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 its 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.

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)
26%
CAGR

12%
CAGR
8.1
38.8
26.5
9.5

21.5
6.8
14.7

17

2008

2009

2010

2013

No. of
Hotels

No. of Rooms

5 Star deluxe/5 Star

165

43965

4 Star

770

13420

3 Star

505

30100

2 Star

495

22950

1 Star

260

10900

70

4200

Uncategorized

7078

Total

8707

132885

Heritage

terrorist

attacks

in

2008

and

2009

respectively
of May 2011 contribution of the hospitality

industry which comprises of hotels, restaurants

and allied services to Indian GDP was 2.2%

Total Number of Hotels in India, 2010

Hotel Categories

the

As

30.7

16.7

fastest growing sectors of the Indian economy;

except for a short phase the during recession and

Total
Hospitality
22.5
5.8

The Indian hospitality industry is one of the

In 2010, 30% and 16% of the Indian hotel and

restaurant sectors were in the organized sector

Hospitality industry is one of top employment

generating

industries

which

according

to

executive search and HR consulting firm Ma Foi

Randstad generated 160,300 jobs in 2010 and is
expected to generate 218,200 jobs in 2011
According

to hospitality consulting firm HVS,

there is a shortage of quality branded hotel

rooms in the major Indian cities as compared to
other international cities and

the shortage will

be more pronounced as Indian economy strives

Source: Technopak Report Dissecting the Indian Hospitality Industry 2009,

Ma Foi
Randstad press
release dated 31 March 2011,
3
toward
double-digit
growth
India Biz News Article dated June 13,2011, Livemint article dated May 2010

Strong economic recovery coupled with governments

numerous policies and incentives will drive the growth in
hospitality sector
GROWTH DRIVERS OF HOSPITALITY INDUSTRY IN INDIA

Regulatory 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 crche, employee sports,

guest house facilities
Five year income tax holiday

granted to 2-4star hotels

established in specified
districts
having
UNESCOdeclared
'World
Heritage
Sites
Exemption of Luxury Tax and

Sales Tax for 5-7 Years for

new projects
Governments

open
sky
policy has boosted number of
passengers in India

Introduction of Medical or M-

External Drivers
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

Internal drivers
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
Rising

income

boost

and

spending
Rising disposable incomes,
cheaper airfares, changing
consumer lifestyle
and
ease
of
financial
transactions leading

The Incredible India and

Atithi
Devo
Bhavah
campaigns have improved
foreign tourist outlook for
India
Source: Technopak Report Dissecting the
Indian Hospitality Industry 2009, TCFI Report Hospitality in
VISA
to
tourism

Indian
Hospita
lity
sector

medical

 rising occupancies and RevPAR, post 2008-09,

indicates signs of recovery in the hospitality sector
Occupancy levels(%), Average Room Rate
(USD) and RevPAR* (USD)
Average Room
Rate
RevPar

200

Hospitality

industry in India witnessed a sharp

downfall in its revenues in 2008-09 and 2009-10 as

traveler volumes contracted due to the
75%
70%

150

65%

100

60%

economic

downturn and the terrorist attacks in Mumbai, India

During 2009-10 Hyderabad, Mumbai and Bangalore

witnessed highest values per room largely driven by

global economic recovery

50

55%

Foreign tourists segment increased by 10.9% Y-o-Y in

50%

2010-11 with India hosting Common wealth games

FY2006
FY2007
FY2008
FY2009
(*) Revenue per available room

FY2010

in 2010 and hosting ICC World Cup in 2011

Along

Foreign Tourist Arrivals (FTA) in mn

with

major

cities,

hotel

chains

are

aggressively growing in Tier 2 and Tier 3 cities like

Hyderabad, Ahmadabad and Pune

6%
CAGR

4.45

2006

5.08

5.28

5.17

2007

2008

2009

5.58

2010

Source: HVS Report Hotel Valuation Index 2011, India Biz News Article dated June 13,2011, Ministry of

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)

Approval of a hotel project

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

As of Dec

Regulato
ry and
FDI
policies
in Indian
hospitali
ty sector

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 months of
commencing operation
Project approval will be valid for 5 years

