Opportunities in Hospitality and Tourism Sector in India

Opportunities in Hospitality and Tourism Sector in India
Disclaimer: All information contained in this report has been obtained from sources believed to be accurate by Gyan Research and Analytics (Gyan). While reasonable care has been taken in its preparation, Gyan makes no representation or warranty, express or implied, as to the accuracy, timeliness or completeness of any such information. The information contained herein may be changed without notice. All information should be considered solely as statements of opinion and Gyan will not be liable for any loss incurred by users from any use of the publication or contents.
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Table of Contents
1. Tourism in India ............................................................................................................................. 3 2. Nature of Tourism in India ............................................................................................................. 4 3.International Tourism ..................................................................................................................... 7 4. Domestic Tourism ........................................................................................................................ 11 5. Growth Drivers ............................................................................................................................ 12 6. Hospitality Industry ..................................................................................................................... 15 7. Upcoming Investments Plans ....................................................................................................... 19 8. Economic Impact of Tourism........................................................................................................ 20 9. Government Initiatives ................................................................................................................ 21 10.Financials of Major Companies ................................................................................................... 23 11. Outlook ..................................................................................................................................... 24
2|P ag e Gyan Research and Analytics Pvt. Ltd., 2013
1. Tourism in India
As Mark Twain said, "...nothing so liberalizes a man and expands the kindly instincts that nature put in him as travel and contact with many kinds of people". Mans instinctive wanderlust takes him from deserts to mountains and from rivers to monuments to satiate not only his physical, but also his psychological needs. Recognizing in this an opportunity, the Indian government has formulated a policy to promote India as a global tourism brand, based on the central theme of Atithi Devo Bhava - the Sanskrit phrase that translates as Guest is God. In its National Tourism Policy, 2002, the Ministry of Tourism has outlined seven key factors that will encourage tourism development in India. These are Swagat (Welcome), Soochana (Information), Suvidha (Facilitation), Suraksha (Safety), Sahyog (Cooperation), Samrachana (Infrastructure Development) and Safai (Cleanliness). The purpose of the government is to ensure that every tourist visiting the country is physically invigorated, mentally rejuvenated, culturally enriched and spiritually elevated. The key objectives of this policy are: Positioning and maintaining tourism development as a national priority activity Enhancing and maintaining Indias competitiveness as a tourism destination Improving Indias existing tourism products and expanding the m to meet new market requirements Creation of world-class infrastructure Developing sustained and effective marketing plans and programmes Developing human resources and building capacity of service providers
The tourism sector has the potential to encourage other industries through forward and backward integration with several allied sectors like hospitality, aviation, railways, banking, manufacturing, health and education, among others. The expenditure of tourists generates more employment, especially in the unorganized sector, and causes a multiplier effect on the economy. Hence, the growth and enhancement of the tourism sector will in turn help the country to alleviate poverty and work toward economic development.
The number of Foreign Tourist Arrivals (FTAs) in India reached 6.29 million in 2011, registering a growth of 8.9 percent over FTAs of 5.78 million in 2010. Interestingly, Indias FTA growth rate was double the global tourist arrival rate of 4.4 percent.
2. Nature of Tourism in India

Indian tourism embraces a vast array, with each state offering unique features. However, tourism in the country is seasonal, owing to extreme climatic conditions during different parts of the year. The boom months are from October to February, which are the winter months. Though each state in India is endowed with one or another attractive feature, the attitude toward tourism varies greatly from state to state. Consequently, despite having huge natural and historical beauty, many Indian states have not been able to exploit their tourism potential to the fullest. Foreign tourists are primarily attracted toward Indias cultural and spiritual heritage and ecotourism. Another interesting aspect of Indian tourism is that foreign tourists spend the highest average time in India as compared to other nations. In 2011-2012,a market survey was conducted by HVS Hospitality Services in collaboration with The Federation of Hotel and Restaurant Associations of India. The outcome of the survey presented a clear picture of the composition of Indian tourist for that year. The highest percentage of tourists corresponded to the domestic business travelers, followed by tourists who travelled for leisure. The survey brought forth the overall performance of the hotel industry wherein the national occupancy declined by 1.9 percent in contrary to the average rate which increased by 2.2 percent over the previous year.
5|P ag e Source: www.cultureholidays.com Gyan Research and Analytics Pvt. Ltd., 2013
Source: HVS
6|P ag e Gyan Research and Analytics Pvt. Ltd., 2013 Source: UNCTAD, Handbook of Statistics
3.International Tourism
The Incredible India Campaign launched last decade resulted in a noticeable surge in the foreign tourists flow into India, thereby increasing the foreign exchange earnings therefrom. The financial crisis in 2008 had adversely affected this growing trend and the FTAs decreased to 5.17 million in 2009 from 5.28 million in 2008.The growth trend was recommenced after a couple of years recession in 2008. In 2011, the World Travel and tourism council(WTTC) predicted that the FTAs in India will be more than 11 million by 2021. A steady rise in Tourist Visa on Arrival (T-VoA) has boosted the growth in FTAs. According to a report by Federation of Indian Chambers of Commerce and Industry (FICCI), the number of TVoA issued in February 2013 registered a growth of 54.6 percent as compared to the TVoA issued in February 2012.
