The Indian hotel industry is slated to see much action in the coming years with a number of prominent international chains readying to make themselves comfortable on Indian soil. The more prominent ones include Mariott, Radisson, Ritz Carlton etc.

There is of course the problem of paucity of land, but global hotel chains are tying up with real estate companies to overcome this initial barrier. Most of these chains are in the process of setting up operations in India primarily through management contracts with existing players.

However despite this scenario, the hotel industry presents a good opportunity for growth as the demand for rooms is expected to exceed supply in the short to medium term, says a study by the Credit Rating Information Services of India (Crisil).

The traffic to the metropolitan cities is expected to be primarily due to business, while in non-metropolitan destinations a major percentage of clientele are likely to be tourists.

There is currently a substantial supply-demand gap in the five metropolitan cities of New Delhi, Mumbai, Madras, Calcutta & Bangalore. Crisil estimates that business traffic will grow at 15 per annum until 2000. Based on additions expected in these five cities, supply is expected to to grow at the rate of 8.8 per cent per annum thus widening the demand supply gap further in the medium term, the study says. In the tourist destinations, there exists at present a marginal supply-demand gap.

Based on the expected additions in the tourist destinations, supply is expected to grow at 9 per cent per annum while Crisil expectstourist traffic to grow at about six per cent per annum.

Besides these additions in the luxury segment, additions in the budget segment are also expected to result in more rooms being available to the leisure tourist in these destinations. So the present supply-demand situation is expected to ease in the tourist destinations. Crisil estimates the demand-supply gap to be matched in Udaipur while there is likely to be a situation of over supply in Hyderabad, Agra & Goa. Overall the traffic is estimated to grow at nine per cent.

Outlook for the industry: The demand for luxury hotel rooms in the metropolitan cities is expected to come mainly from business travellers. Coupled with the non-availability of land, this is expected to result in a substantial demand-supply gap. In the short term no major additions are expected as most of the expansions in the industry are slated to be operational towards the end of the century.

Supply in the five metros are expected to grow at a compound annual growth rate of 8.8 per cent per annum till 2000. Chain hotel companies are expected to dominate the hotel industry. In the metros, the average room realisations are expected to grow at 15-20 per cent in the medium term. The occupancy rates of existing players are also expected to be high in the medium term.

The overall profitability of major hotel companies is expected to be strong due to higher ARRs, sustained high occupancy levels as also because these hotels have the advantage of depreciated properties.

This combined with the depreciating rupee will ensure a strong performance of hotel companies.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.