Market Area Analysis and Financial Feasibility Study

Proposed Hotel Development Project

Vijayawada, India
 Table of Contents

Andhra Pradesh and Capital Region Overview

-‐Andhra Pradesh and AP Capital Region Overview
-‐Vijayawada Overview and Market Area Analysis
-‐Vijayawada Economic Profile
-‐Vijayawada Transport Linkages and ConnecPvity
-‐Key Infrastructure Development Projects
-‐Key Demand Drivers and Economic Development Zones
-‐Market SWOT Analysis

Project Site Analysis and Proposed Facili;es Plan

-‐Site LocaPon and Site Area Analysis
-‐Site Assessment & Development Strategy RecommendaPons
-‐Proposed Business Hotel – Concept Note & ValidaPon
-‐Area AllocaPon & Recommended FaciliPes Plan
-‐Recommended Branding OpPons and Branding Strategy
-‐CriPcal Path for Project Development

Compe;;ve Hotel Market Analysis

-‐CompePPve Hotel Market Profile
-‐CompePPve Hotel Market Performance
-‐Market Segment Mix
-‐New Proposed Supply and Market Supply Forecast
-‐ Market Demand and Supply Forecast
-‐ Market Occupancy and Rate Forecast

Proposed Hotel and Commercial Development

-‐Hotel Occupancy and Rate Forecast
-‐Proposed Hotel -‐10-‐Year ProjecPon of Income and Expenses
-‐Proposed Commercial Development – 10 Year ProjecPon of Income & Expenses
 Table of Contents

Development Cost Es;mates & Project Finance Details

-‐Proposed Hotel & Commercial Development -‐Project Development Cost EsPmates
-‐EsPmate of Total Project Cost & Project Finance Summary
-‐Project Work Schedule and Project Cost AllocaPons
-‐Means of Project Finance

Profitability Analysis and Key Performance Ra;os

-‐Project Profitability Analysis
-‐Key Performance RaPos
-‐Project and Equity IRR Analysis
-‐Investment Payback Analysis
-‐Cash Flow Statements
-‐Working Capital EsPmates
-‐Working Capital Loan Schedule
-‐Balance Sheet
Sec;on: 1

Andhra Pradesh and Capital

Region Overview
 Andhra Pradesh Overview

About Andhra Pradesh

The state of Andhra Pradesh (AP) is the newest state in India and is strategically located on the
country's southeastern coast. The state has the second longest coastline (972 kilometers) among all
the states of India, second only to Gujarat.

The state consPtutes two regions, Coastal Andhra and Rayalaseema, more oaen referred as
Seemandhra. Post bifurcaPon, the state is the eighth largest state in India and covers an area of
160,205 square kilometers.

As per 2011 census, the state is tenth largest by populaPon (4.93cr). The total populaPon consPtutes
70.4% of rural populaPon and 29.6% of urban populaPon.

Visakhapatnam is the largest city of the state and a commercial hub of the state followed by
Vijayawada. The towns of Guntur, Nellore, Kurnool, Kadapa, TirupaP, Rajahmundry, Kakinada, Ongole
and Eluru are also important centers for commerce, trade and manufacturing. The state also has one Andhra Pradesh
of India’s largest railway juncPons at Vijayawada and one of the largest seaports at Visakhapatnam.
.
 Andhra Pradesh Capital Region Overview

Thullur Proposed
Administra; ve
Capital Region
Vijayawada
Airport

About Andhra Pradesh Capital Region

As per AP ReorganizaPon Act 2014, the city of Hyderabad will remain

as a joint capital for 10 years for both Andhra Pradesh and Telangana.

The state government has noPfied the development of a new planned

riverfront Greenfield capital city covering Krishna and Guntur districts
to be developed under AP Capital Region Development Authority
(APCRDA).

The new state capital will encompass an area of 7,068 square

kilometers and will be developed within the districts of Vijayawada,
Guntur, Thullur and Mangalagiri (VGTM capital region). The size of
VGTM capital region will be almost as large as Hyderabad
Metropolitan Development Authority’s current jurisdicPon of 7,257
sq. km.

As per the preliminary plans, the administraPve capital for the new
state will be a river front development envisaged between
Uddandarayunipalem and Venkatapalem near Borupalem village in
close proximity to Thullur. The commercial capital region is envisaged
between Vijayawada, Guntur and Mangalagiri.
Proposed
Commercial
The master plan for the new capital region is done in conjuncPon with Guntur Mangalagiri
Capital Region
the Government of Singapore and the draa plan is expected to be
submijed by April 2015. Note:
The indicated areas earmarked for the proposed administra4ve and commercial capital regions are based on our
market research and are approxima4ons only. The master plan for the new capital region is yet to be formally
adopted and the proposed loca4ons could be subject to review and change.
 Andhra Pradesh Capital Region Overview

Vijayawada

The city if Vijaywada is located centrally in the heart of Coastal

Andhra. It is the most developed city in the state aaer
Visakhapatnam. The city is renowned as an educaPonal hub with
insPtuPons as the Dr. NTR University of Health Sciences, The School of
Planning and Architecture, the newly planned NaPonal InsPtute of
Design.

The city also serves as a vital transportaPon link for the enPre
Seemandhra region through its BRTS and railway networks, the
Vijaywada railway juncPon is regarded amongst the most important
juncPon in South Central Railway’s network.

The disadvantages for Vijaywada lie in the fact that it lacks the
availability of significant track of undeveloped urban spaces for sekng
up an integrated new capital township, and has lijle scope for
expansion due to the river Krishna flowing through the city, and low
hills surrounding it. Besides, agricultural land prices are high.
 Andhra Pradesh Capital Region Overview

Guntur

Guntur is located at a distance of approx. 40 kilometers from

Vijayawada. The city is the state’s third most populous and well
managed by its municipal corporaPon.