Source: Ministry of Tourism, Government of India & Various Published Sources. *2012 values are for the calendar year.
Source: Gyan Research & Analytics
FTAs - Mode of Travel in India In 2011, the most preferred mode of transport was airways; 6.31 million foreign tourists used this mode. The next most popular mode was land, with the same trend continuing in 2010. During the year, 91.8 percent, 7.5 percent and 0.7 percent people arrived by air, land and sea, respectively. Land routes were used by tourists mainly from Bangladesh and Pakistan. According to a report by the Indian Tourism Statistics, 2011, the percentage of arrival through land routes was more than 10 percent from 2001 to 2008. This trend has been is steadily declining over last three years. The report also shows that travelling by air was the preferred mode of transportation during this period, with more than 80 percent of the FTAs coming by air.
Source: Ministry of Tourism, Government of India
Month-wise FTAs in India (in thousands) 2010 January February March April May June July August September October November December Total Source: Ministry of Tourism, GOI 569 552 512 372 332 385 467 422 370 507 608 680 5,775 2011 623 636 550 438 355 412 514 445 402 562 636 715 6,290 3,237* 2012* 681 677 623 452 371 432
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4. Domestic Tourism
Since historic times, Indians, have been passionate travelers, with the firm beliefs of Panch-Tirtha before death. The trend continues even today with even lower income households allocating budgets for short trips and pooling in their resources to spend the holiday at new places. Tourism for middle income groups, specially the city inhabitants, has become important as a getaway from the hectic schedule of urban lifestyle. The increase in disposable incomes and the adaptation of modernized lifestyle has led to the growth in the leisure and recreation sector in domestic tourism. The socio-educational dimension of domestic tourism has also contributed to its growth. According to Ministry of tourism, Government of India the year on year growth in domestic tourist visits (DTVs) was 13.8 percent in 2011 ,the total number of tourists being 851 million. Uttar Pradesh ranked one in terms of DTVs followed by Uttarakhand and Tamil Nadu.
Source: Ministry of Tourism, GOI
5. Growth Drivers
i. Rise in Income and Shift in Demographics
The domestic tourism market in India is being driven by a steady growth in per capita income. According to data published by The World Bank, Indias per capita GDP in 2008 was USD 1,028, which rose to USD 1,509 in 2011, at a Compound Annual Growth Rate (CAGR) of 14 percent. Further, changing demographics along with a change in lifestyles have also led to the increase in leisure expenditure.
Source: The World Bank
ii.
Increasing Domestic Expenditure The domestic expenditure on tourism in India has undergone exceptional growth. According to a report by Indian Brand Equity Foundation (IBEF) the estimated
expenditure in 2012 was USD 89.1 billion. From 2008 to 2012, tourism expenditure demonstrated a CAGR of 14 percent.
Source: IBEF
iii.
Rising Domestic Tourism There has been a phenomenal rise in domestic countrys tourism thanks to the
economic
development.
Increase in disposable income coupled with changing lifestyles has chiefly fuelled the growth of domestic travel. The number of domestic tourists during 2011 was 851 million as compared to 748 million in 2010, implying an increase of 13.8 percent. For the year, Uttar Pradesh was the number one destination for domestic tourists, Source: Ministry of Tourism, Government of India
followed by Andhra Pradesh, Tamil Nadu, Karnataka and Maharashtra. Another trend observed in the last few years is that an increasing number of Indians are going abroad for holiday and leisure. Indias outbound traffic has been increasing steadily despite the global recession. Apart from increasing disposable lifestyles, income the and changing factors
significant
contributing to this trend are ease of procuring travel documents such as passport and visa, relaxation in foreign exchange regulations, better awareness of different destinations and benefits of travel, among others. Source: Bureau of Immigration, Government of India
iv.
Rising Capital Investment and Collective Government Spending
Indias capital investment in the tourism sector stood at approximately USD 32.4 billion in 2008. However, there was a sharp drop to USD 19.5 billion 2009, due to the financial crisis during the year. While this disturbed the steady growth of the earlier years, a rise was observed from the very next year onwards. IBEF further reports that the total estimated capital investment in 2012 stood at USD 31.3 billion. Source: IBEF
The Indian Government is taking an active interest in promoting tourism in the country with collective spending on a steady rise. It spent USD 1.1 billion in 2008. The
governments expected collective spending would cross USD 2.0 billion in 2012.
