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Hospitality Industry in India

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Hospitality Industry in India

  1. 1. Hospitality Industry in IndiaWhitepaperAugust 2011
  2. 2. DisclaimerTo the viewers of this reportThis report is prepared in accordance with our findings on the Hospitality Industry in India. Thisreport has been prepared on the basis of desktop research conducted from 22 Aug to 26 Aug2011. Because it’s a sample report created for business development purposes, our report maynot be suited for any purpose other than to assist you in your evaluation of our researchcapabilities. Additionally, our report reflects events and circumstances as they currently exist.We have not independently verified the information gathered or contained in this reportand, accordingly, express no opinion or make any representations concerning its accuracy orcompleteness.We shall be pleased to receive your observations on our report.Our report is for your information only and should not be quoted, referred to or transmitted toanother party, in whole or in part, without our prior written consent. 2
  3. 3. Hotel industry is expected to grow from USD 16.7 bn to USD 30.7bn at 26% CAGR between 2008-13 Indian Hospitality market size (USD bn)  The Indian hospitality industry is one of the fastest growing Restaurant sector 26% CAGR 12% CAGR Hotel sector sectors of the Indian economy; except for a short phase the Total Hospitality 38.8 during recession and the terrorist attacks in 2008 and 2009 26.5 8.1 respectively 22.5 21.5  As of May 2011 contribution of the hospitality industry which 5.8 9.5 6.8 30.7 comprises of hotels, restaurants and allied services to Indian 16.7 14.7 17 GDP was 2.2% 2008 2009 2010 2013  In 2010, 30% and 16% of the Indian hotel and restaurant sectors were in the organized sector Total Number of Hotels in India, 2010  Hospitality industry is one of top employment generating Hotel Categories No. of Hotels No. of Rooms industries which according to executive search and HR 5 Star deluxe/5 Star 165 43965 consulting firm Ma Foi Randstad generated 160,300 jobs in 4 Star 770 13420 2010 and is expected to generate 218,200 jobs in 2011 3 Star 505 30100  According to hospitality consulting firm HVS, there is a 2 Star 495 22950 shortage of quality branded hotel rooms in the major Indian 1 Star 260 10900 cities as compared to other international cities and the Heritage 70 4200 shortage will be more pronounced as Indian economy Uncategorized 7078 - strives toward double-digit growth Total 8707 132885Source: Technopak Report “Dissecting the Indian Hospitality Industry” 2009, Ma Foi Randstad press release dated 31 March 2011, 3India Biz News Article dated June 13,2011, Livemint article dated May 2010
  4. 4. Strong economic recovery coupled with government’s numerous policies and incentives will drive the growth in hospitality sector … GROWTH DRIVERS OF HOSPITALITY INDUSTRY IN INDIA Regulatory Drivers External Drivers Internal driversIncentives by Central and the State  Strong economic growth  Hosting major sporting eventsgovernments GDP growth of 9% p.a. in 2010. International sporting events like Elimination of Customs Duty on Forecasted to grow at a rate of Formula One race in the National import of raw 8.7% p.a. till 2016 thereby enabling Capital Region (NCR) in 2011 are materials, equipment, liquor etc hospitality sector growth set to boost hospitality Fringe Benefit Tax exempted on  Increasing FDI inflow  Demand-supply imbalance crèche, employee sports, guest FDI inflow increased due to Ministry of Tourism estimates a house facilities allowance of 100% FDI and better shortage of 0.15 mn hotel rooms Five year income tax holiday granted infrastructure availability in 2011, of which two-thirds are to 2-4star hotels established in in the budget category Indian  Increasing tourist arrivals specified districts having UNESCO- declared World Heritage Sites Hospitality sector handled 5.58 mn  Rising income and spending Hospitality Exemption of Luxury Tax and Sales international tourists arrivals(8.1% Rising disposable sector Y-o-Y growth) and 740.21 mn incomes, cheaper Tax for 5-7 Years for new projects domestic tourists in 2010 (10.7% Y- airfares, changing consumer Government’s open sky policy has o-Y growth) lifestyle and ease of financial boosted number of passengers in transactions leading  India tourism campaigns India The “Incredible India” and “Atithi Introduction of Medical or M-VISA to Devo Bhavah” campaigns have boost medical tourism improved foreign tourist outlook for India 4 Source: Technopak Report “Dissecting the Indian Hospitality Industry” 2009, TCFI Report “Hospitality in India”, Oct. 2010
  5. 5. … rising occupancies and RevPAR, post 2008-09, indicates signs of recovery in the hospitality sector Occupancy levels(%), Average Room Rate (USD) and  Hospitality industry in India witnessed a sharp downfall in its RevPAR* (USD) revenues in 2008-09 and 2009-10 as traveler volumes contracted Average Room Rate RevPar due to the economic downturn and the terrorist attacks in Occupancy levels Mumbai, India200 75%150 70%  During 2009-10 Hyderabad, Mumbai and Bangalore witnessed 65% highest values per room largely driven by global economic100 60% recovery 50 55%  Foreign tourists segment increased by 10.9% Y-o-Y in 2010-11 0 50% with India hosting Common wealth games in 2010 and hosting FY2006 FY2007 FY2008 FY2009 FY2010 (*) Revenue per available room ICC World Cup in 2011  Along with major cities, hotel chains are aggressively growing in Foreign Tourist Arrivals (FTA) in mn Tier 2 and Tier 3 cities like Hyderabad, Ahmadabad and Pune 5.58 5.08 5.28 5.17 4.45 2006 2007 2008 2009 2010 5Source: HVS Report “Hotel Valuation Index 2011”, India Biz News Article dated June 13,2011, Ministry of Tourism Report July 2011
