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•   After witnessing good times for 3 years, the hotel sector had
                                                                       KEY POINTS
    a tough 2008 due to the global economic slowdown and terror
    attacks. The travel & tourism growth in 2008 slowed down to        Supply: Supply is catching pace. Metros will witness an
    just 1%. The global economic downturn impacted the Indian          oversupply situation after four to five years.
    tourism and hospitality industry which saw a decline in the        Demand: Largely depends on business travelers but tourist
    foreign tourist arrivals to India from 5.27 m in FY08 to 5.13 m    traffic is also on the rise. Demand normally spurts in the peak
    in FY09, thereby resulting in a decrease of 3%.                    season between November and March.
•   India occupies the forty-sixth position among the sixty tourist    Barriers to entry: High capital costs, poor infrastructure
    destinations in the world. To encourage the tourism sector,        facilities and scarcity of land especially in the metros.
    the government in recent times, has taken some measures
    which will benefit the sector. In FY09, Rs 5.2 bn for              Bargaining power of suppliers: Limited due to higher
    development of tourism infrastructure was allocated. This          competition, especially in the metros.
    figure is higher by Rs 970 m as compared what was allocated        Bargaining power of customers: Higher in metro cities due to
    in the previous year. However, it is only 1% of the total          increasing room supply.
    government spending. RBI has allowed ECB upto US$ 100 m in
                                                                       Competition: Intense in metro cities, slowly picking up in
    January 2009, which would help in raising funds. The Centre
                                                                       secondary cities. Competition has picked up due to the entry
    and States are also working out a PPP (Public-Private-
                                                                       of foreign hotel chains.
    Partnership) model to increase hotel capacity.
•  2009 is to be observed as the 'Visit India Year'. The concept is     CURRENT SCENARIO AND PROSPECTS
   that those who visit India in 2009 would thereafter experience
   India's rural tourism, eco tourism, adventure tourism, wellness • The outlook for the sector does not look very promising this
   tourism in specially worked out packages in 2010 and                  year. For the next year, the industry expects to see a muted
   2011.These are expected to have a positive effect on both             growth of 0.3%. The hotel players may witness a RevPAR fall
   foreign tourist arrivals and domestic tourism. The segment            of 10% to 15% during the year. In India, the economic slowdown
   can be divided into 3 sub-segments namely Luxury, Business            and the terrorist attack in Mumbai are likely to impact both
   and Leisure. The growth in this segment indicates the type of         business and leisure travel in 2009. CRISIL Research expects
   travelers coming into the country.                                    the profitability of premium hotels to be impacted due to a
                                                                         sharp decline in occupancy rates and room rates. It expects
 FY09                                                                    demand to decline by 15.5% YoY in FY10. This is likely to
                                                                         affect the profitability of the sector.
• The sector began the year FY09 on a strong note. Rising tourist
                                                                      • The cash crunch may lead to a stop or delay in the completion
   inflow, higher occupancy and room rates continued to benefit
                                                                         of projects as well as a revision of the project expenditure.
   the hotel players. In the first four months of the year, the
                                                                         As per KPMG, only 60% of hotel projects announced in key
   tourist arrivals were higher by 11.7% YoY. Existing hotel
                                                                         metros are operational as per schedule. Developers have also
   companies, new foreign players and real estate players
                                                                         diverted their plans in favour of commercial or residential
   continued with their expansion plans. Prospects were looking
                                                                         buildings due to liquidity crunch and higher land prices leading
   good, until the sector faced a double blow.
                                                                         to a longer breakeven period. Considering all these factors,
• The worst financial crisis in many decades, high oil prices and        industry estimates that just over half of the planned 0.1 m
   a slew of militant attacks hit the hotel industry. When the Indian    new rooms will finally be built. Hence, considering the demand
   tourism and hotel industry had just started gaining recognition       supply mismatch, the new room additions will not create an
   worldwide, it was hit by a double whammy. The first being the         overhang. Thus, we believe that the existing players would
   global credit crisis and the second, the terror attacks on the        benefit from the continued demand-supply mismatch once the
   iconic hospitality landmarks; the 'Taj Mahal Palace and Tower         economy revives.
   Hotel' and the 'Oberoi Trident'.
                                                                      • Further, with events like the Commonwealth Games planned in
• During FY09, lower corporate spending, fluctuating dollar and          Delhi in 2010, the hotel industry will benefit. While the long
   the credit crisis did impact occupancy rates in some cities like      term fundamentals remain strong, the sector is highly
   Bangalore, Pune, Hyderabad and Chennai. The room rates                dependent on external factors which could possibly mar its
   however, remained high. While during 2007, a 16% YoY growth           performance.
   was seen in tourist arrivals during the first 8 months, the
   same stood at 10% YoY in 2008, due to the slowdown.
   According to the Ministry of Tourism, October 2008 saw an
   increase of just 1.8% in the number of foreign tourist arrivals
   compared to the same time in 2007.
•   With the terror strikes (26/11) during the onset of the peak
    season, things got murkier. This prompted the Indian
    government to ask hotels to slash their prices in the hope of
    keeping demand stable. This coupled with cost pressures,
    liquidity crisis and regulations concerning the real estate
    sector made funding for hotel projects difficult. The
    unrealistically high land prices and government red tapism also
    resulted in hotel projects taking longer to fructify. The hotel
    companies faced cash flow pressure, thereby affecting their
    expansion plans. The balance sheets of the hotel companies
    were under stress on account of acquisitions of land banks
    and rising debt levels.

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