Chennai/Kolkata: Hotel operators in India are pressing ahead with their expansion plans, undeterred by the worst economic slowdown in a decade that has eroded their earnings and value of their shares.
ITC Ltd, Asia’s second-biggest cigarette maker by market value and a franchisee of the Sheraton brand in the South Asian country, is developing at least 18 projects, Nakul Anand, chief executive of its hospitality business, said in an interview. Sterling Holiday Resorts India Ltd will double its rooms in the next three years, while Indian Hotels Co. Ltd, the owner of the Taj brand hotel chain, plans to spend Rs.200 crore in the next 18 months.
“The hotel industry is going through a little rough patch and this is a temporary lull,” said Anand. “As soon as the economy picks up, our business will pick up. In the next one year, it’s going to be tough and the results of the hotel companies show that.” The hospitality sector in Asia’s third-largest economy is struggling to recover from a slump as average luxury room rates fell 18% in the four years through 2012 and a brutal gang rape in New Delhi tarnished India’s reputation and deterred women visitors.
Shares of Indian Hotels and EIH Ltd, the owner of the Oberoi brand of hotels, have more than halved in the past three years, while those of Sterling have slid 32%. Challenging environment Indian Hotels reported its first annual loss since at least 1997 in the year ended March as sales growth slowed to the least in three years, according to data compiled by Bloomberg. EIH had its smallest profit since 2005, while Sterling has seen group losses in the last four years. The pace of growth in tourist arrivals into the country slowed to 2.8% in the year ended March from 9.9% in the previous year, according to data provided by ITC. Amid such a challenging environment caused by a prolonged crisis in Europe and a slump in the US, a positive long-term outlook for room demand has helped the company sustain investment in hotels, ITC said in its annual report. Three properties are slated for opening in the coming year after the company unveiled its 522-room super-premium ITC Grand Chola in Chennai in 2012. “While ITC’s investment is supported by cash flow from its tobacco business, Indian Hotels is adding capacity through management contracts,” said Rashesh Shah, an analyst with ICICIdirect.com. ITC’s cash and short-term investments stood at Rs.8,800 crore as on 31 March, compared with Rs.230 crore for Indian Hotels, according to data compiled by Bloomberg.
Silki Nanda, a spokeswoman for the Oberoi Group that controls EIH, didn’t respond to an e-mail seeking comments on the slowdown and expansion plans. Share slump Sterling, which started in 1986 to cater to domestic tourists and family vacationers, plans to increase the number of rooms across its resorts nationwide to as many as 3,000 by March 2016 from 1,512, managing director Ramesh Ramanathan said in an interview. Invetsor Rakesh Jhunjhunwala owns 3.67% of Sterling, according to data compiled by Bloomberg. “The sentiment in terms of discretionary spending is lower,” Ramanathan said. “We’ve managed to cut costs in several areas. Maybe going ahead in another two quarters things will turn around for us.” In the past three years, Indian Hotels shares have slumped 55% in Mumbai to Rs.44.25, while EIH slid 59% to Rs.46.90. In the same period, ITC has more than doubled to Rs.341.70.
Rupee opportunity “The rupee’s 8.9% depreciation against the dollar this year may discourage Indians from traveling overseas and benefit Sterling’s resorts,” said Ramanathan. “A weaker currency may also boost the spending power of visitors, making India an attractive destination for foreigners as Europe and the US recover from a slump,” said Vikram Dhawan, director at Equentis Capital Pvt. in Mumbai. “Rupee weakness will help the hotels get more customers,” Dhawan said. “A bulk of the corporate crowd and the well-heeled people who come to India prefer these luxury hotels.”
Supply in the domestic hospitality sector rose by 24% in the year through March, while demand lagged behind by 3 percentage points, Raymond Bickson, managing director of Indian Hotels, said at a press conference on 30 May. India has 200,000 rooms versus 5 million in the US, which has a smaller population, and 3 million in China, according to him. India is outpacing the growth of many other economies, he told reporters. “We still need a lot of convention facilities, hotels, rooms to keep up with that.” Indian Hotels plans to add 1,590 rooms in the current fiscal year and 1,098 next year, he said.
