2014 | Hotels in India: Trends & Opportunities

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2014 | Hotels in India: Trends & Opportunities 2014 HOTELS IN INDIA TRENDS & OPPORTUNITIES Achin Khanna Managing Director, MRICS Karan Sahani Associate HVS.com HVS 6th Floor, Building 8-C, DLF Cyber City, Phase - II, Gurgaon 122 002, INDIA “A bend in the road is not the end of the road…Unless you fail to make the turn.” – Helen Keller Introduction HVS' outlook with special emphasis on 13 creating affable diplomatic ties with major Indian markets. The report also neighbouring countries in Southeast Asia. Change is inevitable, continuous and more outlines existing and future opportunities in That being said, the recent disconnection of often than not, required! As we publish this the hospitality industry of specific interest to bilateral talks with Pakistan coupled with the year's edition of the Trends & Opportunities investors, developers and hotel operators. repeated cease-fire violations along the report, it comes on the heels of a historic and Indo-Pak border lead one to question the monumental mandate that was awarded to The survey participant base has registered a likelihood of a peaceful future with our the BJP-led National Democratic Alliance by significant rise since 1995/96 from 120 neighbours. the citizens of India in the recently hotels with 18,160 rooms to a record 814 concluded General Elections. In sharp hotels with a room count of 99,301 in The budget for 2014/15, which was contrast to last year’s greatly subdued 2013/14, an increase of an additional 97 announced on 10th July 2014, set the tone for outlook for business, there is a general sense hotels and approximately 13,180 rooms economic expansion with emphasis on of hope, optimism and positivity today. since the last survey. development of quality infrastructure and facilitation of entrepreneurship at the rural The Indian hospitality sector may also want The growing number of survey participants and urban levels. On the heels of a partial to raise a toast to cheer the official count of over the years demonstrates an increase in recovery of the global economy, the country branded/organised hotel rooms crossing both HVS' penetration into the market and recorded a Real GDP Growth of 4.7% in the 100,000 mark this past year. While the market's size. Moreover, a larger sample 2013/14, a minor increase over the previous growth in supply did indeed outpace growth set and availability of data for two historical fiscal. The Industrial sector recorded the in demand across some markets, early signs years have led to the 2012/13 figures least growth: 0.65% in 2013/14, lower than of a recovery were equally evident across undergoing a minor change across all the previous year's 0.96% but also others. Overall, financial year 2013/14 saw a parameters. substantially lower than the 7.81% recorded marginal improvement in nationwide in 2011/12. Agriculture, on the other hand, occupancies, thus breaking a three-year Similar to previous editions of the Trends & recorded 4.7% growth in 2013/14 – a downward trend. Opportunities report, we have weighted the significant increase over the previous fiscal. number of room nights to account for the The Services sector grew at 7.0% in We have often written about the inherent new supply that was not operational for the 2013/14, marginally higher than the 6.9% cyclical nature of the hospitality business. entire fiscal in order to compute the overall increase recorded in 2012/13. We have also highlighted the importance of occupancy and average rate. The weighted allowing new hotels to live through their room count for 2013/14 is 95,414, up India's current account deficit (CAD) gestation years before stakeholders begin from 82,512 for 2012/13. Figure 1 narrowed to 1.7% of the GDP in 2013/14 demanding performance and financial illustrates survey participation for the fiscal from 4.7% in 2012/13, mainly a result of the returns from their investment. It is years 1995/96 to 2013/14. contraction in imports, especially that of gold imperative that both developers and lenders and other non-essential items. After having understand and appreciate the uniqueness The Indian Economic Scenario – An witnessed a partial decline in 2012/13, the of the hotel business, if they truly intend to Overview fiscal deficit expanded to 5.2% of GDP in reap benefits from it. In one of our recent 2013/14 as compared to 4.8% in 2012/13. publications (Hotels in India – The Story The much anticipated general elections in This was primarily due to expenditure Behind the Numbers) we had detailed the 2014 saw the National