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Home > Business > Business Headline > Budget 2005-06 > Report


Hotels: Is growth sustainable?

February 24, 2005 06:12 IST
Last Updated: February 24, 2005 08:36 IST


FY04 was a landmark year for the hotel sector. Though growth in the first half was slower, the second half witnessed a sharp upturn in occupancy rates.

Operating margins also saw significant improvement.

However, given the susceptibility to geo-political events, is this growth sustainable?

Key Positives
  • India as a tourist destination:  Though India accounts for a fraction of global tourist flows currently, the country is expected to increase its market share over the long-term. The recognition of tourism as an industry in the recent past has paved way for opening up to competition. This, we believe, is likely to shape industry fortunes for the better.

  • Infrastructure development:  The road development project along with other aspects like airport modernisation and port development is likely to result in increased economic activity. With air tariffs also falling steeply owing to increased competition, the tourism sector is expected to witness increased inflow of foreign tourist, high inbound tourist flow and development of new tourist destinations within the country.

  • FDI inflow promising:  Though India manages to attract to attract only a fraction of global FDI flow, the long-term potential to attract FDI remains promising. The rapid growth in the service sector in light of various competitive advantages of the country has resulted in increased trade. Outsourcing in select manufacturing sectors is also taking shape, which we believe, will provide a big fillip to the tourism sector.

  • Increased competition:  In the hotel sector, a number of multinationals have entered/strengthened their presence in the country. Players like Four Seasons are also likely to enter the Indian market in the future. Besides, Indian hotel chains are also expected to expand international presence. A combination of all these factors could result in a strong emergence of the budget hotels. This could potentially lower the cost of travel and related cost.

      
    Key Negatives
  • Slow in implementation:  As has been the case before, lack of adequate recognition for the industry despite being one the biggest generator of employment (direct and indirect) has been hampering growth prospects. Infrastructure development, though happening, continues to languish. Amidst improving fundamentals, India could lose out to other countries if the pace is not accelerated.

  • Regional hubs developing:  As mentioned above, though India has the potential, in the tourism sector, competition is more global. The rapid growth of China, select South East Asian countries, the pace of development in the Middle East could affect India, in terms of its ability to attract tourist into the country.

  • Susceptible to geo-political events:  Since tourism is a global phenomenon, any adverse developments on the geo-political front are likely to impact global tourist flows. India is no exception to the same, as was evident during events like September 11, Iraq war and SARS.


    This is part of Equitymaster's Budget 2005-06 series. Equitymaster.com is one of India's premier finance portals. The Web site offers a user-friendly portfolio tracker, a weekly buy/sell recommendation service and research reports on India's top companies.




    Budget 2005-06: Complete Coverage




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