The district is the most industrialized in the region and is renowned

for its texPle mills, ginning mills, tobacco processing factories. The city
and its regions house major commercial centers with Cojon, Tobacco
and Chillies being some of the major commodiPes. The city hosts the
largest Asian market for Red Chillies and is also houses the
headquarters for the Indian Tobacco Board. Industries in Guntur
district include, but are not limited to texPle mills, Cement, Biotech
companies and FerPlizer manufacturing units.

To further the economic progress of the district, there is a Global

Spice Park and a TexPles Manufacturing hub being developed in the
district. Future commercial developments also include the
development of a 850-‐acre IT, Bio-‐tech and Knowledge Park to the
South West of Guntur city.

Government land, including degraded forestland, to the extent of

12,000 acres has been idenPfied and could, if necessary, be made
available for the development of VGTM capital region.
 Andhra Pradesh Capital Region Overview

Thullur

The village of Thullur is located at a distance of 27 kilometers, via the

AmravaP road, in the Guntur district of Andhra Pradesh. The
government of Andhra Pradesh has announced that the new capital of
Andhra Pradesh will be set up in this region of Guntur district. As per
the proposed provisional plans, along with Thullur another 14 villages
from Thullur mandal would be included in the new capital.

The town of Thullur is strategically located at a distance of just 4

kilometers from Krishna River is ideal for the proposed river front
capital. Also, the principle towns of Vijayawada and Guntur are the
nearest ciPes to Thullur. Once the proposed ring road is completed
the distances will be reduced to just 12 kilometers to Vijayawada city
and 20 kilometers from Guntur City.

The core administraPve capital region on the banks of the Krishna

river will include important government buildings like the Raj Bhavan,
the state secretariat, the state assembly and ministerial offices. The
development of the enPre Thullur town and all the villages within the
mandal will be under the jurisdicPon of Andhra Pradesh Capital
Region Development Authority (APCRDA). The APCRDA will handle all
key funcPons of development, including but not limited to master
planning, co-‐ordinaPon, project execuPon, financing and funding of
the capital city area for the new state capital.
 Andhra Pradesh Capital Region Overview

Mangalagiri

The town of Mangalgiri is located at a distance of 17 kilometers south-‐

west of Vijayawada en-‐route to Guntur city situated at a distance of 24
kilometers. Mangalgiri is located on NH-‐5 which is part of the Golden
Quadrilateral along the east coast connecPng Chennai and Kolkata.

Over the years the twin towns of Mangalgiri and Tadepalli have
developed as a satellite town of Vijayawada.

The Capital region master plan envisages the development of approx.

1,500 acres of land in Mangalgiri towards developments earmarked
towards the new state capital region.
Sec;on: 2

Vijayawada Overview and

Market Area Analysis
 Vijayawada Overview

About Vijayawada

The city if Vijaywada is located centrally in the heart of Coastal

Andhra. It is the most developed city in the state aaer
Visakhapatnam. The new state capital is to be located in close
proximity of Vijayawada. An effort to develop a bigger city connecPng
Vijayawada with nearby Guntur, Thullur, Mangalagiri towns through a
VGTM Development Authority is already in the master planning stage.

McKinsey has idenPfied the city as one of the “Global City of the
Future”. The city is a major trading and business center and is also
known as “The Business Capital of Andhra Pradesh”. It has been
awarded as cleanest city in the state of Andhra Pradesh by Ministry of
Urban Development.

GDP of Vijayawada for 2008 was esPmated at Rs55.26 billion. GDP of

Rs180 billion approx. in 2010, and is expected to increase to Rs1,020
billion by 2025.

The city is renowned as an educaPonal hub with insPtuPons as the Dr.

NTR University of Health Sciences, The School of Planning and
Architecture, the newly planned NaPonal InsPtute of Design. The
commercial and economic profile for the city consists Agriculture
Products, Food Processing, Automobile Body Building, Hardware
Manufacturing, TexPle, Consumer Goods and Small Scale Industries.
The city is also home to some of the most affluent farming
communiPes in India.

There is an operaPonal airport at Gannavaram near Vijayawada and

the presence of well networked rail and road infrastructure makes it a
key commercial and trading hub in South India.
Vijayawada Demographic Profile
Vijayawada Economic Profile

Vijayawada – Guntur Commercial Corridor

AP Administra;ve Capital Region

Mangalagiri

Kondapalli Industrial Area – Auto Nagar

 Vijayawada Transport Linkages and ConnecPvity

The air connecPvity to the city of Vijayawada is through the domesPc airport located at Gannavaram at a
distance of 18km from Vijayawada.
Air
At present, Air Costa, Spicejet and Air India operate daily flights and by the end of June 2015, Indigo and
GoAIr are also expected to commence operaPons to Vijaywada.

NH5 and NH9 traverse through the city of Vijayawada. NH5 is a part of the Golden Quadrilateral Project
undertaken by NaPonal Highways Authority of India.

Road The city of Vijayawada is the first city in South India to launch a Bus Rapid Transit system (BRTS). The BRTS
project has already been commissioned and is expected to be completed by 2018.

The Pandit Nehru Bus Terminal at Vijayawada is fourth largest and one of the busiest bus terminals in India.

The Vijayawada rail juncPon is the largest juncPon of the Southern Railways network with an A-‐1 status. It is
also the busiest train staPon, handling more than 320 trains, both passenger and freight trains, per day. The
Rail
rail network provides Vijayawada excellent connecPvity to various parts of India as there are a number of
Express and Super fast Trains that pass through the Vijayawada staPon.
 Key Infrastructure Development Projects

As part of AP capital region development plan there are plans to upgrade the capacity of the exisPng airport
at Gannavaram and convert it into a scheduled internaPonal airport. As part of the upgrade, there are plans
to widen the exisPng 7,500-‐feet-‐long runway to 10,500 feet to facilitate landing of internaPonal flights.
Project feasibility is already underway for construcPng a new terminal building with three aerodromes and
Air escalators for handling daily traffic of 500 domesPc and 200 internaPonal travellers. The airport requires an
addiPonal 470 acres of land to successfully implement the expansion plans. The government is proposing to
acquire 243 acres at Buddhavaram, 133 acres at Kesarapalli and 115 acres at Ajjampudi villages for airport
land expansion.

