Sound sleep providers ..CYCLE is on HOTELS

Introduction to Indian Hospitality Sector
Hi Vp’s inviting your views and critical examination of the sector

The Indian Hospitality Sector is witnessing one of its rare sustained growth trends. Hotel industry is inextricable linked to the tourism industry and the growth in the Indian tourism industry has fuelled the growth of Indian Hotel Industry.

A major reason for the demand for hotel rooms is the underlying boom in the economy, particularly the growth in the information technology enabled services and information technology industries. Rising stock indices and new business opportunities are also attracting foreign institutional investors, funds, equity and venture capitalist.

The financial year 2008 – 09 was an unforgettable one for the Indian tourism industry with the Mumbai terror attacks and the global economic downturn affecting the industry’s performance. The Hotel Industry, too, observed an overall decline in occupancy and revenue in most cities in India.

For the first time in a decade, occupancies at hotels have been higher than 65 per cent, and average room rates have grown by 8 per cent since 2008. In addition, supply is growing by 8 per cent but demand is growing at twice that rate, so occupancy is likely to grow even more, says Achin Khanna, managing partner (strategic advisory) at consulting firm Hotelivate.

Brands on play

I am looking to invest taking basket apporach on

Market Dynamics:
Supply Growth : 3.2 % Demand Growth: 5.6%

Hotel sector performance indicators :
• Occupancy : increase from 62 to 64%
• Average room rate 5520 (Increase )
• REvRAR%: 3516 (Increase 4.1%) {RevPAR is a performance metric calculated by multiplying a hotel’s average daily room rate (ADR) by its occupancy levels}

Key Markets : Tier 1: Bangoluru ,Pune,Bombay Ne DElhi Kolkata
Tier 2 : Ahmedabad ,Jaipur Chandigarh Hydrabad Agra

My investment will be Total Porfolio allocation 15-20% to hotel sector out of this is subdivided in

Hotel Leela (20% Allocation ) :
It is among the high Asset player and expanding the capacity in the growth cities .The group is an award winning chain of premium 5 star luxury business and leisure hotels with multiple properties across India

Upcoming 5 hotels
• The Leela Gandhinagar Gujarat 300 room Spread across 34 acres, it is one of the biggest, state-of-art convention facilities in India, uniquely designed to combine a sense of aesthetics, functionality and flexibility. Already started India’s largest convection centre

• The Leela Palace Jaipur: Near the Amber fort on Delhi-Jaipur highway on 10 acres,

• The Leela Hyderabad: Spread over 2.5 acres, located in Banjara Hills.

• The Leela Hotel and Residences Bhartiya City Bengaluru : Will Be located on 126 acres of vast green landscape. Strategically located, the hotel will be about a 25-minute drive from the International Airport and less than a 30-minute drive from MG Road.

• The Leela Palace Agra: All 140 rooms enjoy the view of the magnificent and historical Taj Mahal Agra Airport is about 12.5 Km from city center.

Lemon tree Hotels (25%) :

It operated 4,697 rooms in 45 hotels across 28 cities in India as of January 31, 2018.
Brands - Lemon Tree Premier, Lemon Tree Hotels, Red Fox

These hotels are located across India in metro regions, including the NCR, Bengaluru, Hyderabad and Chennai, as well as tier-I and tier-II cities, such as Pune, Ahmadabad, Chandigarh, Jaipur, Indore and Aurangabad.

Mix model of operation: Direct ownership, Long-term lease or license arrangements for the land on which it constructs the hotels,Long-term leases for existing hotels which are owned by third parties, Operating and management agreements.

As of January 31, 2018, its portfolio consisted of 19 owned hotels, 3 owned hotels located on leased or licensed land, 5 leased hotels and 18 managed hotels.

Royal Orchid (25%):

Royal Orchid Hotels Ltd (ROHL) is a 31-year-old company which owns and operates hotels in India. It is promoted by Mr Chander Baljee, who is a IIM Ahmedabad alumnus with over 40 years of experience in the hotel industry. Key brands include Royal Orchid (five-star), Royal Orchid Central (four-star), Regenta Hotels (four-star), Royal Orchid Suites (service apartments) and Regenta Inn (budget hotel).
Statutory auditors are from “Big 4” Deloitte. Therefore, they have a sound accounting system.

