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Hotel and Accommodation India Industry

India hotels: A robust revival

Aug 22, 2010

August 15th was India's independence day and, as is, typical, celebrations are being led by government sponsored functions across the country, however in the private sector, India's hospitality industry is busy celebrating a sharp recovery after dismal numbers posted over the past 18 months.

While the US is still debating whether it is a "V" or "W" shaped economic recovery from the Great Recession, the Indian hotel industry has staged a recovery as steep as the decline it witnessed in 2009. Back then, India's leading business publication, Business Standard, carried a story headlined "Hotel Occupancy May Hit Record Low". That report noted that "the bad news just doesn’t seem to end for the hotel industry.

The profitability of premium hotels that include 5-Star Deluxe and 5-Star is expected to be impacted significantly as occupancy rates have declined sharply due to falling demand for hotel rooms and new hotel rooms are being added across cities in India, according to a report by Crisil Research, a research firm focused on the Indian economy.

Expectedly, the revival in occupancy, although rates like in most other destinations still remain significantly below pre-recession levels, has brought out developers and new entrants looking to test the waters. Among them are Bangalore based (of Middle-Eastern origin) Zuri Hotels and Resorts who recently announced that they will start five to six luxury hotels in India within next five years. These include the Rs 200-crore ($42.7m), 150-room, 5-star hotel at Devanahalli in Bangalore, which is under construction, will be commissioned by the mid-2012. The group also has a high-end luxury resort and a spa at Kumarakom in Kerala and plans to start a new hotel in Kochi in South India.

Even with regard to room rates, some majors like the Taj group seem confident enough of the occupancy base to start nudging rates upwards. A recent announcement from the famed hotel group notes that they are set to hike rates upwards for the first time after two years.

The positive outlook for the industry has also loosened the capital spigots from a variety of sources including IPOs both within in India and in foreign markets. Summit Hotels, for instance, filed with US securities regulators to raise up to $325.5 million in an initial public offering (IPO) of its common stock. The company said it plans to use the proceeds from the offering to repay existing debt, fund capital improvements at its hotels and for working capital purposes, including possible future hotel acquisitions.

Others such as Asian Hotels (North) are gearing up for expansion through acquistions. Asian is set to acquire a majority stake in Inovoa Hotels and Resorts. However, worldwide confidence in the broader Indian travel sector is best underscored by the stellar performance of the IPO for which saw its nasdaq listing last week reach the very high end of the price range for its shares.

The news on the quality front, always a positive for Indian hotels, only soared higher as some fabled hostelries scored highly in Travel & Leisure magazine's recent ratings. The magazine ranked the Oberoi Group's Vanyavillas in Rajasthan as the world's best hotel. Last year, Conde Nast ranked Jaipur’s Rambagh Palace (run by the Taj group) was rated as the best hotel in Asia. Clearly, much to cheer for both investors and customers from these developments.

India hotels: A robust revival
Vijay is Chief Operating Officer and part founder of Apple Core Hotels

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