As part of AP capital region development 3 Ring Roads projects have been commissioned. Once completed
these three ring roads will connect the region within the new capital region. The inner ring road will cover a
distance of 45-‐50 kilometers, the Central ring road will cover a distance of 75-‐80 kilometers and the outer ring
road will cover a distance of 185-‐190 kilometers. Various parts of Vijayawada will be connected to the three
ring roads through radial roads within the city.

Plans are underway to construct a 184 kilometer Outer Ring Road from Gannavaram to AmravaP via Tenali
Road and Guntur. The Outer Ring Road will eventually provide direct connecPvity from the airport to the new
capital region.

There will be a new 4-‐lane highway constructed to connect Kurnool and Vijayawada. The exisPng highway
connecPng Hyderabad to Vijayawada will be upgraded to a 6-‐lane mega highway. Further, feasibility is
already underway to lay a new state highway to connect with NH5 from the Kanakadurga temple to
Chinnakakani.

Plans are underway to built a new bridge across river Krishna from AmaravaP to Kanchikacherla. The bridge
will eventually connect the to Gannavaram airport via Nunna. 6-‐lane roads between Seethanagar and
Amaravathi and Guntur to Amaravathi will also be developed as part of the project.

The Detailed Project Report (DPR) for the proposed Vijayawada Metro Rail is expected to completed by
March 2015. The network will have 23 Metro Rail staPons along the Bandar and Eluru roads. Eleven staPons
Rail each on Bandar and Eluru roads are being planned. The main staPon is planned near the Pandit Nehru Bus
StaPon (PNBS). In phase-‐I of the project, metro rail services would be available between the Siddhartha
Engineering College at Kanuru and the PNBS-‐railway staPon-‐Eluru Road-‐Ramavarappadu ring-‐Nidamanuru,
covering a distance of 26 km.
 Key Demand Drivers and Economic Development Zones

agriculture and food

processing industries,
including but not limited to
oil mills, rice mills, dal mills
and solvent extrac;on
plants

Manufacturing plants and

factories

Small and Medium

Industrial units, auto body
Key infrastructure fabrica;on and auto engine
projects, PPP projects and units
construc;on related
businesses

Tex;le mills, ginning mills, tobacco

Small and Medium
processing factories, Cement, Biotech
Industrial units, Tex;le
companies and Fer;lizer
mills, Ginning mills
manufacturing units.
 Key Demand Drivers and Economic Development Zones

The city of Vijayawada is dominated by a number of small and medium scale industries. The city has almost
2,500 small and medium scale industries and 9 large manufacturing plants. The industrial profile is
dominated by agriculture and food processing industries, including but not limited to oil mills, rice mills, dal
Vijayawada City mills and solvent extracPon plants. Other industries in close proximity to the city include automobile
industry, texPle mills and industries producing consumer goods.

Hotel demand through the commercial travel segment is predominantly driven by the various businesses,
factories and industry houses operaPng in Vijayawada city.

Guntur is located at a distance of approx. 40 kilometers from Vijayawada. The district is the most
industrialized in the region and is renowned for its texPle mills, ginning mills, tobacco processing factories.
The city and its regions house major commercial centers with Cojon, Tobacco and Chillies being some of the
major commodiPes.

Guntur City The city hosts the largest Asian market for Red Chillies and is also houses the headquarters for the Indian
Tobacco Board. Industries in Guntur district include, but are not limited to texPle mills, Cement, Biotech
companies and FerPlizer manufacturing units.

Guntur acts an important feeder market for hotels in Vijayawada due to lack of quality hotels within the city.
Commercial travellers on short business trips prefer to Guntur prefer to stay in Vijayawada and travel by
road. The proximity to the airport also acts as a catalyst for hotel demand.

There are two fully operaPonal industrial estates at Kondapalli and Patamata. Armed with excellent industrial
infrastructure and nodal road and rail connecPvity, the two industrial areas house numerous manufacturing
plants and factories. The Industrial Estate at Kondapalli covers an area of 439 acres and houses
Kondapalli Industrial approximately 620 industrial establishments.
Area
The Kondapalli and Patamata industrial areas act as an important feeder market for hotels located in
Vijayawada. The demand is for short and long stay industrial visits to the various manufacturing plants and
factories located at these industrial centres.
 Key Demand Drivers and Economic Development Zones

The Auto Nagar Industrial Estate covers and area of 340 acres and houses small and medium industrial units
involved in auto body fabricaPon and auto engines. The city also boasts of some other industrial areas like
Jawahar Auto Nagar the one near Kanuru. Hotel demand is predominantly driven by the various businesses, factories and
industry houses operaPng out of the Auto Nagar industrial area.

The new AP state capital region being currently planned will encompass an area of 7,068 square kilometers
and will be developed within the districts of Vijayawada, Guntur, Thullur and Mangalagiri (VGTM capital
region). The size of VGTM capital region will be almost as large as Hyderabad Metropolitan Development
Authority’s current jurisdicPon of 7,257 sq. km.

The core administraPve capital region on the banks of the Krishna river will include important government
buildings like the Raj Bhavan, the state secretariat, the state assembly and ministerial offices. The
AP Capital Region development of the enPre Thullur town and all the villages within the mandal will need to be undertaken. In
the next 10 years the development of AP capital region will be the biggest demand driver for hotels in
Vijayawada.

