Hospitality Industry in India

August 2011

Whitepaper

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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 it’s 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.

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2008 2009 2010 2013

16.7 14.7 17

30.75.8 6.8

9.5

8.1

Restaurant sectorHotel sector

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)

Source: Technopak Report “Dissecting the Indian Hospitality Industry” 2009, Ma Foi Randstad press release dated 31 March 2011, India Biz News Article dated June 13,2011, Livemint article dated May 2010

The Indian hospitality industry is one of the fastest growing

sectors of the Indian economy; except for a short phase the

during recession and the terrorist attacks in 2008 and 2009

respectively

As of May 2011 contribution of the hospitality industry

which comprises of hotels, restaurants and allied services to

Indian GDP was 2.2%

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 toward double-digit growth

Hotel Categories 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

Heritage 70 4200

Uncategorized 7078 -

Total 8707 132885

Total Number of Hotels in India, 2010

26% CAGR 12% CAGR

38.8

22.5 21.526.5

Total Hospitality

Strong economic recovery coupled with government’s numerous policies and incentives will drive the growth in hospitality sector …

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GROWTH DRIVERS OF HOSPITALITY INDUSTRY IN INDIA

Source: Technopak Report “Dissecting the Indian Hospitality Industry” 2009, TCFI Report “Hospitality in India”, Oct. 2010

Indian Hospitality

sector

Incentives by Central and the State governments

Elimination of Customs Duty on import of raw materials, equipment, liquor etc

Fringe Benefit Tax exempted on crèche, employee sports, guest house facilities

Five year income tax holiday granted to 2-4star hotels established in specified districts having UNESCO-declared 'World Heritage Sites

Exemption of Luxury Tax and Sales Tax for 5-7 Years for new projects

Government’s open sky policy has boosted number of passengers in India

Introduction of Medical or M-VISA to boost medical tourism

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

The “Incredible India” and “Atithi Devo Bhavah” campaigns have improved foreign tourist outlook for India

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 and spending

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

Regulatory Drivers External Drivers Internal drivers

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Occupancy levels(%), Average Room Rate (USD) and RevPAR* (USD)

Hospitality industry in India witnessed a sharp downfall in its

revenues in 2008-09 and 2009-10 as traveler volumes contracted

due to the 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

Foreign tourists segment increased by 10.9% Y-o-Y in 2010-11

with India hosting Common wealth games in 2010 and hosting

ICC World Cup in 2011

Along with major cities, hotel chains are aggressively growing in

Tier 2 and Tier 3 cities like Hyderabad, Ahmadabad and Pune

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

2006 2007 2008 2009 2010

4.455.08 5.28 5.17

5.58

Foreign Tourist Arrivals (FTA) in mn

(*) Revenue per available room

… rising occupancies and RevPAR, post 2008-09, indicates signs of recovery in the hospitality sector

6% CAGR

FY2006 FY2007 FY2008 FY2009 FY20100

50

100

150

200

50%

55%

60%

65%

70%

75%

Average Room Rate RevPar Occupancy levels

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Hospitality industry is one of the most liberalized sectors in India with 100% FDI allowance through automatic route and single window clearance facilities

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 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

Foreign direct investment (FDI)

Regulatory and FDI

policies in Indian

hospitality sector

Tax Holiday available for hotels

Approval of a hotel project

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

Source: India Law Offices article in 2009

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The unorganized and largely fragmented hotel sector in India is undergoing a rapid change with entry of foreign players

Players Segment Presence Brands Future Expansion Plans

InterContinental

Luxury, mid-segment and business

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

Plans to operate 45 new hotels by 2015

Carlson Luxury, business, economy andcruises

Radisson Hotels and Resorts Park Plaza Country Inns & Suites Park Inn

Plans to increase its presence in India to 78 hotels by 2012, from 28 in 2009

Indian Hotels Luxury, mid-segment and budget

Taj, Gateway Vivanta Ginger

Plans to construct 50 budget hotels under the Ginger brand over the next four years

ITC Welcome groupLuxury, budget and heritage

ITC Hotel – Luxury Collection Welcome Hotel – Sheraton Fortune Welcome Heritage

To invest USD 2,000 mn over next few years

EIHBusiness , leisure and cruises

Oberoi Trident

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

The LeelaLuxury and heritage

Leela penta Leela palace

Expected to add 349 more rooms in 2012

Key hospitality players in India

Source: TCFI Report “Hospitality in India”, Oct. 2010

INTE

RNAT

ION

AL P

LAYE

RSN

ATIO

NAL

PLA

YERS

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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

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The Indian government through Budget 2011-12 has proposed several measures that will increase investment into hospitality sector and accelerate the process of development

The huge influx of incremental rooms will result in 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

2010 2011F 2012F 2013F

5,714

9,625

5,5653,307

1,835

2,363

3,231

1,280

543

1,087

684

743

EconomyMidscaleUpscale

Upcoming room supply (2010-2013)

Source: Knight Frank Report “Indian Hotel Market” Dec 2010

Indian Hospitality Market : No. of Keys * (2010-13)

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

20102011 F

2012 F2013 F

32,660 35,503 38,789 43,828

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

Demand Supply

5,330

8,092

13,075

9,480

24%

24%

6%3%7%

8%

4%

9%

3%

11% Mumbai

NCR

Pune

Ahmedabad

Goa

Chennai

Jaipur

Bengaluru

Kolkata

Hyderabad

Room demand distribution in top 10 cities (2013E)

Total Rooms

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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

Source: HVS Report “Hotels in India- Trends and Opportunities 2010”, Oct. 2010

The Indian hotel market will remain an expensive market to enter with the exponential growth in capital land values across the country

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

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

Manpower retention programs will result in marked increase in salaries across the sector

Hospitality supply in Tier II and Tier III locations will increase based on the untapped potential of the domestic commercial and leisure demand

Upcoming Areas

Green Hotels

Resource Optimization

Personnel Retention

Healthy & Organic Foods

Local cuisines in F&B

Hospitality Real Estate

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Contact DetailsMs. Nibha Kaul, CEOEmail: nibha.kaul@sumoresearchsolutions.comMob: +91-98192 13030URL: www.sumoresearchsolutions.com