Improvement in occupancy rates, average revenue per room and the number of rooms added in the quarter point towards positive signs of business for the domestic hotel industry. Companies such as Indian Hot­els Company (IHCL), East India Hotels, wh­ich owns and operates Oberoi and Trident brand of hotels and resorts, ITC and Hotel Leelaventure are confident th­at the worst times for the industry are behind them. However, company officia­ls say that it will take around 12 to 18 mo­n­ths to reach the peak of financial year 2008.

After registering 786 per cent rise in net profit to Rs 9.24 crore and total in­come of Rs 105.81 crore in the first qu­­arter of this financial year, Vivek Nair, vice-chairman and managing director, Hotel Leelaventure, termed the growth as a “turnaround in the fortunes” of the hotel industry.

Robust earnings outlook

ITC’s hotel business also registered a ro­b­ust growth in earnings by 21.2 per cent year-over-year (y-o-y) to Rs 225 crore during the quarter compared with Rs 186 crore last year. While, two of the country’s largest hotel companies — Indian Hotels and Ea­st India Hotels are yet to announce their results, ex­perts are optimistic.

Recent jump in occupancy rate across major cities, followed by increased average revenue per room (ARRs), have given confidence to the domestic hotel industry. The ARRs are expected to go up by over 10 per cent in this as well as the next financial year, hotel industry experts said.

Anil Goel, CFO at Indian Hotels — which owns Taj, Vivanta by Taj, Gateway and Ginger bra­nd of hotels — had earlier said, “It will take around 12 months for ARRs to reach the peak of 2007.”

Ratings agency Crisil estimates 44 per cent of the total new supply coming onst­ream during 2010-15 that will become operational only in 2014-15, leaving the demand-supply mismatch favourable till 2012-13. “We see geographically concentrated players at a relatively higher risk against those with a wider footprint. With an in­c­rease in the number of travellers, we expect strong demand across segments,” the agency said in a recent report.

IHCL is also in the final stages of completing the restoration of the Fala­knuma Palace, Hyderabad, and the hotel with 60 keys, is slated to open by October 2010. Construction activity for ITC’s two new super-luxury properties at Chennai and Kolkata are progressing satisfactorily. Hotel Leelaventure’s hotel in New Delhi with 260 guest rooms and suites is also in an advanced stage of completion and will be open for business well before Co­m­mon­wealth Games, the company said earlier.

However, analysts have expressed concern over performance of East India Hotels project pipeline, which is insufficient compared to the robust expansion plans of its competitors. After the Bandra-Kurla Complex property — Trid­ent Hotel that became operations in the third quarter of 2009-10, there are no major project in the pipeline for the next 12-18 months. “We believe, with a slow expansion programme, East India Hotels is curtailing its earnings expansion and not leveraging on its brand image,” Manoj Bahety, vice-president, Edelweiss Research, added.

Around 2,000 rooms across segments are likely to be added before the end this calendar year, Narendra Somani, chairman and managing director, Bhagawati Banquets and Hotels told Financial Chronicle. An analyst with a domestic brokerage, added: “We believe the hotel business is well on track to post 20 per cent compounded annual growth rate (CAGR) in revenues during 2010-12 period, aided by low base and uptick in economic activity. Moreover, margins are likely to re­gister significant improvement as ARRs recover.”

Amnish Aggarwal, hotel analyst, Mot­ilal Oswal said, occupancies at ITC gro­up hotels have increased to around 70 per cent; however the ARRs remains lower y-o-y. “We estimate 20 per cent inc­rease in sales and 50 per cent increase in Ebit (65 per cent decline in 1QFY10) on a low base,” he said. Also, many companies are setting up their own guesthouses and ho­tels to bring down hotel expenses in cities such as Bangalore, where room rates have gone up significantly.

“Following the steep rise in hotel tariffs in Bangalore over the past two-three years, companies such as Infosys and Wipro have set up their own guesthouses and hotels for accommodating their guests. This has been one of the reasons for lower occupancies in premium hotels in the city. This trend could be a concern for the hotel industry if it is taken up in other cities as well,” said Bahety of Edelweiss Research.

In case of Taj GVK Hotels and Re­sorts, a joint venture of the Taj and GVK groups, which operates five premium pro­perties totalling 900 rooms at Hyde­rabad, Chennai, and Chandigarh, there is over-dependence of three Hyderabad properties. As a result, delay in execution of its projects, along with oversupply of premium category rooms in Hyderabad, are main concerns for the company.

Conference facilities

With economy rebounding, there is growth in meetings, incentives, conferences and exhibitions (MICE) facilities for hotels. Bahety said that convention or meetings tourism accounts for over 20 per cent of all international arrivals wor­ldwide.

The US and Europe domina­te this space, although several Asian cou­n­tries have successfully captured a growing portion of the MICE business in recent years. However, with the growth of science and technology-related industries such as biot­echnology and pharmaceuticals, where companies host large conferences; India needs to successfully replicate the model of Hyderabad Int­ernational Convention Centre by Novo­tel to tap the emerging MICE business opportunity.

Understanding the importance of MICE, BSE-listed Bhagawati Banquets and Hotels is coming up with a convention centre with more than 100,000-squ­are-feet of pillarless convention space, ba­llrooms, banquets, decorated conference rooms, manicured lawns, multi-cuisine restaurants and an elite club at its first five-star hotel in Gujarat.

Visa regime

The central government’s decision to off­er visa-on-arrival to some countries, including New Zealand, Japan, Lux­em­bourg, Singapore and Finland, will promote tourism. Himani Singh, hotel analyst, Elara Capital, forecasts better-than-expected performance of the Mu­m­bai market and an open offer by ITC could provide an upside movement for East India Hotels stocks.”

While for Hotel Leela, the Bangalore property and upcoming Delhi property could help the company to tide over its liquidity constraints, improving overall profit margins, she added.

Stock performance

Hotels stocks have given mixed returns this year, so far. Against a 3.81 per cent rise in the benchmark BSE Sensex, the stocks of Bhagwati Banquets, Oriental Hotels, TajGVK Hotels have jumped unevenly by 174.23 per cent, 24.44 per cent and 9.65 per cent, respectively.

Hotel Leelaventure gained 2.16 per cent. On the flip side, Suave Hotels, Asian Hotels and East India Hotels have dropped 37.10 per cent, 12.78 per cent and 7.97 per cent, respectively. Royal Orchid Hotel and Indian Hotels slipped 2.92 per cent and 2.16 per cent.

“Going forward, the upcoming Commonwealth Games (CWG) will definitely push up occupancy rates and APRU (average price per user) for the hoteliers. However, we are concerned about problem with euro zone nations. The CWG event may improve the sector’s performance in the short run, but the long-term scenario will only be clear when non-seasonal travellers will increase,” said Alex Mathew, head of research, Geojit BNP Paribas.

(With inputs from Amit Mudgill)