Key infrastructure projects, PPP projects and construcPon related businesses will drive the demand for
hotels and is expected to provide the necessary impetus to demand growth for hotels in Vijaywada over the
next 5 to 10 years.

As part of the AP capital region development, Government land, including degraded forestland, to the
extent of 12,000 acres has been idenPfied between Vijayawada and Guntur and could, if necessary, be made
available for the development of VGTM capital region.
Vijayawada Guntur
Mangalagiri Further, there is a Global Spice Park and a TexPles Manufacturing hub being developed in the Guntur
Commercial Zone district. Future commercial developments also include the development of a proposed 850-‐acre IT, Bio-‐tech
and Knowledge Park to the South West of Guntur city.

The town of Mangalgiri is located at a distance of 17 kilometers south-‐west of Vijayawada en-‐route to Guntur
city. The Capital region master plan envisages the development of approx. 1,500 acres of land in Mangalgiri
towards developments earmarked towards the new state capital region.
 Market SWOT Analysis

• Vijayawada region announced as the new capital region for Andhra Pradesh, soon to become an
Urban modern day Metropolis with a global audience
Strengths
• Government has a strong focus on development of infrastructure – ring roads / highways etc.,
connecPng the proposed site well to the airport and the Guntur region

• Lack of an internaPonal quality airport to face the new demand

• High real estate prices causing delay in ROCE / ROI of projects

Weaknesses
• Lack of Cosmopolitan culture – the need for a change in consumer aktude and buying behavior
not aligned with the developments in other urban markets across India

• Limited hotel brands in the market, thus proposed hotel can catch the upswing wave ajributed to
new capital development

OpportuniPes • The investment envisaged in the Guntur-‐Krishna district region will create new demand for F&B,
Conferencing and Commercial rentals

• The entrepreneurial classes from the Krishna-‐Guntur region relooking at Vijayawada as an

Investment desPnaPon – reverse capital flows into the region

• Abnormal rice in prices of real estate may discourage new entrants and slow down the expected
pace of overall growth
Threats
• Further increase in the cost of living will be a deterrent in overall development
Sec;on: 3

Project Site Analysis and

Proposed Facilities Plan
 Site LocaPon and Site Area Analysis

Site Loca;on Map

Site Overview
The site for the proposed hotel development measures approx. 29,997 square feet (3,333 sq yards) and allows for approx. 96,290 square feet of total builtup area. The
site is located on Pushpa Hotel Road, Governorpet at a distance of approx. 600 meters from Bandar Road / M G Road the Key Business district and the hub of all
business and commercial offices in Vijayawada. The locaPon of the site, which is just off Bandar road gives the project the advantage of being close to the KBD at the
same Pme provide exclusivity, away from the hustle bustle, which will be desirable in the future, as the growing developments will make MG Road the busiest area in
the city .
 Site Assessment – OrientaPon & Neighborhood

Loca;on Assessment Key Orienta;on Highlights

• The site is a rectangular land parcel measuring approx. 29,997 sq. feet with three side open access via
30 meter wide arterial roads.
Average
• The Southern and Western periphery of the site has an iconic Church of South India and the AP State
Guest House. This allows for prisPne open views to the church and the landscaped greens adjoining it.
Poor Excellent
• The Eastern periphery of the site has the Vijayawada collector’s office and the Railway’s club. To the
South East of the site is the Vijayawada Police Commissioner's office

• The Northern periphery of the site has hospitals and medical centres.
 Site Assessment – Accessibility and Visibility

Accessibility Assessment Key Accessibility Highlights

• The Site for the proposed development is a corner plot, with easy accessibility to the MG Road in the
Average south and the Eluru Road to the North, which are the two primary access roads in Vijayawada.

• The Site enjoys three side open access and is flanked by 30 meter wide direct arterial road access to
Poor Excellent MG Road via the Collector’s office road. The access to the Ellur Road is via 30 meter wide Dornakal
Road. The MG road is at a distance of 600 meters and the Ellur Road is 1.3 km from the site.

• The site enjoys prominent visibility due to low density government and insPtuPonal buildings on 3
sides. Its locaPon just off the very busy MG road also acts as a disPnct advantage.
 Proposed Business Hotel – Concept Note & ValidaPon

Concept Note

The project master plan envisages the development of a 120-‐room mid scale hotel with 2 restaurants, 1 bar and meePng/banquet capacity for
approx. 650 guests. The recommended development strategy also provides for inclusion of 20,000 sq. feet of Grade A commercial office space.
Prognosis Global ConsulPng is of the opinion that the proposed hotel should be developed to benchmark structural and service delivery
standards and should be managed by a reputed hotel management company. The site locaPon, its orientaPon, proximity to Key Demand Areas
within Vijayawada allows a unique opportunity to posiPon the project as a preferred mid scale hospitality desitnaPon, offering value for money
and effecPvely catering to accommodaPon demand from various businesses and companies based in and around Vijayawada.

Concept Valida;on

• Our market research indicates that the various market segments in the city currently generate a capPve demand of aaprox. 197,325 annual
room nights (541 RPDs), this demand is expected to rise to 779 RPDs in FY19 and will peak at 976 RPDs by FY22. These demand is serviced
primarily by the 6 hotels in the city. The city hotels overall product quality is sub opPmum with average service delivery standards. All the city
hotels are located on very buzy primary access roads. With the development of the Vijaywada metro rail they are likely to encounter major
impedements. A benchmark banded hotel in close proximity to companies located just off, but in close proximity to, the MG road and the
Ellur Road will greatly benefit these companies and will act as a strategic feeder market to the proposed hotel.

