This sector has become hospitable for investors seeking steady returns

By DK Aggarwal
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Indian tourism and hospitality industry, which accounts for around 6.23 per cent of the national GDP and 8.78 per cent of total employment, has emerged as one of the key industries driving growth of the services sector and, thereby, the Indian economy.

The industry is at the cusp of an upcycle and Indian hotel companies are at the forefront to capitalise on the robust industry dynamics on the back of strong brand and unique value proposition. Actually continuous transformation has enhanced the industry, making it on par with global standards, especially in the luxury segment.

Medical tourism is also witnessing a huge growth in India due to low costs of important medical procedures, compared with major economies such as the US or the UK. The industry has also seen a significant growth in room inventory across various categories from upscale luxury to limited services, as well as boutique and budget hotels.

The growth of the hotel industry has always been linked to the prospects of the tourism industry, which is a prime demand driver of the industry. The tourism sector can be called as a sunrise industry, an employment generator, a significant source of foreign exchange for the country. The hotel industry has recorded healthy growth fuelled by robust inflow of foreign tourists as well as increased tourist movement within the country.

Recent data showed foreign tourist arrivals (FTAs) have increased 6.7 per cent to 74.74 lakh in January-September 2018, in addition to the strong growth of 13.7 per cent to 70.03 lakh recorded in January-September 2017. Total foreign tourist arrivals in India in 2017 stood at 10.18 million, up 15.6 per cent over that in 2016. The issuance of ‘e-tourist visa’ has supported the hotel segment as well.

The increase of e-tourist visas by 35 per cent to 1.59 lakh in September 2018 from 1.18 lakh in September 2017 indicates that the footfall will continue to increase going forward. At home, air traffic has been growing at 20.1 per cent year-on-year due to affordable fares and rising personal income in the 2018 calendar year. With the increase in tourism with rising foreign and domestic tourists, hotel sector is poised to grow.

The growing demand and limited supply has led to a significant increase in occupancy as well as rates. To note, the growing demand and supply constraints have pushed occupancy above 67 per cent. In the first half of the CY2018, market-wide occupancy, ADR and RevPAR were at 65.9 per cent, Rs 5,868 and Rs 3,868 respectively. The movement was positive, across all three parameters. Going forward, the demand growth in the hotel sector is anticipated at 12.5 per cent, while supply is estimated to grow at 8 per cent during FY 2018-21, which is leading to higher occupancies for the industry.

Higher travel and tourism boosts occupancy rates. Improving occupancy is leading to higher average revenue per room, which directly impacts profitability of the hotel companies. India being the seventh largest country in the world and home to 37 world heritage sites, it has a huge potential to scale up its ranking on the World Economic Forum’s travel and tourism competitiveness index, where it is currently ranked at 40.

Seeing the vast potential of the industry, international hotel chains are increasing their presence in India and there is an expectation that International hotel chains will account for around 47 per cent share in the Tourism & Hospitality sector of India by 2020 and 50 per cent by 2022.

Going forward, the prospect of the Indian hospitality business continues to be positive, both for the business and leisure segments. And the industry is expected to witness robust growth in the coming years led by higher occupancy, limited capacity addition and a rise in spending by domestic travellers.

The sector has the potential for growth on the back of increases in disposable incomes, increase in foreign tourist arrivals, impetus from government-led initiatives, and the growing middle-class population. Besides, the industry will get a boost from strong travel facilitation policies, sustainable and proactive planning and improving infrastructure. EIH, IHCL, Lemon Tree, Cox and King, Mahindra Holidays are some of the stocks that are expected to see good returns going forward.

Source: Economic Times