Hospitality’s Resurgence - The Industry's Shining Star

The Indian Economy: An Overview

The global economy is currently navigating a turbulent landscape characterized by volatility and uncertainty. Challenges such as tightening monetary policies, financial sector instability, supply chain disruptions, high inflation rates, and geopolitical conflicts—including the Russia-Ukraine and Israel-Hamas conflicts—are contributing to a significant slowdown in global economic growth.

In stark contrast, the Indian economy has demonstrated remarkable resilience, recently achieving the status of the world's fifth-largest economy by nominal GDP and the third-largest in terms of purchasing power parity (PPP). India has not only recovered but also surpassed pre-pandemic levels in consumption and investment.

This resurgence can be attributed to several key factors:

• Tax System Streamlining: Simplification of tax structures has improved compliance and revenue generation.
• Infrastructure Development: Significant investments in road and railway networks, including dedicated freight corridors (DFCs), have enhanced connectivity.
• Digital Infrastructure: Advancements in digital services have facilitated business operations and e-commerce.
• Export Boosting Initiatives: Efforts to enhance export capabilities have opened new markets for Indian goods.

Growth Projections

Estimates indicate that India's economy is poised for robust growth, with an expected annual growth rate between 6.5% to 7% over the next three years. The ‘Make in India’ initiative is particularly noteworthy, aiming to strengthen the manufacturing sector significantly. Additionally, India has recently overtaken China as the world's most populous country, representing approximately 18% of the global population. This demographic advantage is likely to lead to increased savings and investments within the economy.

Inflation Trends

Despite global economic headwinds leading to elevated inflation levels during the previous fiscal year, with retail and consumer inflation hovering around the Reserve Bank of India's (RBI) tolerance band of 6%, there are signs of moderation on the horizon.

As global volatility eases, inflation is expected to decline gradually due to:

• Softer commodity prices
• Stabilized supply chains
• A modest depreciation of the Indian currency

Demographic Advantage and Government Policies

India's favorable demographic profile, combined with proactive government policies, positions it as a promising player on the global economic stage. The country is on track to become the third-largest economy by overtaking Japan and Germany by 2027/28.

Travel & Tourism: A Resilient Sector

The travel and tourism industry in India has rebounded impressively following the downturn caused by the pandemic. Contributing approximately $199.6 billion to India's GDP, this sector is inching closer to pre-pandemic levels. The hospitality industry currently comprises about 212,000 rooms, with an estimated market size of ₹82,000 crore.
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Projections suggest a compound annual growth rate (CAGR) of 10.5% over the next three financial years, driven by:

• Domestic Travelers: Expected to contribute 50% of incremental growth.
• Foreign Tourist Arrivals: Anticipated to account for 30%.
• MICE Segment: Likely contributing the remaining 20%.

These factors are expected to remain sustainable over the next three years and will significantly drive the sector's growth. Given the limited supply of luxury rooms in the market, this growth cycle has the potential to extend further, ensuring robust demand and expansion in the industry.

Different business models in the hospitality sector:

• Owned Hotels: These properties are situated on land fully owned by the hotel company or its subsidiaries.
• Leased Hotels: In this model, the hotel company constructs properties on land leased from either government or private entities.
• Managed Hotels: In this model, the hotel company operates the hotel on behalf of the owner for a management fee. 
• Franchised Hotels: Through franchising, a hotel company owner operates the hotel under the hotel company’s brand in exchange for franchise fees. 

Classifications:
Industry terms for classifying, categorizing, and segmenting hotels (including serviced apartments) are explained below. Each segment will include entry-level hotels in that segment besides hotels that are more fully of segment standards.

• Luxury Segment - five-star, deluxe, and luxury hotels. 
• Upper upscale and Upscale segment - four or five-star hotels 
• Upper Midscale segment - four-star and sometimes three-star hotels.
• Midscale segments - three-star hotels 
• Economy segments - two-star hotels 

Segmental classification is essentially based on the intended positioning and overall rate structure of respective hotel brands; actual standards of individual properties may vary. If a chain has modified the positioning of a brand, such change would be reflected in current and previous period data.