• The AP capital region development will provide the necessary impetus to demand from travellers outside of the city businesses, both from
domesPc as well as internaPonal feeder markets. The LoS is also expected to grow and there is likely to be need for serviced apartements to
cater to long stay demands due to lack of quality accommodaPon in close proximity to the place of work. We recommend that the proposed
development startegy for the hotel integrates key components to effecPvely cater to these latent demand in the market place.
 Proposed Business Hotel – Concept Note & ValidaPon

Concept Valida;on

• As the infrastructure development for the AP capital region gathers momentum establishment of regional offices for new companies in
Vijayawada will also increase. The increased demand for fully serviced Grade A commercial offices with plug and play faciliPes will provide a
unique opportunity for development of commercial office spaces. To effecPvely cater to this demand we have proposed the inclusion of
20,000 sq feet of commerical space within the hotel building.

• Based on our experience in the market, Prognosis is of the opinion that the number of choices for dining and entertainment in the desPnaPon
is very limited and the overall quality of food and service delivery at various restaurants within hotels is average. As part of the proposed
development startegy we have provided for inclusion of 2 restaurants and 1 bar at the hotel. We would like to highlight that the quality of
food at the hotel is extremely important for driving necessary patronage from the local community.

• The demand for non residenPal banquets for social events is extremely bouyant in Vijayawada. There are approx. 100 – 120 days of peak
demand for weddings and the average size of these events ranges between 400 – 600 guests. The demand for business meePngs and
residenPal conferences is also growing. Our development plan provides for inclusion of 7,000 sq feet of banquet and meePng spaces at the
hotel with provision for 1 pillarless Ball Room of 6,000 sq. feet that can be converted to 3 conferences rooms of 2,000 sq feet each. Further,
we have also recommended the development of 2 meePng rooms of 500 square feet to cater to smaller meePngs of 40-‐50 guests. It is
imperaPve that the banquets and meePngs faciliPes at the hotel are provided with independent entry and exit points and supported by
adequate service, storage and food producPon infrastucture.
Recommended FaciliPes Plan for Proposed Hotel
Summary of Key FaciliPes & Area AllocaPons
 Recommended FaciliPes Plan for Proposed Hotel

Note:

The Ancillary and Back-‐of-‐the-‐house area

allocaPon includes 13,200 sq. feet
towards development of F&B FaciliPes.
 CriPcal Path for Hotel Development

CriPcal Path for Hotel Key AcPviPes and ComplePon

Development Mile Stones Timelines

Concept ValidaPon, • Market Assessments and Trend Analysis

Feasibility and Financial April
• Entry Strategy and Product Development Benchmarking
Analysis 2015
• Project Feasibility and Financial Valida;on

Financial Closure for the • Project Equity Funding April

Project • Project Debt Syndica;on 2015

Branding • Brand Evalua;on and Branding Strategy Valida;on June

• Brand Selec;on and Management Contract Nego;a;ons 2015

Design and Development • Appointment of Architects, Facility Planners & Design Consultants Sept
• Appointment of Project Management Company and Design Finaliza;on 2015

• Key Project Approvals and Commencement of Construc;on Approval

ConstrucPon and Project • Prepara;on and Execu;on of Construc;ons Cri;cal Path Oct
Management 2015
• Monthly Project Review with PMC

Pre Opening and • Pre-‐Opening Support Services Cri;cal Path January

Commencement of
OperaPon • Opera;ons Management Cri;cal Path 2018
Sec;on: 4

Competitive Hotel Market

Analysis
 CompePPve Hotel Market Profile -‐Summary

Compe;;ve Hotel Market Overview

• In FY15, the overall compePPve hotel market has 26 hotels with a cumulaPve inventory of 1,757 rooms. There are 6 full service hotels in the market with a
cumulaPve inventory of 457 rooms.

• In terms of overall asset quality, service delivery and local preferences, the Quality Inn DV Manor Hotel is the best asset in the market, followed by the Gateway
Hotel. The Fortune Murali Park, Hotel Kay, Hotel Marg Krishnaya and Hotel Minerva Grand consPtute the other full service hotels.
 CompePPve Hotel Market Performance Summary

Hotel Market Performance Overview

• For FY15, the overall compePPve market, with a cumulaPve

inventory of 1,757 rooms, witnessed an occupancy of 73.0% with
an ARR of Rs2,331 resulPng in a RevPAR of Rs1,710

• For the primary compePPve hotels, with a cumulaPve inventory of

317 rooms, the FY15 occupancy was recorded at 71.0% with an
ARR of Rs3,135 resulPng in a RevPAR of Rs2,222

• In FY15, the secondary compePPve hotels, with a cumulaPve

inventory of 140 rooms, recorded an occupancy of 76.0% with an
ARR of Rs2,636 and a RevPAR of Rs2,003

• The terPary compePPve hotels comprise of a cumulaPve inventory

base of 1,300 rooms. For FY15, the terPary compePPon recorded
an occupancy of 75.0% with an ARR of Rs1,500 resulPng in a
RevPAR of Rs1,125
 CompePPve Hotel Market Performance, FY13 – FY15

Compe;;ve Performance Review

• The Vijayawada hotel market has witnessed an impressive growth both in terms of occupancy and ARR performance over a 3 year period from FY13 to FY15. The
market wide occupancy grew from 63.0% in FY13 to 73.0% is FY15. The ARRs for the market increased from Rs1,694 in FY13 to Rs2,331 is FY15. The growth
momentum, both in terms of occupancy and ARRs, has been lead by the 3 branded hotels in the market over the last 6 months. The RevPAR performance for the
market has improved from Rs1,061 to Rs1,710 between FY13 and FY15.

• Within the branded hotels, the Fortune Murali Park witnessed the highest occupancy of 73.0% for FY15. In terms of ARRs, the Gateway Hotel was the leader with
Rs3,400 for FY15. The overall RevPAR leader for the market, for FY15, was again the Gateway hotel with a RevPAR of Rs2,380.
 Market SegmentaPon – Market Segment ComposiPon

Market Segmenta;on Overview

• The Commercial FIT segment, comprising of business travellers from

the key feeder markets of Vijayawada, Hyderabad, Chennai and
Bangalore, consPtutes the largest segment with 72.0% in FY15.

