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Economy hotel players bullish amid slump
Kalpana Pathak & Swaraj Baggonkar in Mumbai | February 23, 2009 10:00 IST
At a time when the economic slowdown is eating into corporate earnings, the country's economy hotels, including Krizm Hotels and Berggruen Hotels, are going ahead with their expansion plans.
Patu Keswani, the promoter of Krizm Hotels that runs mid and upscale hotel brands Red Fox and Lemon Tree Hotel, plans to add around 1,500 rooms in the next three years.
"Our plans of setting up new hotels are on schedule as we would bring them in operation by 2011. However, projects which have not got financial commitments are going slow," says Keswani.
Keswani has already tied up for funds worth Rs 900 crore to invest in his projects. Of this, he will spend Rs 200 crore (Rs 2 billion) in creating a land bank.
Much of Keswani's thoughts are endorsed by Berggruen Hotels CEO Sanjay Sethi who sees this present market as an opportunity to seal land acquisition deals at a lesser cost.
"Given the condition of the real estate market, we are still able to evince interest from the seller at a 20 per cent lesser offer that we are making. We will look at acquiring more properties in the next six months and scale up our operations. At present, we are pursuing six cities," said Sanjay Sethi, CEO, Berggruen Hotels. The company would have four hotels in operation by this December.
Berggruen Hotels, an economy class hotel promoted by US-based Berggruen Holdings, entered the Indian market two years ago and plans to build 38 budget hotels under the 'Keys' brand in the next three years. While Sethi did not reveal the investments planned for the properties, Berggruen Holdings on its website says it typically invests up to Rs 500 crore in any transaction.
While occupancy rates for these players have remained over 65 per cent, construction cost for properties has also come down. Lemon Tree, however, has dropped its tariff in Gurgaon by 23 per cent to Rs 6,500 from Rs 8,500.
The cigarette-to-hotel major, ITC, would launch its pilot three-star hotel brand Fortune Lodge in the next few months. The company will set up around 15 Fortune Lodges in rural areas, where it has retail hubs � Choupal Sagar. The lodges will be built on the premises of Choupal Sagar, which is typically spread over 8-10 acres and have enough land to spare for a hotel.
The pilot Fortune Lodge will come up at a Choupal Sagar at Sehore, nearly 38 km from Bhopal in Madhya Pradesh. Approximate investment in building 15 lodges could cost the company around Rs 110 crore.
"We will soon launch our lodges. With many companies heading to rural India, we believe this proposition will work," said a senior executive with ITC-Welcomgroup.
The company also plans to get into serviced apartments in around 21 locations across the country. The apartments will be christened Fortune apartments and will be managed. In metros it will be priced around Rs 5,000 and in tier-II cities it will be Rs 3,500.
However, smaller players such as Sarovar Hotel have decided to scale down their expansion plan. Sarovar Hotel will commence operation of 28 hotels in the next three years instead of its earlier plan of 65 hotels by 2012. It has also shelved its fund-raising plans of around Rs 800 crore through a special purpose vehicle.
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