Hotels [Key Points | Financial Year '09 | Prospects | Sector Do's and Dont's]

The travel and hospitality industry continues to be the sector, which has largely
profited from the fast growing economy of India. Though FY09 had been tough
year with tourist inflow declining by 4% YoY on account of economic slowdown
and terror attacks, it has grown at a CAGR of 13% in the past 5 years. Higher
GDP growth, rising income, demand supply mismatch and strong government
focus would continue to aid the industry.

India occupies forty-sixth position among the sixty tourist destinations in the world.
A flourishing economy helped boost demand for the industry. To encourage the
tourism sector, the government is planning to propose a conditional 10-year tax
holiday for all tourism projects in the country. Companies will enjoy full tax
exemption up to 50% of profits, but will qualify for tax benefits for the remaining
amount only if they re-invest it in tourism projects. The Centre and States are also
working out a PPP (Public-Private-Partnership) model to increase hotel capacity.
Efforts to diversify tourist attractions by offering new products such as wellness
tourism, medical tourism and golf tourism are expected to have a positive effect
on both foreign tourist arrivals and domestic tourism.

The five star hotel segment has grown the fastest during the last five years
clocking a CAGR of 12%. Further this segment can be divided into 3 sub-
segments namely Luxury, Business and Leisure. The growth in this segment
indicates the type of travelers coming into the country.

The Planning Commission's High Level Group on services sector has pegged the
room shortage in the country at 150,000 rooms by 2010, out of which more than
100,000 will be in the budget category. Not only the Indian hotel majors, but even
international players have lined up huge capex plans. Investments of US$ 11 bn
over the next 2 years are expected to be earmarked for the hotel industry in India.
Further, new segments like budget hotels, service apartments and management
contracts are witnessing increasing interest.