Kamat Hotels (20%):

Investment in Kamat is more driven by the underlying turnaround story and management’s intent to clean up the financial mess so as to bring it back to the old glory presence at

The Room Mix and ARR can be found at

IHCL 15%

The Indian Hotels Company (IHCL) and its subsidiaries, collectively known as Taj Group. Taj Group comprises 108 hotels in 63 locations, including 25 Ginger hotels across India, with an additional 17 international hotels in the Maldives, Malaysia, Australia, UK, US, Bhutan, Sri Lanka, Africa and the Middle East . Turnaround of US subsidiary. Margins will improve due to sale of loss making facility and cost cut measures


Source: The Indian Hotels Company | Business | Tata group

Industry Views:

As per Mr Arif Patel, VP Sales, Marketing, Distribution & Loyalty, AccorHotels, highlights the growth in the hospitality sector : “Data trends, domestic aviation growth, e-visa, we have reached the highest level of occupancies in last 10 years. 68 per cent occupancy are seen in the hotels that are ramping up overall occupancy and airline passenger traffic are increasing; would you say that the sector is now poised for a turnaround “

Ref: AccorHotels: Next four years are going to be extremely good for hospitality industry: Arif Patel, AccorHotels - The Economic Times


Bullish rational

The tourism sector is looking forward to the expansion of e-visa scheme, which is expected to double the tourist footfall in India

The central government has contributed significantly to the development and growth of the sector by providing various tax incentives, policy measures and other various supports. Some of the government steps include making medical visas available for tourists

The sector had been under pressure and into a near-debt trap after the global economic recession in FY09. The tourism and hospitality sector in India accounts for 9.6 per cent of GDP.

Better growth is expected to the leisure destinations than the business destinations in next two quarters 2018-19 Q1 and Q2

New momentum in national highway infrastructure such as Bharatmala, the regional connectivity scheme to connect remote India by air under the Ude Desh ka Aam Nagrik (UDAN) scheme and initiatives to improve cruise tourism infrastructure, growth in the hotel sector is expected to take off in a big way

Bear in mind the associated general risks

Lack of revival in domestic growth can hinder growth. Increase in supply through formal or informal channels (like Airbnb, oyo rooms etc) can keep a lid on ARRs. Any geopolitical incident can severely impact foreign tourist inflow. Large and foreign brands coming into India can provide stiff competition.

Hotel’s strategic location geographical regions and any adverse developments on such hotels or regions could have an adverse effect on business.

Hotel Business is subject to seasonal and cyclical variations that could result in fluctuations in results of operations.

Hotel industry is exposed to a variety of risks associated with safety, security and crisis management, customer litigation

Hotel industry got a significant portion of its revenue from corporate customers, and the loss of such customers, could adversely affect businesses.

Hotel industry is subject to extensive government regulation with respect to safety, health, environmental and labour laws. Any non-compliance with or changes in regulations may adversely affect business.

Web links and report to read:

Horwath report


Disc: Holding Lemon Hotel portfolio 4% as intial bet .Inviting opposing views which can negate my rartional of investment in the sector .This is not any investment proposal or advice .One an study carefully before investing



All hotel sector stocks are making fresh 52 week or all time highs in such a volatile market. Obviously it means there is something going for them.

Thinking through the scenario, I think the whole sector has been in the doldrums since past many years. Its an asset heavy business and if the sector is in the dumps nobody is going to put up new capacity. And all this while the disposable income in the Indian population has kept on increasing and this has led to massive surge in domestic and international travelling. This has led to some increase in demand and with supply nearly at same level, the hotel industry has got some amount of pricing power back with them. Since fixed costs are high in the industry, any increase in capacity utilisation will make a huge swing in profitability for the companies.

While betting on the sector its always a good idea to take a basket approach as you seem to be contemplating. But its also a good idea to have 2-3 top players and the last slot alloted to a troubled potential turnaround player.

I dont have any position in the sector but have the sector in my watchlist. And all this while I have been watching some stocks have gone up 2-3x. :slight_smile: And the full impact of upswing in profitability due to tailwinds for the sector have not borne fruit. I have an indirect expsoure to the sector through tourism finance corporation ltd TFCIL which is lender mainly to hospitality sector and which has undergone a management change from govt owned IFCI to private players viz. SSG group. You can go through an HDFC initiating coverage report on the company if you wish to pursue it.