ITC Ltd, Asia’s second-biggest cigarette maker by market value and a franchisee of the Sheraton brand in the South Asian country, is developing at least 18 projects, Nakul Anand, chief executive of its hospitality business, said in an interview. Sterling Holiday Resorts India Ltd will double its rooms in the next three years, while Indian Hotels Co. Ltd, the owner of the Taj brand hotel chain, plans to spend Rs.200 crore in the next 18 months.
“The hotel industry is going through a little rough patch and this is a temporary lull,” said Anand. “As soon as the economy picks up, our business will pick up. In the next one year, it’s going to be tough and the results of the hotel companies show that.” The hospitality sector in Asia’s third-largest economy is struggling to recover from a slump as average luxury room rates fell 18% in the four years through 2012 and a brutal gang rape in New Delhi tarnished India’s reputation and deterred women visitors.
Shares of Indian Hotels and EIH Ltd, the owner of the Oberoi brand of hotels, have more than halved in the past three years, while those of Sterling have slid 32%. Challenging environment Indian Hotels reported its first annual loss since at least 1997 in the year ended March as sales growth slowed to the least in three years, according to data compiled by Bloomberg. EIH had its smallest profit since 2005, while Sterling has seen group losses in the last four years. The pace of growth in tourist arrivals into the country slowed to 2.8% in the year ended March from 9.9% in the previous year, according to data provided by ITC. Amid such a challenging environment caused by a prolonged crisis in Europe and a slump in the US, a positive long-term outlook for room demand has helped the company sustain investment in hotels, ITC said in its annual report. Three properties are slated for opening in the coming year after the company unveiled its 522-room super-premium ITC Grand Chola in Chennai in 2012. “While ITC’s investment is supported by cash flow from its tobacco business, Indian Hotels is adding capacity through management contracts,” said Rashesh Shah, an analyst with ICICIdirect.com. ITC’s cash and short-term investments stood at Rs.8,800 crore as on 31 March, compared with Rs.230 crore for Indian Hotels, according to data compiled by Bloomberg.
Silki Nanda, a spokeswoman for the Oberoi Group that controls EIH, didn’t respond to an e-mail seeking comments on the slowdown and expansion plans. Share slump Sterling, which started in 1986 to cater to domestic tourists and family vacationers, plans to increase the number of rooms across its resorts nationwide to as many as 3,000 by March 2016 from 1,512, managing director Ramesh Ramanathan said in an interview. Invetsor Rakesh Jhunjhunwala owns 3.67% of Sterling, according to data compiled by Bloomberg. “The sentiment in terms of discretionary spending is lower,” Ramanathan said. “We’ve managed to cut costs in several areas. Maybe going ahead in another two quarters things will turn around for us.” In the past three years, Indian Hotels shares have slumped 55% in Mumbai to Rs.44.25, while EIH slid 59% to Rs.46.90. In the same period, ITC has more than doubled to Rs.341.70.
Rupee opportunity “The rupee’s 8.9% depreciation against the dollar this year may discourage Indians from traveling overseas and benefit Sterling’s resorts,” said Ramanathan. “A weaker currency may also boost the spending power of visitors, making India an attractive destination for foreigners as Europe and the US recover from a slump,” said Vikram Dhawan, director at Equentis Capital Pvt. in Mumbai. “Rupee weakness will help the hotels get more customers,” Dhawan said. “A bulk of the corporate crowd and the well-heeled people who come to India prefer these luxury hotels.”
Supply in the domestic hospitality sector rose by 24% in the year through March, while demand lagged behind by 3 percentage points, Raymond Bickson, managing director of Indian Hotels, said at a press conference on 30 May. India has 200,000 rooms versus 5 million in the US, which has a smaller population, and 3 million in China, according to him. India is outpacing the growth of many other economies, he told reporters. “We still need a lot of convention facilities, hotels, rooms to keep up with that.” Indian Hotels plans to add 1,590 rooms in the current fiscal year and 1,098 next year, he said.