namely Indonesia, Vietnam, Cambodia, Philippines, Myanmar and Laos. Apart from this, Union Minister Shri K Chiranjeevi, 1St March, 2013, has submitted a proposal to extend Visa on Arrivals to 16 more countries. 6000 VOA by City 10000 10702 8000 6000 4000 3601 2000 2558 0 Delhi Mumbai Chennai 1062 Kolkata Source: Ministry of Tourism, India From August, 2013 VoA facility is also started at Bangalore International Airport (3rd Busiest Airport in the country) apart from Mumbai, Delhi, Chennai and Kolkata. VOA by Country 5930 5000 4000 3248 3000 2000 1000 0 2548 2502 2033 1018 199 179 108 147 11 Source: Ministry of Tourism, India Page |7
  10. 10. Tourism & Hospitality 2013 Foreign Direct Investments Foreign Investment is freely permitted in almost all sectors. 100% FDI is allowed for Hospitality sector under Automatic route. The Hotel and Tourism Sector, between April 2000 and June 2013, has seen a total investment of ` 33,819 Crores [US $ 6,732 mn], ranks in at 10th positions in among all sectors, which accounts for 3.40% of the total FDI inflows into the country. 10,000 33,260 3,259 993 17,777 308 2010-11 Source: DIPP India During 2012-13, FDI inflows in Hotel and Tourism Sector increase by 274 percent over the previous year 201112. 6,631 1,000 100 4,754 1,405 48,000 44,000 40,000 36,000 32,000 28,000 24,000 20,000 16,000 12,000 8,000 4,000 - In the last financial year 2012-13, FDI inflows were ` 17,777 Crores [US $ 3259 mn] which are highest ever in any financial year and it accounts for 52.57% of total FDI in Hotel and Tourism till June 2013. 10 2011-12 INR (in Cr) 2012-13 2000-2013 USD (in Mn) Page |8
  11. 11. Tourism & Hospitality 2013 Regularity and Compliance There were various regularity and compliance changes happened during last year. Tourism Policies Tourism policies give benefits like concessional land allotment, Capital Investment subsidy, exemptions /reimbursement in Stamp Duty, various state level tax exemptions and other incentives. States like Madhya Pradesh, Kerala and Orissa came up with their new tourism policy. In July, 2012, Ministry of Tourism has revised the Hotel Classification Guidelines. Hotel Project must apply for Classification within 3 Months of commencing operations. Inclusion in Priority Sector Lending The Reserve Bank of India (RBI) has already de-linked credit for hotel projects from Commercial Real Estate (CRE). For the purpose of Harmonizing the definition of “Infrastructure Lending”, RBI on 20th November, 2012 include three star or higher category classified hotels located outside cities with population of more than 1 million in the Definition of Infrastructure Lending. This would enable the hotel industry to avail financial assistance more easily and relatively lower interest rate. According to the Federation of Hotel and Restaurant Associations of India (FHRAI), 95 percent of the hotels were outside the ambit of this provision. The Government is considering extending the “infrastructure status” to all hotels with capital expenditure of ` 250 crores and above. External Commercial Borrowing (ECB) ECB is already allowed in Hotel sector up to US $ 200 million. Now, Indian companies in the hotel sector (with total project cost of INR 250 crore or more), irrespective of geographical location, avail ECB’s for repayment of Rupee Loans availed of from the domestic banking system and/or fresh rupee capital expenditure under automatic route subject Page |9
  12. 12. Tourism to 75 percent of average annual export earnings realized during the past three financial year or 50 percent of the highest foreign exchange earnings realized in any of the immediate past three financial years, whichever is higher. Inclusion in Service Tax From July, 2012, Hotel Accommodation and Restaurants have come under the ambit of service & Hospitality 2013 tax apart from state regulated luxury tax and VAT. Earlier, Service Tax does not apply to air conditioned restaurants that do not serve liquor. The distinction is now removed and Government proposes to levy service tax on all air conditioned restaurants in this budget. These moves have hurt the industry sentiments. Issue of rationalization of taxes has been raised by the industry and the government at various levels but no conclusive steps taken. Image Courtesy: K. S. Sodhi [] P a g e | 10
  13. 13. Tourism & Hospitality 2013 Hotel Transactions Pure real estate players who were forayed in Hotels and Resort few years back are selling non-core assets to trim off its pilled debt burden. Transaction of Aman Resort and Adone Hotels and Hospitality by DLF Group were in the news. Debt burden is also hurting even to pure hospitality players. During last year, few renowned hospitality players have restructured the Debt. Some of player has put their properties on sale. Companies are now following “Asset Light Mode” for expansion. On the one hand valuation seems somewhat reasonable there is still price gap between buyer and seller. This is clearly evident from the count of transactions. While Indian Hospitality space is keen interest for Foreign Hotel brands and Investors. On the other side, Indian firms too have their eyes on international hotel properties. Sahara Group had acquired Plaza Hotel New York and Indian Hotels have made an attempt for Orient Express Hotels. Here are some of the Hotel and M&A Transactions Samhi Hotels Ashram Road, 67 Crores Ahmedabad Fleur Hotel Clarion Hotel Whitefield, 64 Crores Bangalore Sahara India Park Plaza USA $ 575 mn Mahal Hotels and Chennai Hotel and Chennai 500 Crores Esteem Housing Residential Project Square Four H&I Adone Hotels and Kolkatta 567 Crore and Avani Projects Hospitality Ltd Samhi Hotels Formula 1, Accor 15 Properties in Undisclosed various location Mahindra Royal Courts Jailsalmer Undisclosed Holidays & Resort Mahindra Holidays & Resort Hotel Royal Orchid Mac Suites Boutique Bangkok Undisclosed 104 Keys 130 Keys 230 Keys 400 Keys 100% stake from DLF Group 60% Stake in various properties 100% stake in Divine Heritage hotels 49% stake in Infinity Hospitality P a g e | 11
  14. 14. Tourism & Hospitality 2013 Nitin Pahilwani Chartered Accountant Email: / The information contained herein is of general nature and is not intended to address the circumstances of any particular individual or entity. Although I endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that will continue to accurate in future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. P a g e | 12