• For FY15, the Government and PSU segment consPtutes the second
largest segment with a share of 12.0%. Owing to the announcement of
new state capital, in the last 12 to 18 months the market has witnessed
a robust growth in travel from this segment.

• The NGOs & Missionaries segment comprise of the internaPonal

travellers travelling to the neighboring areas of Vijaywada on acPviPes
related to the Church and other religious organizaPons. In FY15, this
segment consPtuted 5.0% of the overall demand.

• The Leisure groups segment, which consPtuted 6.0% of the demand is

FY15 comprises mainly of domesPc travellers visiPng the renowned
Kanaka Durga temple as part of pilgrimage tours of South Indian
temples from West Bengal, Maharashtra and Gujarat.

• For FY15, the long Stay segment contributed 5.0% of the overall
demand base. The long stay segment comprises of both domesPc and
internaPonal travelers who spend extended Pme in the market to set-‐
up key projects in collaboraPon with local businesses
 Market SegmentaPon – Market Segment Growth & Room Nights Forecast

Market Segment Growth

• In terms of room nights contribuPon over the last 3 years (FY13-‐FY15), the commercial FIT segment has been the largest demand contributor for the market. In FY15,
the demand from the segment witnessed a marginal drop of 3.0%. This was partly due to significantly improved air connecPvity from Delhi and introducPon of new
trains into the city making day travel convenient. Over the next few years we expect this segment to witness robust growth once the capital region master plan and
other key government policies are finalized. For FY16 and FY17, we have forecasted the segment to grow at 7.0% and 12.0% YoY followed by a 10.0% growth forecast
for FY18. For FY19 and FY20, we have esPmated a 9.0% YoY growth. For FY21 and FY22 we have forecasted an annual growth rate of 8.0% prior to a 7.0% stabilized
growth for the segment starPng FY23. The NGOs and Missionaries segment’s demand is unlikely to exhibit any significant variability and expected to exhibit a stable
5.0% growth effecPve FY16.

• For FY15, the highest demand growth was witnessed in the Government and PSUs segment (152.0%) wherein the demand increased from 9,380 room nights in FY14
to 23,679 room nights in FY15. Our analysis of historical demand pajerns and market forecast esPmates indicate that there would be significant raPonalizaPon in
absolute demand growth rates from this segment as it is likely to grow on a significantly higher base. For FY16 and FY17, we have forecasted the segment to grow at
12.0% and 10.0% YoY followed by a 9.0% growth forecast for FY18. For FY19 and FY20, we have esPmated a 5.0% YoY growth prior to a 4.0% stabilized growth for the
segment starPng FY21.

• For the Leisure Group’s segment, in FY16 and FY17, we have forecasted the segment to grow at 18.0% and 14.0% YoY followed by a 12.0% growth forecast for FY18.
For FY19 and FY20, we have esPmated a 11.0% YoY growth, prior to a 9.0% stabilized growth for the segment starPng FY21. For the Long Stay segment, in FY16 and
FY17, we have forecasted the segment to grow at 9.0% and 15.0% YoY followed by a 12.0% growth forecast for FY18. For FY19 and FY20, we have esPmated a 9.0%
YoY growth, prior to a 7.0% stabilized growth for the segment starPng FY21. The growth driver for the Leisure segment will be improved air and rail connecPvity,
while for the long stay segment the catalyst will be the development of new businesses and key infrastructure projects in the capital region.
 New Proposed Developments and Market Supply Forecast

New Developments & Market Supply Forecast

• For a 3 year period between FY 13 and FY15, the weighted inventory

market supply stood constant at 737 rooms.

• Over the next 3 years (FY16 – FY18), 6 new hotel project with a
weighted inventory of 371 rooms will be added to the exisPng supply
taking the cumulaPve weighted inventory to 933 rooms.

• For the period FY19 to FY21, 5 new hotel projects are expected to be
made operaPonal. These 5 new hotel projects will result in an
addiPonal weighted inventory of 285 rooms, taking the cumulaPve
weighted inventory in the market to 1,343 rooms by FY21.

• In the above esPmates of new developments and market supply

forecast, we have provided for addiPon of 3 proposed unknown hotels.
The same has been done to provide stability to the market occupancy
forecast calculaPons over the long term period.
 Market Demand, Supply and ARR Forecast

Market Demand, Supply and ARR Forecast Overview

• Based on the preceding analysis of demand and supply dynamics in the market
and segment level growth esPmates, the uncapped market occupancy for
FY16, FY17 and FY18 is forecasted at 76.4%, 78.5% and 77.0%, respecPvely.

• In FY19, FY20 and FY21 the market wide occupancy is forecasted at 63.5%,
65.4% and 67.6%, respecPvely. The drop in occupancy is due to increased
supply, however the base demand growth conPnues to be posiPve. StarPng
FY22 we have stabilized the long term occupancy at 67.6%.

• In terms of ARR, we have forecasted at 10.0% growth for FY16, followed by a

15.0% YoY growth for FY17 and FY18. For FY19, a 10.0% ARR growth is
forecasted. The rate raPonalizaPon process for the market will commence
starPng FY20 and post raPonalizaPon, we expect the long term stabilized ARR
growth at 8.0%, which is likely to be inflaPon neutral.
Sec;on: 5

Proposed Hotel – Occupancy

and Rate Forecast
 Hotel Occupancy and Average Room Rate EsPmates

Hotel Occupancy and ARR Es;ma;on

• Based on the preceding forecasted market occupancies, as determined by the market demand
and the expected increase in supply dynamics, we have derived the forecasts for the subject
hotel’s occupancy based on Market PenetraPon Index (MPI). In FY19, the subject hotels MPI is
esPmated at 85.0% resulPng in an occupancy of 53.9%. In FY20 and FY21 ( based on esPmated
MPI of 95.0% and 100.0% for the corresponding periods) the occupancy for the hotel is
forecasted at 62.1% and 67.6%, respecPvely. The hotel is forecasted to stabilize its occupancy
from year 4 of operaPon at 69.0% with a MPI of 102.0%.

