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Industry Sheet - Indian Hotel Industry - As on 5 February 2021

VALUE PROPOSITION

Customer Segments

Customer Segments for Hotel Sector –
1. On the basis of origin – Domestic Travelers and Foreign Travelers.
2. On the basis of Purpose – Business travelers, Leisure travelers, Airline Cabin Crew, Wedding and Social Travel and Diplomatic Travel

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Products and Services

Major Products and Services offered by Hotel industry are-
1. Accommodation
2. Food & Beverages
3. Banquets
4. Amenities like Swimming Pool, Club House, Gaming and so on.
5. Loyalty Programs

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Activities and Participants

Value Chain

Key activities to be performed by various hotels depend on the kind of contract in managing the hotel. It depends whether the hotel is Owned, Franchised or managed.

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Industry Map

Key Participants that Players in the Industry need to deal with are –
1. Land Owners and property developers
2. Staffing Institutes
3. Hotel Development Companies
4.Digital Platforms for bookings
5. Various suppliers – Food, Beverages, laundry services.

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Demand- Supply Scenario

FY19 Supply in the Industry (Branded) – 133,359
FY19 Demand in the Industry (Branded) – 88,950

FY19 – Average Occupancy – 66.7%

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Industry Characteristics

Market Size

Total Industry Size in FY19 – Rs. 60,602 crores.
Total Industry Size in FY10 – Rs. 29,593 crores

Organised to Unorganised –
FY10 – 30% : 70%
FY19 – 32% : 72%

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Market Stability

The Industry is highly fragmented. However, the market leaders have retained their market share.

As a result, the market can be said to be a stable one.

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Pricing Power

The Industry is cyclical in nature. Also, the industry competes on price amongst themselves. As a result, the industry has negligible pricing power.

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Competitive Life Cycle

The Industry is currently in Mature stage as the following characteristics can be observed –
1. Sales increasing at decreasing rates
2. Normal Promotional Expenses
3. Competitive Environment
4. Profit margin decreases
5. Product Modifications to extend lifecycle

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Disruptive Forces

Disruptive Forces for Hotel Industry-
1. Oyo Model – Organization of Unorganized space
2. AirBnB Model – Renting out spare rooms
3. Co-living Startups – NestAway, Stanza Living, CoHo, YourSpace, Zolo Stays, Oyo Life and So on.
4. Hostels- HostelWorld, Zostel, FabHotels

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Regulations

To operate in Hotel Industry, each player needs a variety of approvals and licenses. Companies end up spending between 2-3% of their revenues to obtain and maintain such licenses.

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Porter's Profit Forces

Supplier Power

Suppliers have low bargaining power in both Luxury Segment as well as Mid-price segment.

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Buyer Power

Buyers have low Bargaining power over the Industry. However, the digital platforms have gained bargaining power by consolidating demand.

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Threat of Substitution

Luxury Segment has moderate to low threat due to substitution. Mid-price Segment has high threat of substitution from new models.

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Threat of New Entrants

Luxury segment has moderate threat from new entrants. Mid- price segment has high risk due to new entrants.

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Threat of Competitive Rivalry

Luxury Segment has moderate to high Competitive Rivalry within the industry. Mid-price segment has much higher Competitive Rivalry. The players compete on price within the Industry.

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Financial Health of Companies in the Industry

ROE and DuPont Analysis

Indian Hotels – FY20 ROE = 7.9% x 0.4x x 2.6 = 8.1%
EIH – FY20 ROE = 9.3% x 0.4x x 1.4 = 4.7%
Chalet Hotels – FY20 ROE = 10.2% x 0.2x x 2.6 = 6.4%
LemonTree Hotels – FY20 = -1.4% x 0.2x x 4.6 = -1.2%

Hotel Industry is a moderate margin, low asset turnover and high leverage Industry.

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Growth

Growth Trends in Hotel Industry-
1. Indian Hotels – 5 yr Revenue CAGR – 1.3%
2. EIH Ltd – 5 yr Revenue CAGR – (-0.9%)
3. Lemontree Hotels – 5 yr Revenue CAGR – 18.2%
4. ITDC – 5 yr Revenue CAGR – (-7.0%)

The industry can be said to be in Mature stage as most players show low growth.

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Investment Needs

Indian Hotels – High Portion of CFO spent in Fixed Investments

EIH – High portion of CFO spent in Fixed Investments

Chalet Hotels – Heavy re-investment.
Lemontree Hotels -Very heavy capex for growth.

As a result, the industry needs heavy capex to operate and grow.

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Outlook

Trends in Industry

Major Trends that exist in QSR Industry-
1. Increase in the share of Organized Players post COVID19.
2. Increasing Participation from Online Travel Agents and Increase in Commissions charged by them.
3. Asset Light model gaining market share with Management and Franchised Contracts
4. Disruptive Models – Oyo, AirBnB, Hostels, Coliving gaining market share.

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Industry Specific Risks

Major Risks faced by the Industry includes –
1. Disruptive Business models gaining market share – Oyo, AirBnb, Hostels, Co-living.
2. Cyclical movements within the Industry.
3. Increased Competition within the Industry.
4. COVID related factors that may put many hotel companies out of business.
5. Risk of excessive debt on books.

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Growth Factors

Major Factors that contribute to growth of Hotel Industry in India are –
1. Expansion of Tourism
2. Government thrust on Tourism and initiatives around the same
3. Post-COVID travel bounceback.
4. Continuous reduction in Airfares and increase in accessibility over years.
5. Increased Investments in the Space.

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Variables for success in Industry

Key Variables to Succeed in Hotel Industry are –
1. Location Advantage of Properties
2. High ADR, Occupancy and RevPAR than industry to ensure profitability
3. Loyalty Programs to ensure sticky business

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Additional Notes

Classification within Industry

Hotel Industry participants can be classified into different types based on what they offer. This can be decided on multiple basis-
1. Based on Service level.
2. Based on number of rooms
3. Based on ownership
4. Based on theme
5. Based on Stars (Luxury)

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Evolution of Industry

Hotel Industry’s evolution can be seen in multiple phases. The evolution has been long term in nature –
1. 18th-19th Century – Hotel Industry started coming up in Europe and North America with first version of modern hotels.
2. 20th Century – With travel becoming more accessible, 20th century led to Global boom for hotel Industry.
3. 21st Century – Hotel industry has reached every corner of the world. New concepts – Co-living, Hostels, etc. gaining huge traction as well.

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