Thanks for the hood work n starting a thread. Have few questions

Point no 1: Hope you have factored in poor state of balance sheet of leeela in decision making
Point no 2: I see that you be taken only big chain. Is it a pre selection criteria because some of small chains (200 to 600 room capacity ) have best of balance sheet and return on capital metric available at reasonable relative valuation. So, I m curious why they be been left out in study ?
Point no 3: There are certain chains sitting on high cash n can do deals n there r certain chains which r at their life time low of asset turns because significant WCIP is under process n they Might double capacity.if you remove WCIP they ve historically again good quality return . Any reason for ignoring them ?


The business by TFCI is very niche business my take is similar as you also observed the Capex by the hotel industry is reducing secondly in case of hotel the cost of find new lands and development and hiccups in securing regulatory approvals is very high this discourages the new players.As the company is earning is depends on more than 74% on financing the hotel sector the chances of growth is low as compare to financing middle income home loans Companies . The policies are mostly dictated by the Government and is lesser influenced by stack holders being PSU it has reached the to the maturity level from where it’s growth will be slow paced as govt is inviting FDI in tourism industry ( May be my bais towards PSU )

As far I dig I didn’t find they are financing for renovation or refinancing the loan

The best thing is the company is securing its capital by conservative approach of lending .They haven’t untapped the potential of consulting business if they can it will be feather in the Cap

Thanks for Visiting and posting your queries which will help me to dig further

“ Point no 1: Hope you have factored in poor state of balance sheet of Leela in decision making””

Ans: Being Indian, We look for bargain almost everywhere nothing bad in that we are born value cautious .My take to select the Leela is it is having mpore pricing power as its customers are high income bracket 4 or 5 star where Value or service matter the most than the amount one pay per night .You are right the Leela’s is not have so great balance sheet . “But when we have to study the CYCLICALs we have to take an account of normalised earning i.e average of 5 to 6 years “and in my opinion that is not so bad

“Point no 2: I see that you be taken only big chain. Is it a pre selection criteria because some of small chains (200 to 600 room capacity ) have best of balance sheet and return on capital metric available at reasonable relative valuation. So, I m curious why they be been left out in study ?”

Ans : I have study the following hotels Hotel Leela , Lemon tree Hotels ,Royal Orchid ,Kamath Hotels, Indian Hotels, ITC (Droped because of not purely Hotel it is diversified ) , Viceroy Hotel, Taj GVk (Dropped due to High valuations of Mr market ), Byke Hospitality ,EIH limited ,Asian Hotel (W) ,Asian Hotel (E), EIH Associate, Sinclair Hotel., UP Hotel CLARK’S( Dropped due to No so great on the management front )
Additional player where one can bet consider EIH (ICICI is more positive), Asian hotel (E) .

“Point no 3: There are certain chains sitting on high cash n can do deals n there r certain chains which r at their life time low of asset turns because significant WCIP is under process n they Might double capacity. If you remove WCIP they ve historically again good quality return . Any reason for ignoring them ? “

It will be great if you can share some other names which you think can be considered .I might had skipped a few great players .But what I feel the current CAPEX by the companies in the Hotel industry is not very large Moreover creating additional capacity will be costly in terms of TIME and MONEY .It require lots of approvals of the regulations and finding additional land or developing a new land are creating the barricade for the new Players



If poss Can you pls provide the link of HDFC report of TFCIL.

Hello sir even thoug all companies are trading at all time highs in hotel sector viceroy hotels is lying low please express your views sir

what i found that the Hon’ble National Company Law Tribunal, Hyderabad has vide order dt.12th March, 2018 ordered initiation of Corporate Insolvency Resolution Process, in respect of M/s Viceroy Hotels Limited .This may be reason

In 2003 Hotel inked deals with Marriott International Inc, USA. for franchise, marketing and operations under the brand of “Marriott” for a period of 20years.