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

The unorganized and largely fragmented hotel

sector in India is undergoing a rapid change with
entry of foreign players
Key hospitality players in India
Players

Segment
Presence

INTERNATIONAL
PLAYERS

InterContinental

Carlson

NATIONAL PLAYERS

Indian Hotels

ITC Welcome
group

EIH

The Leela

Brands

Luxury, midsegment and

business

InterContinental
Crowne Plaza
Holiday Inn
Holiday Inn Express
Hotel Indigo
Staybridge Suites
Candlewood Suites

Luxury,
business,
economy and
cruises

Radisson Hotels and Resorts

Park Plaza
Country Inns & Suites
Park Inn

Luxury, midsegment and

budget

Taj, Gateway
Vivanta
Ginger

Luxury,
budget and
heritage

Business ,
leisure and
cruises

Oberoi
Trident

Luxury and
heritage

Leela penta
Leela palace

ITC Hotel Luxury Collection

Welcome Hotel Sheraton
Fortune
Welcome Heritage

Future Expansion Plans

Plans

to operate
hotels by 2015

45

new

Plans to increase its presence

in India to 78 hotels by 2012,

from 28 in 2009
Plans to construct 50 budget

hotels under the Ginger brand

over the next four years
To invest USD 2,000 mn over

next few years

Plans

to
develop
750
additional hotel rooms under
the Trident brand over the
next 2.5 years

Expected to add 349

more

rooms in 2012

7
Source: TCFI Report Hospitality in India, Oct.

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)
Demand

Supply

11%

75,967 81,296
53,412 66,487
32,660

Room demand distribution in top 10 cities

(2013E)

35,503

38,789

43,828

24%

3%
9%
4%
8%

2010

2011 F

7%
3%

2012 F

F
(*) Note: Number of keys :The number of guest2013
rooms
in a hotel

Upcoming room supply (2010-2013)

Econo
my
Total
Rooms

8,09
2
543

1,835

2010

9,48
0
684

3,231
9,625

5,714

5,565
2011F

6%

The Indian government through Budget 2011-12 has

proposed several measures that will increase

investment into hospitality sector and accelerate the
process of development

13,0
75

1,087
2,363

24%

Mumbai
NCR
Pune
Ahmedab
ad
Goa
Chennai
Jaipur
Bengalur
u
Kolkata
Hyderaba
d

2012F

The huge influx of incremental rooms will result in

5,33
0

743
1,280
3,307

the occupancy levels of hotels for most of the cities

falling considerably except Mumbai and Goa during
2010-13
Despite

a similar quantum of room demand in

Mumbai and the NCR in 2013, the size of Mumbai
market, at USD 930 mn, will be substantially greater
than the NCR market size of USD 620 mn

2013F

Source: Knight Frank Report Indian Hotel Market Dec

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
Upcoming
Areas

Hospitality supply in Tier II and Tier III locations

will increase based on the untapped potential of
the domestic commercial and leisure demand
The Indian hotel market
will remain an
expensive market to enter with the exponential
growth in capital land values across the country

Green
Hotels

Green Hotels will increase operational efficiencies

and bottom lines, inspite of its marginally higher
construction costs
Loca -vore: Local cuisines concept that believes in
maximizing benefits to cultural heritage will be
adopted in F&B

Resource
Optimization

Local cuisines
in F&B

Relocation
of
non-revenue
generating
departments from hotel premises to off hotel
premises will maximize space efficiencies
Growing Importance of healthy and organic food
will result in its introduction in the menus of all
day dining and multi cuisine restaurants

Personnel
Retention

Hospitality
Real Estate

Manpower retention programs will result

marked increase in salaries across the sector

Source: HVS Report Hotels in India- Trends and Opportunities

2010, Oct. 2010

Healthy &
Organic
Foods

in

Contact Details
Ms. Nibha Kaul, CEO
Email:
nibha.kaul@sumoresearchsolutions.com
Mob: +91-98192 13030
URL:
www.sumoresearchsolutions.com
10