Go Back

International hotels set to step up India expansion, investment

Economic Times:  December, 2016

New Delhi: International hotel chains are on an expansion spree in India as growth has stagnated in most global markets, and are expected to account for half of the country's hospitality industry in just over five years.

International hotel brands are likely to account for 47% share in the Indian hospitality industry by 2020 and 50% by 2022 from the current 44% as they are expanding at a compounded annual growth rate (CAGR) of 9.6% against industry growth rate of 6%, ratings agency IcraBSE 1.63 % has said.

Marriott International, already the largest hotelier in the country, targets to increase the number of hotels it manages to 165 from 84 in the next three years. The counts of its global competitors Carlson Redizor and Accor Hotels are expected to reach 120 and 80 hotels, respectively, by 2020, up from 88 and 45 now.

"India is a potential market for us with improving GDP numbers and growth rate which has even surpassed that of China's," said Neeraj Govil, area vice-president for South Asia at Marriott International. "Also, with demand for domestic leisure going up and very few branded hotel chains in the market, there's a lot of room to grow," he said.

Pavethra Ponniah, vice-president at Icra, said the Indian hospitality industry has been growing faster than other markets including China and Southeast Asian nations. "Occupancies have been growing over the past couple of years, (and) that has been attracting these players to expand with a longterm vision," she said. Pan-India average hotel occupancy stood at 62% in the six months ended September, up from 60% a year earlier.

Average room rate. 5,300 in the stood at ` first half of the current fiscal against `5,150 for the corresponding period last year, ICRA said in a report.

While ARR or less remained flat over the past three years since 2013-14, revenue per available room, or RevPAR, has been on a growth path for the past 18 months, indicating revival in the industry, it said.

This has prompted several domestic hoteliers to opt for asset light strategy, where they operate the hotel rather than owning them, that international chains mostly follow.

According to experts, big domestic chains such as Taj, Oberoi and ITCBSE 0.24 % are now bringing more number of hotels under management contracts, which helps them to lower risks and expand faster. Sources at Oberoi Hotels and Taj Hotels confirmed the move to go asset light.

"Managing hotels allows us to expand easier geographically and that's why we are focusing on it.However, we are adopting a balanced approach of having both build and operate and operate only model currently," said a senior executive of Taj Hotels, Resorts and Palaces, a subsidiary of Tata Group's Indian Hotels CompanyBSE -0.71 %.

Earlier this year, Indian Hotels sold the ownership of Taj Boston to a consortium of investors for $125 million. Taj Hotels will continue to manage the 273-room hotel. Abhijeet Umathe, associate director, hospitality and leisure, at real estate consul tancy Knight Frank, said operateonly model helps established domestic players leverage their brand value.

"Further, in a build and operate model, hoteliers' cash flows get strangled for a longer period of time whereas there is a much lower cost element involved in operate-only model," he said. Also, these hoteliers "receive a fixed share of revenues and operating profits," Umathe said.

Despite this change in approach, the domestic players are unlikely to match international rivals' speed of expansion