Democratic Alliance growing at a faster pace than revenue. last three cycles that were witnessed by the (NDA), led by the Bharatiya Janta Party (BJP), Indian Hotel sector and had also commented secure a convincing majority with 336 seats The year 2013/14 also saw the rupee being on the likelihood of the next cycle being in the Lok Sabha (Lower House) out of a total more volatile, depicted in the exchange rate round the corner. While the following report of 543 elected seats. The Narendra Modi-led to the US dollar fluctuating significantly, will provide a thorough analysis of the years BJP itself secured 282 seats, propelled as especially between May (`53.7/US$ on gone by as well as an estimation of the years they were by their development-centric 2nd May 2013) and August (`68.3/US$ on ahead, we thought it important to highlight agenda and a strong anti-incumbency factor 28th August 2013), and averaging `60.7/US$ that, in our view, the tide is turning! against the erstwhile government. With a for the fiscal year. The rupee's volatility and decisive majority, the new government is decline in value has been ascribed to the The Trends & Opportunities report, based on expected to focus on strengthening supply-demand imbalance in the domestic the results of the Trends & Opportunities economic fundamentals through necessary foreign-exchange market on account of Survey conducted by HVS annually, depicts policy formulations and amendments and slowdown in foreign institutional investors and analyses the key trends in the hotel set the platform for inclusive and sustainable (FII) inflows. performance of the country and presents growth. It is also expected to focus on Figure 1: Survey Participation (1995/96 – 2013/14) 1,200 151 150 160 137 133 133 130 131 129 128 129 140 124 126 126 122 122 127 127 122 1,000 120 120 800 100 600 80 60 400 40 200 214 174 814 120 180 216 316 586 348 268 698 357 407 717 199 289 349 256 199 271 211 551 861 182 122 232 312 252 462 20 255 215 235 335 495 495 183 163 993 1995/96 1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 Number of Rooms (00's) Number of Hotels Average Number of Rooms Per Hotel Source: HVS Research PAGE 2 | 2014 HOTELS IN INDIA TRENDS & OPPORTUNITIES Figure 2: GDP Growth, Inflation and Exchange Rate – An Eight-year Trend destinations such as Agra, Jaipur, Goa, Kerala and Srinagar gaining strong momentum. 12.0% 70 International Tourist Arrivals, on the other 10.0% 60 hand, were recorded at 6.9 million in 2013, 50 8.0% an increase of 5.9% over the previous year. 40 Foreign Exchange Earnings (FEE) in US$ also 6.0% rose by 4.0% during the same period. The 30 top three international source markets for 4.0% India continued to be USA (15.6%) followed 20 by UK (11.62%) and Bangladesh (7.53%)1 . 2.0% 10 Stimuli such as the Tourist Visa on Arrival Scheme (VOA), which is expected to extend - - 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 from 11 to 180 countries, and the relaxation of the mandatory 60-day gap between Exchange Rate (` /US$) GDP Growth at Factor Cost Inflation (WPI) consecutive visits by foreign travellers to India, is anticipated to augment growth and Figure 2 shows GDP Growth, Inflation and The United Nations World Tourism bolster inbound travel in the near future. Exchange Rate from 2006/07 to 2013/14. Organisation in its Tourism Highlights 2014 Edition reported that the total number of Additionally, the budget announcement During 2013/14, FDI inflow declined by International Tourist Arrivals (ITA) regarding the initiation of the electronic 31.8% over the previous fiscal, largely due to worldwide grew by 5% in 2013, reaching a travel authorisation (ETA) across nine poor investor sentiment and political record 1,087 million arrivals, after topping international airports over the next six uncertainty at the time. Going forward, the the 1 billion mark in 2012. Within that, the months is also a welcome step to generate Economic Survey of India forecasts India's Asia Pacific region recorded the strongest further tourist activity across the country. GDP growth to be in the range of 5.4-5.9% in growth at 6% in 2013. 2014/15 on account of an expected revival of The Tide is Turning the Industrial sector, a stabilised current The total contribution of Travel and Tourism As discussed in our 2013 publication, the account, steady capital inflows and an to India's GDP was 6.2% (`6,631 billion) in four pillars of the hospitality business – expected resurgence in growth from 2013 and is projected to rise to 7.3% in 2014, Supply, Demand, Occupancy and Average manufacturing.
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