The table below denotes construction tenure by hotel positioning in months

Construction tenure by hotel positioning(months)

As per market estimates, 60,000 rooms were expected to be added between October 1, 2023 and March 31, 2027 given the past track record of materialized supply being at a slower rate, actual inventory growth may be smaller. It is possible that growth may happen somewhat speedily if more conversions occur as these need a shorter lead time to fruition. Pipeline data included in this report is based on deals signed and announced as of November 30, 2023 by various chains. 

About 25% of the new supply will be in the Luxury Upper Upscale segment; 24%, 20%, and 31% in the Upscale, Upper Midscale, and Midscale Economy segments, respectively. 65% of the new supply will occur in markets outside the Key Markets. Sizeable supply expansion outside the Key Markets and segmental spread of supply reflects increasing market maturity and potential for wider demand growth.

Development of hotels in India faces several challenges, the principal among which are: 

• Land
• Regulatory Updates
• Policy Changes
• Bank Financing
• Availability of Equity Capital
• Manpower Shortages
• Brand Competition
• Increased Development Costs

The table below provides an overview of the number of keys owned by leading hotels for the fiscal year 2024.

Future Trends and Opportunities

The Indian tourism sector is projected to generate substantial revenue growth driven by several emerging trends:

• Boutique Hotels - Increasing demand for unique experiences.
• Religious and Spiritual Tourism - Leveraging India's rich cultural heritage.
• Upper Midscale segment - four-star and sometimes three-star hotels.
• Lifestyle Brands and All-Inclusive Resorts - Catering to diverse traveler preferences.
• Wildlife Tourism - Capitalizing on India's biodiversity.

A deeper insight into changes in Occupancy %, ADR, and RevPAR over the last 10 years in all 4 administrative zones. We can further understand that the North and West zones have shown higher increases as compared to East and South zones.

The ARR and RevPAR for some of the top-listed players for FY24 have been mentioned in the below chart.

A summary of the revenue generated by leading players over the past 5 years is presented below.

Revenue generated in last 5 year

	Juniper Hotels	Samhi Hotels	Apeejay	Indian Hotels	EIH (including EIH associated)	Chalet Hotels
FY24	818	957	579	6,769	2,896	1,417
FY23	667	739	506	5,810	2,356	1,128
FY22	309	323	255	3,056	1,180	508
FY21	166	170	179	1,575	595	286
FY20	539	606	421	4,463	1,845	981

FY24

FY23

FY22

FY21

FY20

Please note: FY21 was Covid-19 year. Hence the numbers are skewed

A summary of the Profit generated by leading players over the past 5 years is presented below.

PAT number in years

	Juniper Hotels	Samhi Hotels	Apeejay	Indian Hotels	EIH (including EIH associated)	Chalet Hotels
FY24	24	-244	69	1,330	759	278
FY23	-2	-339	48	1,053	394	183
FY22	-188	-444	-28	-265	-82	-81
FY21	-199	-478	-76	-796	-402	-139
FY20	-79	-344	10	364	203	100

FY24

FY23

FY22

FY21

FY20

Please note: FY21 was Covid-19 year. Hence the numbers are skewed.

• Prior to COVID-19, the hospitality sector experienced a lean phase, resulting in minimal capital expenditure and stagnation in room additions. The pandemic marked a particularly challenging time for the industry, as restrictions on movement and a significant reduction in economic activities led to a near standstill. However, following the pandemic, the sector has seen a remarkable recovery, with activities returning to normal. The economy is regaining momentum, and both business and leisure travel are on the rise.
• The surge in the movement of people has led to a demand for hotel rooms that exceeds the available supply, resulting in a shortage of reasonably priced accommodations. This demand-supply imbalance has driven up both the Average Room Rate (ARR) and Revenue per Available Room (RevPAR). As travelers return for both business and leisure, the hospitality sector is experiencing significant growth, with room rates reflecting this heightened demand.
• As per the projections it is estimated that this phenomenon will continue for the next 2-3 years.
• The hospitality industry is well-positioned for robust growth driven by a combination of economic recovery, technological advancements, and evolving consumer preferences. As it continues to adapt to changing market dynamics, investors can expect substantial opportunities for investment and innovation in this sector.