• Indian market awaits clarity

Investors in India’s hotel market are pinning their hopes on an improving economy, to help drive growth. A number of local groups are planning expansion, based on funds raised in IPOs, but uncertainty remains.
While economists now reckon the Indian economy has bottomed out, a recent report from Bank of America noted: “There is no doubt that the bottom has got deeper and longer than we expected.”
November saw industrial production increase, after three months of contraction. Now, commentators expect growth to improve to 6% in the March quarter, up from 4.3% six months prior. India’s central bank predicts 5% growth in 2020, a figure that not all economists agree is likely to be hit.
In the hotel market, one company looking to set a positive mood is Apeejay Surrendra Park Hotels, which started the new year by filing papers for an intended IPO. A proposed INR1,000crore fundraising will be used to repay initial investors to the tune of INR600crore, and release a further INR400crore for growth. The group runs ten boutique properties under brand The Park, and has a further ten under subbrand Zone by The Park, across 15 Indian cities. The group reported 2018-19 revenues up 11%, and operating profits up 15%, and achieved occupancy of 89.7%.
Other hotel groups poised to go to market, should the investor appetite be there, are SAMHI Hotels. The Goldman Sachs backed group filed papers in September, suggesting it may raise between INR1,800-2,000crore. SAMHI works with international brands, having developed hotels running under Marriott, IHG and Hyatt flags. Currently it has 27 properties open, with a further two in development, across Delhi, Bengaluru, Hyderabad, Chennai and Pune.
“We expect one or two more IPOs this year,” said Rushabh Shah, at Horwath International’s Mumbai office, “but nobody’s confident about next year.” Typically, Indian corporate budgets run April to April, meaning that this quarter’s spending is based around last year’s budgets. The economy’s performance over coming weeks will dictate corporate confidence into Q2 and Q3.
“Traditionally, Indian chains have been asset-heavy,” said Shah, but they are now moving towards management contracts.
One group that remains confident is Indian Hotels, which under the direction of Puneet Chhatwal is continuing to expand, supported by the backing of international investor GIC. In December, the group opened its fiftieth Ginger branded hotel in the country, followed by January signings for its Vivanta brand in Tawang and the opening of a new Taj hotel in Udaipur. The group is also pursuing homestays, and in October launched its first properties under its Ama Stays & Trails brand.

HA Perspective [by Andrew Sangster]: Almost a year ago, Paul Slattery, principal at Otus & Co and Hotel Analyst contributor, gave a presentation at the IHCL capital markets day. He pointed out that India has the largest long-term potential of any country in the world: to match the US ratio of citizens per hotel room, India needs 20 million more hotel rooms.
There is of course a long way for India to go to turn into an economy like the US. But Slattery concluded that the Indian government was progressing “economic structure, employment structure and household demand towards the higher yielding segments for hotel demand”.
During 2018, foreign tourist arrivals to the country grew by 5.2%, helped by the new e-tourist visa system. India’s government want to take 1% share of the world’s international tourist arrivals during 2020 and raise this to 2% by 2025.
As well as domestic groups like IHCL, international chains are an important element of the growth with international chains taking a 47% share of the tourism and hospitality sector, rising to 50% by 2022.
The Indian government is ploughing INR60bn (USD850m) into the Swadesh Darshan tourism scheme which completes this year. The idea behind the theme-based tourism projects, such as Buddhist, coastal, heritage and eco, has been to position the tourism sector as a major job creator and force for economic growth.

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