Fellow VP from Hydrabad or senior may throw additinal information regarding it’s current day to day operations


Encouraging sectoral report from IBEF

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The sole purpose of IBEF is to highly promote Indian corporate brand . You won’t find even an inch of bearishness in their decks. So, in my view, use their decks to just basic sense of industry n basic numbers but not beyond that. For example , if last 7 year growth CAGR is 30 % but last 3year ,let’s say 5%, they will use numbers to best of their use to sell India story which makes sense for their purpose . But as investors we ve to look at same data from various different angles. Nonetheless , no one can deny, hotel cycle is in its full upswing.


In my humble opinion, hotels will definitely see better times thanks to rising disposable incomes which fuels tourism.

However, I don’t think a lot of listed companies will benefit because of this turnaround.
Reason- The portfolios of large hotel chains-Indian Hotels, East India hotels, Oriental Hotels, Taj GVK are dominated by ultra luxury properties. They command a significant premium over other 5 star hotels. Sometimes as much as 40-50%.

It seems to me that the upper middle class will travel more. But, would they be willing to pay such a massive premium over other hotels? It seems unlikely to me. The aspiration is to stay at a luxury hotel- That would mean any 5 star.
The upper middle class, those with disposable incomes will provide an impetus to the industry. But, it seems unlikely to me that the beneficiaries will be ultra luxury hotels.

The target customers of ultra luxury hotels- The very high net worth individuals have been spending at top hotels regardless. I don’t see why their spending would increase.

And, most smaller 4 and 5 star hotels aren’t listed. But, if there’s a desire to participate in the hotels turnaround, it’d be a good idea to consider investing in hotel chains that aren’t geographically concentrated and that offer modestly priced rooms. Because those will be massive beneficiaries, in my limited understanding.

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Thanks for your valuable contribution I want to share an old investing story which is worth reading below
This might be my personal view middle class persons afraid to enter in the 4 star or 5 star hotels BUt noBOdY can restrict you Have fREE entry for using their BAtH Room or to have free glass of water .when we are talking of investing there is no guru or teacher who have 100 % foolproof plan But riding a cycle deffrnately bring good returns .
There are several contenders and thousand stocks traded everyday it’s YOUR call to buy or sell .My humble suggestion is build YOUR conviction with the STOCK and It happens in the past that the growing sector performance with a few front runners in basket YOu will earn .i am just sharing the general information about the Hotel sector .The Hotel,cycle is not great as sugar cycle or metal rally but These are Common Stock which can deliver uncommon returns .

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It seems good results in general by various hotel companies. I have not seen all results but only Lemon Tree, Royal Orchid and Indian Hotels. Directionaly all three aligned with thesis mentioned in thread about upcyle in Hotel Industry. Lemon Tree performance looks specially strong with 24% growth in Income in Q418 v/s Q417 and EBITDA margins at 32.6%.

Disc : Invested in Royal Orchid and Lemons Tree

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I read the annual reports of several hotels and below are the major points I can recollect from these ARs.

  1. GST is very high compared to other countries. China, Thailand and Malaysia in comparison have a GST rate on hotel rooms of 10%, 7% and 6% respectively, this is making Indian hotel industry uncompetitive.
  2. Demand growth is more than supply, due to increase in occupancy , the RevPar must go up.
  3. Intense competition in metro,picking up in 2-3 tier cities too, this is due to entry of foreign players in the market
  4. India received 10.2 MN tourists whereas Thailand receives 37.7 MN tourists, Indonesia 14.5 MN, China 63.5 MN. Long way to go to increase no. of tourists
  5. The shortage is especially true within the budget hotels and the mid-market hotels segment.
    There is an urgent need for budget and mid-market hotels in the country as travelers look for safe and affordable accommodation

I’ve jotted down more points with some charts in the below attached document.



Two hotel companies, Byke and IHCL, that I follow, on and off, are painting a different picture.

Byke could be more of a governance issue. Please check the Byke thread for more info.

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Sir, What do you think of the recent investment in Oyo by airbnb of close to $200M. As a matter of fact Oyo’s loss to Income ratio in FY 2019 has almost halved to 10 cent from 20 cent in FY 2018. All these signs are giving positive picture of Indian Hotel Industry but on the other hand it would also take market share away from the already established players. Also average tariff OYO charges is about 1800/2500 a night so will it not affect the mid segment hotels? Also they are in for a major expansion plans in India so tat would put extra pressure on increasing supply side.

Your views on this?