Much has been said and written about the Indian growth story, with respect to the hospitality sector in general and the hotels space in particular. It is a capital intensive business. One look at the major hotel brands like IHG, Carlson Rezidor, Accor, Marriott and Hyatt and it becomes apparent that they are managing hotel assets for others. Aside from the brand name and the specifications that go with it, these corporations are managing hotel portfolios running into 2500 plus hotels each across the globe. The Indian growth story led by the entry of these brands a decade or so ago is no different.
Capacity addition across a range of hotel segments has and will continue to be guided by the demand push that macroeconomic fundamentals will provide, but having said that investment in new hotels, greenfield or otherwise will require investor confidence; wherein they find investment in hotel assets attractive. It is important to analyze the business approaches that have found favor in the Indian marketplace, to comment on their success so far and any challenges that need to be addressed.
Some key questions to be asked are:
- What is the status of hotel room inventory in India and where is the capacity expansion headed?
- What is the profile of the investors in the Indian hotel space and what are the key challenges that they face?
- What types of business partnerships or contractual arrangements are finding interest?
- Are investors achieving acceptable returns on their investment? Are hotel brands as custodians of these investments ensuring, that the investor’s interest is being protected?
- Are the owners of hotel assets relying on debt or is it a mix of debt as well as equity? Is servicing of debt an issue?
Answers to the above questions will have implications on the growth of the hotel sector in India. The government push for expansion of our tourism footprint, along with a policy shift towards enabling a favorable visa regime, potential changes in the form of the ‘Goods & Services Tax’ (GST) and other positive steps to improve the ease of doing business in India will have a significant impact. However despite the policy enablement, the macroeconomic promise must be validated by the microeconomic reality operative in the country. Profitable investments by hotel owners will encourage more investments (including significant amount of foreign capital), it is critical to measure and assess the success of key brands in ensuring that they deliver the promised ROIs to the owners of the hotel assets they manage.