Source: IBEF
6. Hospitality Industry
The Indian Hospitality Industry has emerged as one of the major industries in India which is driving the growth of Indias services sector and thereby providing a thrust in the overall economys growth. The year 2011-2012 was a tough year for the Indian Hotel industry. Depressed global economic conditions along with a slowing national economy posed a threat to the industry. The average occupancy rate observed a marginal decline of 1.9 percent in 2011-2012 in comparison with the occupancy rate of 2010-2011. According to the estimates provided by HVS Hospitality Services, hotel supply across major cities observed a growth of 15 percent in 2011-2012 along with a increase of 12 percent in the demand for hotels during the same period. The country recorded an inflation of 8.8 percent in 2011-12 which has posed a serious challenge to the industry. The overhead costs increased due to the high inflation resulting in a decline in the net income percentage by 3.1 percent.
Source: MOSPI
Source: Various Published Sources, Gyan Research & Analytics
Segment-Wise Estimated Cost of Construction per Room (INR million) Budget Category City Hotels Resorts Service Apartments Common Additional Expenses Furniture, fixtures & Equipments Pre-Opening Expenses Source: MOSPI 0.1 0.15 0.2 0.25 0.3 0.35 0.35 0.4 1 - 1.5 1.5 - 2 2 - 2.5 3.5 - 4 2.5-3.0 2.5-3 4-6 5-7 5-7 7-10 7-9 9-15 9-15 8-10 Mid-Scale Upscale Luxury
Rising Capacity of Hotel Rooms and Beds In 2008, the capacity of hotel rooms and beds stood at 87,000 and 185,000, respectively. It is expected to grow to 227,000 and 520,000, respectively, by 2017. The former is expected to demonstrate a CAGR of 11 percent, while the latter would post 12 percent. The Ministry of Tourism has now adopted a system of approving hotels and classifying them on the basis of the services and amenities provided by them. The total number of approved hotels in 2009 was 1,829, which rose to 2,483 in 2010, according to Indian Tourism Statistics, 2011.
Source: IBEF
Source: Gyan Research & Analytics
The World Travel and Tourism Council forecasts that Indias tourism sector would peak in 2018. Though the country is progressing towards that goal, there has been significant delay in the achievement of this potential due to the recession in 2008. India has once again emerged as one of the most preferred travel destinations, world-wide. The country was conferred three awards by the World Travel Award Organization at the World Travel Market 2012. In the Twelfth Five Year Plan the government has included special provisions for the promotion and creation of infrastructure that would support tourism.
Source: Ministry of Tourism, 2012
7. Upcoming Investments Plans
Hotel Expansion Plans in India Group Existing Hotels 12 Planned hotels (Estimated) 150 Estimated Time Frame 2020 Development partners for India Deut Hotels (with equity infusion), Nama Hotels Chatwal group SAMHI Hotels Private Limited Eros Resorts & Hotels Interglobe Enterprises Limited (Naman developers and Brigade group Royal Indian Raj International Corporation (RIRIC) D.I.H (Cyprus) Limited JHM, Interstate Hotels India Pvt. Ltd, Jaguar, Buildcon Private Limited Country Development and Management Services (CDMS), a joint venture between Carlson and Chanakya Hotels; Pioneer Urban Land and Infrastructure Expansion category Mid Market
InterContinental Hotels Group Wyndham Hotels Marriott International Hilton Worldwide Accor Group
14 18 8 13
60-70 80-100 50-60 90-100
2017 2015 2016 2015
Mid Market Across Segment Luxury/ premium and mid market Luxury, mid scale and budget
Choice Hotels International Best Western International Starwood Hotels
27
100
Next 5-7 Years 2017 2015
Mid Market 3/ 4 and 5 Star Across Segments
34 33
66 55-60
Carlson group
46
100
2015
Mid Market and premium
Hyatt Hotels Corporation
50
Premium
Source: Cushman and Wakefield & ICRA Estimates
8. Economic Impact of Tourism

The tourism industry in India has become a key growth driver of the countrys socioeconomic development. According to government statistics, the contribution of tourism to the GDP was 6.23 percent in 2011. It also generated 9.24 percent employment. Foreign Exchange Earnings (FEE) from tourism amounted to USD 16.56 billion in 2011, registering a growth of 16.7 percent over the previous year. Further, tourism has also helped in preserving national heritage sites such as the Taj Mahal, the Ajanta and Ellora caves, the Qutub Minar, among many others. Similarly, several natural have habitats also of Source: Ministry of Tourism, Government of India *2012 figures are upto June 2012
endangered
species
been
conserved by the efforts of the tourism department. The Indian government is placing emphasis on promoting the tourism sector by increasing the budgeted outlay. The
Ministry of Tourism plans to continue its efforts to explore and promote the huge untapped potential of India as a world-class tourist destination. Source: Various Published Sources
9. Government Initiatives
