Indian hospitality market waiting to explode (Beijing has more hotels than the whole of India) - Asset light model the way forward

Asset light model seems to be the order of the day in different sectors. Hotel and hospitality sector is no exception. Be it large international or Indian star category hotel chains or mid-segment luxury or even budget hotels- the trend is to move away from building properties towards managing and operating them. Read On ..

"International chains are expanding faster than their Indian counterparts primarily because they only manage hotels. Large Indian hotel groups like Taj, Oberoi, ITC and The Leela- all had, for years, been focused on owning and operating their hotels. It is only in the recent times that Indian chains have started looking towards management contracts as a serious growth model, while international brands have been doing this globally since decades and in India, for at least a decade. Actually Indian hotel chains were forced to turn asset-light and realise the need to expand through management contracts, thanks to increasingly higher cost of land and growing levels of debt," said a senior hospitality sector analyst from one of the Big 4 consulting firms.

For instance, Nasdaq-listed Marriott International Inc, the world’s largest hotel chain headquartered in Maryland, US, has come up with a 281-key hotel with 50-unit services residency (called Vivara) in Kolkata, where the property has been developed by two leading realty players-Mani Group and Sattva group with a total capital outlay of Rs 1200 crore. The same group of developers are coming up with another 130-room property- Courtyard by Marriott in Siliguri.

Quite like Marriott, InterContinental Hotels Group (IHG), one of the world’s largest hotel chains, has also thrown open its first Holiday Inn hotel in eastern India recently. Again similar to Marriott, IHG had also teamed up with a leading local developer- Jain Group to put up its first hotel in eastern India. The group already has two more new properties in the pipeline- one at Durgapur and another at Siliguri- both in West Bengal and with the same Jain Group as the developer.

The French hospitality firm- AccorHotels has also adopted the asset light model to expand in India. For its Guwahati property, for instance, the French Hotel group has teamed up with the Assam-based SM JDB Estate Private Limited.

And now here is an instance of a fledgling hospitality management company, which is following the asset light model in a different way. The company, which started as India master franchisee of a popular US hotel brand and now moving more towards building its own brand and throwing up franchise opportunities down the line.

With its eyes on fresh PE (private equity) and VC (venture capital) funds, Cygnett Hotels & Resorts, a fast growing hotel brand with six sub-brands in six different categories, which has India master franchisee rights with ‘Red Lion Hotel Corporation’, the US hospitality group (which owns brands like Jameson Inn & Suites, ‘Jameson Inn’), is now up to promoting its own brand-Cygnett. Cygnett will increasingly become a stronger brand, says Sarbendra Sarkar, founder and managing director, Cygnett Hotels & Resorts. The company is in talks with several leading PE and VC funds. Sarkar says that once there is a fresh inflow of capital into the system, the company will also look at putting up one or two flagship, signature properties of its own, which, in turn, would help building and upscaling the brand further.

"Unlike the international or national bigger chains, who had first developed properties and are then getting into management contract for managing properties, we have not built any property. Right from the beginning we have been building our brand as a hospitality management company. And we think there is huge scope in this area as well," says Sarkar.

His company is already on the right track to open more than 103 hotels with over 5000 keys across 75 cities by 2020. That’s not all. It has already entered Nepal and moves are now afoot to foray into Bangladesh, Sri Lanka, Vietnam, Marrakesh (Morocco), middle-east.

And all these expansion plans through asset light model by bigger and relatively smaller chains are not without a reason. The demand for hotel rooms in India is expected to increase between 12 per cent and 15 per cent at least over the next few years, while supply will expand at a slower pace. The hotel occupancy rate across the country, on an average had crossed 60 per cent by 2016 - for the first time in five years - on the back of improved market sentiment. A rise in domestic travel and government initiatives such as Make in India, Digital India and the e-visa scheme are expected to drive demand for hotel rooms further.

According to a recent study by the leading global hotel consultancy firm HVS South Asia, India, at present, has 125,000 branded hotel rooms, which will expand to 155,000 by 2020 and currently almost 50 per cent of the rooms are under international brands and therefore there is enormous scope for homegrown brands to grow in this area, as well.

"The growth of the hospitality industry depends on the international tourists visiting the country. We are expecting that the foreign tourist arrivals will touch 10 million by 2017 and 15 million by 2020. There is requirement of 180,000 more hotel rooms in all categories by the end of 2020," says Tejinder Singh Walia, vice president, FHRAI and managing director, Hotel Walson.

India has only 103,000 hotel rooms in all categories compared to the Bangkok city which alone boasts of 125,000 rooms. As many as 7.7 million international tourists visited the country in 2014, the FHRAI study points out.

Putting together international tourists and domestic travelers, India is a hugely undersupplied market, according to a Deloitte report. Beijing, alone, interestingly, has more hotel rooms than whole of India. This is notwithstanding the fact that the costs of building such hotels in India are relatively modest and the costs of acquiring land per room are also low. "The number of domestic travellers in India has already reached nearly 563 million compared to inbound arrivals of five million passengers.The country's strong GDP growth would certainly mean more business travel and hotel stay," says a Deloitte report.

This certainly throws up great scope for mid-sized companies to get into this space.

- Debhotal Mukherjee (TradeBriefs Bureau) - 

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