The Indian hospitality industry is expected to grow from $16.7 billion in 2008 to $-30.7 billion in 2013 at a CAGR of 12.9%. This Sector is highly fragmented with high number of unorganized players. In 2010, nearly 30% and 16% of the Indian Hotel and restaurants sector were in the organized sector.  This trend is however changing rapidly with entry of several international players such as InterContinental, Marriott, Starwood and Accor among others who are either forming alliances with local hotel chains or using the inorganic route to strengthen their presence in the country.

The important private equity transactions that have taken place in the hospitality Sector include Warburg Pincus’s $60 million investment in Lemon Tree Hotels, Credit Suisse’s $60 million investment in Park Hotels, KKR, Standard Chartered PE and New Silk Route’s $219 million investment in Coffee Day Resorts and Hotels among other deals. Notable M&A transactions, which have taken place in the sector, include acquisition of Plaza Hotel by Sahara Group for $ 600 million and Indian Hospitality Corp’s $350 million acquisition of Adelie Food Holdings Ltd among others.

Globally, weak macroeconomic scenario, the European sovereign debt crisis, geo-political turmoil in the Arab countries, high interest rates, inflation and a muted domestic corporate performance during the current fiscal year, have sapped the industry’s ability to sustain inflation adjusted average room realizations. We expect the heavy supply pipeline in markets such as NCR, Chennai, Hyderabad and Kolkata to pressure tariffs over the next two-three years.

We however remain optimistic on the long term growth story for the Indian hospitality industry. The Indian hospitality sector is expected to witness high growth over the long term. The next one or two years may be a phase of building before the high growth trajectory emerges.  Domestic travel is expected to be the primary driver of the sector’s growth. High disposable income and the advent of better locations are driving this growth. Business travel and MICE are expected to be the possible growth segments.  Evolution into a multi-location and multi-format player is emerging as the most preferred strategy for players in the sector. Maximum investments are expected to take place in the Tier I towns followed by the Tier II towns. Budget and mid-market segments have emerged as the most preferred investment categories.
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