The Indian government recognizes the need to build infrastructure in order to develop the tourism sector. Therefore, it has expended more than half the allotted tourism budget on developing quality infrastructure at tourist destinations and circuits across the nation. The Ministry of Tourism has sanctioned 1,165 projects worth INR 38,726.7 million for tourism infrastructure development. Some of the initiatives are: The Incredible India campaign that approaches consumers through electronic and print media FDI of upto 100 percent is permitted in hotels and tourism sites through the automatic route A five year tax holiday has been given to organizations that set up hotels, resorts and convention centers at specific destinations, subject to fulfillment of agreed conditions The Ministry has launched a scheme for the development of nationally and internationally important destinations and circuits through Mega Projects. These projects are a mix of culture, heritage, spiritual and eco-tourism and give tourists a holistic experience. Until now, 53 mega projects have been identified, of which 35 have already been sanctioned The Ministry provides financial assistance of upto INR 50 million for tourist destinations and INR 80 million for tourist circuits. The upper limits of financial assistance for development of identified mega destinations and circuits are INR 250 million and INR 500 million, respectively For rural tourism infrastructure development, the maximum amount sanctioned is INR 5 million per project The government has announced a scheme of granting Tourist Visa on Arrival (VoA) for countries which it has identified as high potential tourist source markets and where there have been no security related issues in the past or are likely to be in future. The scheme is valid for citizens of Finland, Japan, Luxembourg, New Zealand, Singapore, Cambodia, Indonesia, Laos, Myanmar, Philippines, and Vietnam. It is applicable on single entry, strictly for the purposes of tourism, and for a short period of upto a maximum of 30 days
In order to overcome Indian tourisms seasonality obstacle, the Ministry of Tourism has devised strategies to promote some niche areas that have tourism potential. The following areas have been identified for development and promotion: Cruise Tourism Adventure Tourism Medical Tourism Wellness Tourism Golf Tourism Polo Tourism Meetings, Incentives, Conferences and Exhibitions (MICE) Film Tourism
10.Financials of Major Companies

Sales Revenue (INR million) India Hotels Company limited Mahindra Holidays and Resorts India Limited EIH Limited Taj GVK Hotels & Resorts Limited Oriental Hotels Limited Asian Hotels (North) Limited TGB Banquets and Hotels limited Advani Hotels and Resorts (India) limited Howard Hotels Ltd Radford Global Ltd 84.7 213.4 2.0 4.6 2.36 2.16 11.22 ---50.68 1,331.67 0.22 0.06 354.4 26.3 7.42 12.76 0.32 50.53 0.57 11,335.0 2,542.4 509.6 87.8 4.50 3.45 4.85 6.52 0.31 0.95 60.90 42.93 0.89 1.40 6,585.4 1,069.8 16.25 8.28 2.54 20.17 12.05 18,758.6 Profit After Tax (PAT) (INR million) Net Profit Margin(%) Earnings P/E Ratio Per Share (in INR) -1.91
Return on Capital Employed(%)
Debt Equity ratio
-2,878.3
--
5.11
1.18
2,900.3
143.0
4.93
6.99
0.83
21.31
0.80
2,158.3
294.5
13.64
6.16
1.19
7.92
15.14
1,575.1
29.6
1.88
8.20
0.78
48.51
1.01
Source: Annual Report of the Companies
11. Outlook
Indias tourism sector has emerged from a mere luxury and sightseeing option to a key growth driver of socio-economic development through the creation of jobs and industries, infrastructure development and foreign exchange earnings. The Asian subcontinent continues to be the new powerhouse of the global economy and India is one of its key players. However, Indias share in world tourist arrivals remains a poor 0.6 percent. This indicates that the country is yet to achieve its optimum potential as a tourist destination, inspite of its vast tourism resources. The Indian government is playing a crucial role in promoting the country as a brand in the global tourism market. Through its Incredible India campaign, it has established the country as a destination with Something for Everyone. The campaign includes wide-ranging print, television and online advertisement promotions to augment the countrys visibility on the global map. To harness the real potential of the sector, the government has initiated an integrated approach of improving tourism infrastructure and promoting niche products. However, to adequately realize the full prospective of the countrys tourism, the government needs to address few issues and challenges. These constraints include inadequate transportation infrastructure, unsatisfactory accommodation, poor safety and hygiene conditions, burden of multiple taxes, and lack of skilled human resources. To increase international tourist arrivals by at least 1 percent by the end of the Twelfth Plan (2012 2017), the tourism industry has to grow by a minimum of 12 percent per year. This would require a persistent and concentrated effort. Therefore, the Government of India needs to devise strategies and policies to integrate all stakeholders and create a congenial environment in which the industry can prosper.
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Opportunities in Hospitality and Tourism Sector in India

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