• The forecasted ARR for the subject hotel is derived using ARR PenetraPon Index (API). In FY19,
the subject hotels API is esPmated at 90.0% resulPng in an ARR of Rs3,357. In FY20 and FY21
(based on esPmated API of 95.0% and 110.0% for the corresponding periods) the ARR for the
hotel is forecasted at Rs3,863 and Rs4,831, respecPvely. The hotel is forecasted to stabilize its
ARR from year 4 of operaPon at Rs5,454 with a API of 115.0%. Post stabilizaPon, the ARR for
the subject hotel is expected to move in line with forecasted market wide ARRs.
Sec;on: 6

Proposed Hotel – 10 Year

Profit & Loss Forecast
 Food & Beverage Revenue CalculaPons & 10 – Year Forecast

F&B Revenue Calcula;ons and 10-‐Year Forecast

• Key forecasts on Outlet Occupancy, Annual Covers and EsPmated APCs for the first year of operaPon are provided in the table above. Based on our analysis the
average outlet occupancy for the proposed F&B faciliPes at the hotel is expected to average at 21.8% resulPng in 1,69,178 average annual covers. The average APC is
esPmated at Rs434. In the long term the F&B revenues are expected to grow at 8.0% annually.

• During the first year of operaPon (FY19) the F&B operaPons at the hotel are likely to deliver annual revenues of Rs7.34 Cr. In FY22, the stabilized year of operaPon,
the total revenue contribuPon from F&B operaPons is esPmated at Rs9.24 Cr.
 10 – Year ProjecPon of Income & Expenses -‐AssumpPons

• Rooms Revenue is calculated as Annual Total Room Nights Occupied X Annual Forecast Average Room Rate based on subject hotel’s potenPal MPI and API as
provided in the preceding slides

• F&B Revenues have been esPmated based on the workings provided in “Food & Beverage Revenue Forecast”.

• Other Minor OperaPng Department (MOD) Revenues include revenues from usage of Laundry, Internet Services and other incidentals at the hotel. The MOD
revenues for the purpose of this forecast has been esPmated at Rs250 Per Occupied Room (POR). Rental and Other Income have been esPmated at Rs50 Per
Available Room.

• Rooms Departmental Expenses have been esPmated at 20.0% of Gross Rooms Revenue in year 1 and 16.0% in year 2 of operaPon. Rooms Departmental Expenses
are forecasted to stabilize at 14.0% of Gross Rooms Revenue from year 3 of operaPons.

• F&B Departmental Expenses are esPmated at 48% of F&B Revenues in year 1 and year 2 of operaPon. The F&B departmental expenses for year 3 of operaPon are
esPmated at 46.0%. From year 4 of operaPon these expenses are expected to stabilize at 45.0% of F&B revenues.
 10 – Year ProjecPon of Income & Expenses -‐AssumpPons

• Departmental Expenses for MOD are esPmated at 22.0% of MOD revenues for year 1 and year 2 of operaPon. In year 2 of operaPon the expenses are
esPmated at 21.0%. The departmental expenses are forecasted to stabilize at 20.0% from year 4 of operaPon.

• Expenses for Rental and Other Income are esPmated at at 22.0% of rental income for year 1 and year 2 of operaPon. In year 2 of operaPon the expenses are
esPmated at 21.0%. The expenses related to rental income are forecasted to stabilize at 20.0% from year 4 of operaPon.

• Admin. & General Expenses have been esPmated at 16.0% of Total Gross Revenue in year 1. In year 2 and year 3 of operaPon the expenses are forecasted at
14.0%. Admin. & General Expenses are expected to stabilize at 12.0% from year 4 of operaPons.

• Sales and MarkePng related expenses are esPmated at 2.0% of Total Gross Revenues from year 1 of operaPon.

• Property OperaPons & Maintenance Expenses are esPmated at 6.0% of Total Gross Revenues from year 1 and will increase to 7.0% and 8.0% in year 2 and
year 3, respecPvely. The Property operaPons and maintenance expenses are forecasted to stabilize from year 4 of operaPon at 10% of Gross Total Revenues.

• UPliPes and Energy Costs are esPmated at 17.0% of Total Gross Revenues for year 1 and 16.0% in year 2 of operaPon, respecPvely. UPliPes and Energy Costs
are esPmated at 15% in year 3 and expected to stabilize at 14.0% of total gross revenues from year 4 of operaPons.

• Brand MarkePng Fees are esPmated at 2% of Total Gross Revenues from year 1. Brand Management Fees are esPmated at 1.5% of Total Gross Revenues in
year 1 and 2.0% in year 2 of operaPon. For year 3 of operaPon, the brand management fees are forecasted at 2.5%. The management fees are esPmated to
stabilize at 3.0% of Total Gross Revenues from year 4 of operaPon.

• IncenPve Fees are esPmated at 4.0% of GOP for year 1 and year 2 of operaPon. In year 3 the incenPve fees are esPmated at 5.0% before they stabilize at 6.0%
of GOP from year 4 of operaPons.

• Property Taxes and Insurance are esPmated at 0.5% each of Total Gross Revenues from year 1 of operaPon.

• Provision for FF&E Reserve Account are esPmated at 1.0% of Total Gross Revenues in year 1 and at 2.0% in year 2 before stabilizing at 3% from year 3
onwards.

