Hospitality Industry in India

Whitepaper
August 2011
Disclaimer

To the viewers of this report

This report is prepared in accordance with our findings on the Hospitality Industry in India. This
report has been prepared on the basis of desktop research conducted from 22 Aug to 26 Aug
2011. Because it’s a sample report created for business development purposes, our report may
not be suited for any purpose other than to assist you in your evaluation of our research
capabilities. Additionally, our report reflects events and circumstances as they currently exist.

We have not independently verified the information gathered or contained in this report
and, accordingly, express no opinion or make any representations concerning its accuracy or
completeness.

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 to
another party, in whole or in part, without our prior written consent.

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Hotel industry is expected to grow from USD 16.7 bn to USD 30.7
bn 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 132885
Source: Technopak Report “Dissecting the Indian Hospitality Industry” 2009, Ma Foi Randstad press release dated 31 March 2011, 3
India Biz News Article dated June 13,2011, Livemint article dated May 2010
 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 drivers

Incentives by Central and the State
governments
 Elimination of Customs Duty on
import of raw
materials, equipment, liquor etc
 Fringe Benefit Tax exempted on
crèche, employee sports, guest
house facilities
 Five year income tax holiday granted
to 2-4star hotels established in
specified districts having UNESCO-
declared 'World Heritage Sites
 Exemption of Luxury Tax and Sales
Tax for 5-7 Years for new projects
 Government’s open sky policy has
boosted number of passengers in
India
 Introduction of Medical or M-VISA to
boost medical tourism
 Strong economic growth
GDP growth of 9% p.a. in 2010.
Forecasted to grow at a rate of
8.7% p.a. till 2016 thereby enabling
hospitality sector growth
 Increasing FDI inflow
FDI inflow increased due to
allowance of 100% FDI and better
infrastructure availability
 Increasing tourist arrivals
Hospitality sector handled 5.58 mn
international tourists arrivals(8.1%
Y-o-Y growth) and 740.21 mn
domestic tourists in 2010 (10.7% Y-
o-Y growth)
 India tourism campaigns
The “Incredible India” and “Atithi
Devo Bhavah” campaigns have
improved foreign tourist outlook
for India
 Hosting major sporting events
International sporting events like
Formula One race in the National
Capital Region (NCR) in 2011 are
set to boost hospitality
 Demand-supply imbalance
Ministry of Tourism estimates a
shortage of 0.15 mn hotel rooms
in 2011, of which two-thirds are
in the budget category Indian
 Rising income and spending Hospitality
Rising disposable sector
incomes, cheaper
airfares, changing consumer
lifestyle and ease of financial
transactions leading

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Source: Technopak Report “Dissecting the Indian Hospitality Industry” 2009, TCFI Report “Hospitality in India”, Oct. 2010
 … 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, India
200 75%

150 70%  During 2009-10 Hyderabad, Mumbai and Bangalore witnessed

65% highest values per room largely driven by global economic

100
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 5

Source: HVS Report “Hotel Valuation Index 2011”, India Biz News Article dated June 13,2011, Ministry of Tourism Report July 2011
Hospitality industry is one of the most liberalized sectors in India
with 100% FDI allowance through automatic route and single
window clearance facilities
Foreign direct investment (FDI)
 FDI has been permitted up to 100% under the
automatic route
 Total FDI inflow in hospitality sector between
2000 -10 amounted to USD 2.17 bn
 For foreign technology agreements, automatic
approval is granted if:
 Up to 3% of the capital cost of the project is
proposed to be paid for technical consultancy
services
 Up to 3% of the net turnover is payable for
franchising and marketing/publicity fees
 Up to 10% of gross operating profit is payable for
management fees, including incentives fees
Approval of a hotel project
 As of Dec 2010, government has given nod to single
window clearance for hospitality industry
 The Ministry of Tourism approves hotels at project
stage based on documentation. Project approval is
given to a 1, 2, 3, 4, 5 Star Hotels and Heritage Basic
Category
 The Hotels have to apply for classification under 5
Star Deluxe/ Heritage Classic/ Heritage Grand
category if they fulfill the prescribed norms within 3
Regulatory
months of commencing operation
and FDI  Project approval will be valid for 5 years
policies in
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 hotels

Source: India Law Offices article in 2009 6

 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
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Source: TCFI Report “Hospitality in India”, Oct. 2010
 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

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Source: Knight Frank Report “Indian Hotel Market” Dec 2010
Increasing demand in Tier 2 and Tier 3 cities along with rising land
costs 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

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Source: HVS Report “Hotels in India- Trends and Opportunities 2010”, Oct. 2010
Contact Details
Ms. Nibha Kaul, CEO
Email: nibha.kaul@sumoresearchsolutions.com
Mob: +91-98192 13030
URL: www.sumoresearchsolutions.com

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