  6. 6. Hospitality industry is one of the most liberalized sectors in Indiawith 100% FDI allowance through automatic route and singlewindow clearance facilities Foreign direct investment (FDI) Approval of a hotel project  FDI has been permitted up to 100% under the  As of Dec 2010, government has given nod to single automatic route window clearance for hospitality industry  Total FDI inflow in hospitality sector between  The Ministry of Tourism approves hotels at project 2000 -10 amounted to USD 2.17 bn stage based on documentation. Project approval is  For foreign technology agreements, automatic given to a 1, 2, 3, 4, 5 Star Hotels and Heritage Basic approval is granted if: Category  Up to 3% of the capital cost of the project is  The Hotels have to apply for classification under 5 proposed to be paid for technical consultancy Star Deluxe/ Heritage Classic/ Heritage Grand services category if they fulfill the prescribed norms within 3  Up to 3% of the net turnover is payable for Regulatory months of commencing operation franchising and marketing/publicity fees and FDI  Project approval will be valid for 5 years  Up to 10% of gross operating profit is payable for policies in management fees, including incentives fees Indian hospitality sector  A tax rebate equal to 100% of the profit and gain for the first 5 consecutive years to an hotel in specified areas, if such hotel / convention centre is constructed and has started operations before 31st July, 2010  A tax rebate equal to 100% of the profit and gain for the first 5 consecutive years to an hotel located in the specified district having a World Heritage Site and has started functioning before 31st March, 2013  Finance Bill 2009, which has proposed to abolish Fringe Benefit Tax with effect from 1st April 2009 has become major advantage to the Hospitality industry Tax Holiday available for hotelsSource: India Law Offices article in 2009 6
  7. 7. The unorganized and largely fragmented hotel sector in India is undergoing a rapid change with entry of foreign players Key hospitality players in India Segment Players Brands Future Expansion Plans Presence InterContinental  InterContinental INTERNATIONAL PLAYERS  Crowne Plaza Luxury, mid-  Holiday Inn  Plans to operate 45 new hotels by segment and  Holiday Inn Express 2015 business  Hotel Indigo  Staybridge Suites  Candlewood Suites Carlson  Radisson Hotels and Resorts Luxury, business,  Plans to increase its presence in India  Park Plaza economy and to 78 hotels by 2012, from 28 in  Country Inns & Suites cruises 2009  Park Inn Indian Hotels Luxury, mid-  Taj, Gateway  Plans to construct 50 budget hotels segment and  Vivanta under the Ginger brand over the next budget  Ginger four years ITC Welcome group  ITC Hotel – Luxury Collection NATIONAL PLAYERS Luxury, budget  Welcome Hotel – Sheraton  To invest USD 2,000 mn over next and heritage  Fortune few years  Welcome Heritage EIH  Plans to develop 750 additional hotel Business , leisure  Oberoi rooms under the Trident brand over and cruises  Trident the next 2.5 years The Leela Luxury and  Leela penta  Expected to add 349 more rooms in heritage  Leela palace 2012 7Source: TCFI Report “Hospitality in India”, Oct. 2010
  8. 8. Hence, hotel room supply is expected to grow at 15% CAGR surpassing demand which is estimated to grow at 10.3% CAGR during 2010-13 Indian Hospitality Market : No. of Keys * (2010-13) Room demand distribution in top 10 cities (2013E) Demand Supply Mumbai 11% NCR 53,412 66,487 75,967 81,296 3% 24% Pune 32,660 9% Ahmedabad 35,503 38,789 43,828 Goa 4% Chennai 2010 8% Jaipur 2011 F 2012 F 24% Bengaluru 2013 F 7% 3% 6% Kolkata (*) Note: Number of keys :The number of guest rooms in a hotel Hyderabad Upcoming room supply (2010-2013) Economy  The Indian government through Budget 2011-12 has proposed Midscale several measures that will increase investment into hospitality 13,075 Upscale sector and accelerate the process of development Total Rooms 1,087 9,480  The huge influx of incremental rooms will result in the occupancy 8,092 2,363 levels of hotels for most of the cities falling considerably except 684 543 Mumbai and Goa during 2010-13 5,330 1,835 3,231 9,625 743  Despite a similar quantum of room demand in Mumbai and the 1,280 NCR in 2013, the size of Mumbai market, at USD 930 mn, will be 5,714 5,565 3,307 substantially greater than the NCR market size of USD 620 mn 2010 2011F 2012F 2013F 8Source: Knight Frank Report “Indian Hotel Market” Dec 2010
  9. 9. Increasing demand in Tier 2 and Tier 3 cities along with rising landcosts will contribute towards shaping the future of hospitality Future hospitality trends Hospitality supply in Tier II and Tier III locations will increase Upcoming Areas based on the untapped potential of the domestic commercial and leisure demand The Indian hotel market will remain an expensive market to Hospitality Real enter with the exponential growth in capital land values Estate across the country Green Hotels will increase operational efficiencies and bottom Green Hotels lines, inspite of its marginally higher construction costs Loca -vore: Local cuisines concept that believes in maximizing Local cuisines in benefits to cultural heritage will be adopted in F&B F&B Resource Relocation of non-revenue generating departments from hotel Optimization premises to off hotel premises will maximize space efficiencies Growing Importance of healthy and organic food will result in Healthy & Organic its introduction in the menus of all day dining and multi Foods cuisine restaurants Personnel Manpower retention programs will result in marked Retention increase in salaries across the sector 9 Source: HVS Report “Hotels in India- Trends and Opportunities 2010”, Oct. 2010
  10. 10. Contact DetailsMs. Nibha Kaul, CEOEmail: nibha.kaul@sumoresearchsolutions.comMob: +91-98192 13030URL: www.sumoresearchsolutions.com 10

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