In the subsequent slides we have provided the detailed 10 – year projecPon of income and expenses for the subject hotel in terms of Actual Values, Percentage
Values, Per Occupied Room (POR) Values and Per Available Room (PAR) Values. The projecPon of income and expenses for the subject hotel is based on the
accounPng rules defined under the 10th ediPon of uniform system of accounPng for hotels and lodging industry.

The 4th year of operaPon (FY22) is expected to be the stabilized year of operaPon for the subject hotel. All Key revenue and expenses derivaPon prior to stabilizaPon
are based on benchmarks defined above. Post stabilizaPon, the revenues and expenses for the subject hotel are expected to move in line with general inflaPonary
trends in the market, which for the purpose of our analysis is esPmated at 8.0%
10 – Yr. ProjecPon of Income & Expenses – Actual Values
10 – Yr. ProjecPon of Income & Expenses – Actual and Percent Values (Year 1 to 5)
10 – Yr. ProjecPon of Income & Expenses – Actual and Percent Values (Year 6 to 10)
10 – Yr. ProjecPon of Income & Expenses – POR and PAR Values (Year 1 to 5)
10 – Yr. ProjecPon of Income & Expenses – POR and PAR Values (Year 6 to 10)
Sec;on: 7

Proposed Commercial
Development – 10 Year Profit
& Loss Forecast
Proposed Commercial Development – 10 Year ProjecPon of Income & Expenses
Sec;on: 8

Development Cost Estimates

& Project Finance Details
 Proposed Hotel -‐Project Development Cost EsPmates

The total project cost for the proposed 120 unit hotel is esPmated at Rs55.51 Cr at an average of Rs46.26 Lac per room. Of the overall esPmated project cost
Rs19.44 Cr is towards Building Cost, Rs26.4 Cr towards Furniture, Fixtures and Equipment. An addiPonal Rs9.67 Cr is esPmated for other project related costs and for
provision of conPngencies and liabiliPes
 Proposed Commercial Development -‐Project Development Cost EsPmates

The total project cost for the proposed commercial development is esPmated at Rs7.58 Cr at an average of Rs3,792 per sq. feet. Of the overall esPmated project
cost Rs4.0 Cr is towards Building Cost, Rs2.4 Cr towards Furniture, Fixtures and Equipment. An addiPonal Rs1.18 Cr is esPmated for other project related costs and
for provision of conPngencies and liabiliPes
 EsPmate of Total Project Cost & Project Finance Summary

The total project cost for the proposed hotel and the commercial development is esPmated at Rs63.07 Cr at an average of Rs6,574 per sq. feet. Of the overall
esPmated project cost Rs23.44 Cr is towards Building Cost, Rs28.8 Cr towards Furniture, Fixtures and Equipment. An addiPonal Rs10.83 Cr is esPmated for other
project related costs and for provision of conPngencies and liabiliPes.

The project will be financed using 70.0% bank debt and 30.0% as Promoter’s contribuPon towards total project cost. The land earmarked for project will treated as
the iniPal equity and security for the purpose of project financing.
 Project Work Schedule

The commencement on the project construcPon is esPmated to begin by April 2016 and is expected to take 24 months for full project execuPon. The proposed
project is expected to commence operaPons by April 2018, The above schedule provides quarterly details on the project complePon and execuPon as it relates to
Infrastructure and civil works and also the procurement and installaPon of Furniture, Equipment and Machinery.
 Project Cost AllocaPons – Project ComplePon Schedule

The above schedule provides quarterly details on the value of project complePon and execuPon as it relates to Infrastructure and civil works and also the
procurement and installaPon of Furniture, Equipment and Machinery.
 Project Cost AllocaPons – Hard & Soa Cost AllocaPons

The above schedule provides quarterly details on the value of project complePon and execuPon as it relates to Tangible Assets (Hard Costs) and Intangible Assets
(Soa Costs)
 Means of Project Finance

The above schedule provides quarterly details on the means of financing in terms of Equity and Debt for the project
Sec;on: 9

Profitability Analysis and Key

Performance Ratios
 Project Profitability Analysis

The above schedule provides 10 Year revenue and profitability projecPons including Cash OperaPng Profit (EBITDA), OperaPng Income (EBIT), Profit Before Tax
(PBT), Profit Aaer Tax (PAT) and the Cash Profit for the operaPng business.

Over a 10-‐year period the project is expected to generate Revenues of Rs296.67 Cr from Hotel operaPons and Rs31.62 Cr from Commercial OperaPons resulPng in
combined Cash OperaPng Income (EBITDA) of Rs111.92 Cr. The expected Cash Profit for the business is forecasted at Rs71.99 Cr
 Key Performance RaPos

The above schedule provides Key Performance RaPos for the project for a 10 year period. The Key Performance RaPo clusters include OperaPng Margin RaPos,
Return on Capital Employed (ROCE), Return on Equity (ROE) and key Leverage RaPos.
 Project & Equity IRR Analysis

The Proposed Business Hotel Development project, based on the projecPon of Income & Expenses provided earlier, is likely to yield a Project IRR of 23.3% and an
Equity IRR of 64.2%.

Both the Project IRR and Equity IRR for the project are significantly bejer than accepted investment thresholds as they relate to hotel development projects in India.

Based on the market area potenPal, the project profitability analysis and the Project IRRs, Prognosis Global ConsulPng considers the development of the proposed
business hotel in Vijayawada feasible.
 Investment Payback Analysis

The Proposed Business Hotel Development project, based on the projecPon of Free Cash Flow to the Firm, achieves a total investment breakeven in year 7 of
business operaPons.
Sec;on 10

Cash Flow Statement,

Working Capital & Balance
Sheet
Annual Debt Schedule
EsPmates of Working Capital Requirement
Working Capital Loan Schedule
Consolidated Balance Sheet
Consolidated Cash Flow Statement