Professional Documents
Culture Documents
The international travel and tourism industry is currently on a recovery path and on their way to return to the precrisis peak levels. Indian travelers have emerged the sixth biggest spenders when travelling abroad1; even as they remain highly price-conscious when travelling within the country NCR and Mumbai are two of the busiest hotel construction markets with 14000+ rooms under pipeline India occupies the sixty-eighth position among the top tourist destinations in the world Government of India increased spend on advertising campaigns like 'Incredible India' and 'Athithi Devo Bhava' Foreign Tourist Arrivals in India during 2011 were 6.29 million with a growth of 8.9% Domestic traveler now accounts for nearly 74% of the total demand (across all segments) and 53% of the luxury segment.
Budget Segment
Comprises of 1-Star and 2-Star hotels Provides inexpensive accommodation to price conscious people
Classification of Indian Hotel Industry International Hotel Chains Large Hotel Chains Small Chains Public Sector Chains Localized Hotel Companies
Major Players
The Indian Hotels Company (The Taj Group) EIH Limited (The Oberoi Group) ITC Hotels Limited Indian Tourism Development Corporation (ITDC) Hyatt International Corporation Hotel Leela Venture Bharat Hotel Marriott Starwood Berggruen Hotels
EXPECTED SCENARIO IN PREMIUM HOTEL SEGMENT IN SELECT INDIAN MARKETS (SOURCE: INDUSTRY AND ICRAS ESTIMATES)
Market Mumbai Demand Drivers Gateway city and financial capital Gateway city Prospects Supply likely to be absorbed Oversupply likely in the near term Oversupply likely in the near term Heavy oversupply likely Outlook being a gateway city and the countrys financial centre, demand is likely to be robust expecting to add around 5,000 rooms over the next three to four years , this is likely to suppress pricing power Bangalore has seen significant room additions in 2009-11 and is likely to see more over the next few years the outlook for the next two years is subdued, saw occupancies and ARRs decline in Q1, 2010-11 because of supply addition strong supply pipeline for 2012 and 2013, the city is likely to experience significant pricing pressure over the next two years relatively small market, also has limited additions in the immediate term
NCR
Bangalore
Foreign IT/ITES business travelers Foreign IT/ITES business travelers Manufacturing and services sectors Business travelers
Pune
Chennai
Kolkata
Opportunities
Threats
High real estate prices Increase in the costs of construction Increasing fuel, food and employee expenses Socio-economic and political conditions like riots, epidemics, terrorist attacks, slowdown in reforms Shortage of skilled employees Regulatory hurdles like liquor license
Potential of Business Travel Shortage of hotel rooms Acquisitions, strategic alliances and partnerships Eco-tourism, wildlife tourism and adventure tourism are gaining popularity Medical tourism expected to grow at 29.0% to reach US$ 2.4 billion by 2012 Diversification into new segments like budget hotels etc. India is gathering popularity as health tourist destination
IHCL owns and operates 76 hotels, 7 palaces, serviced apartments, 6 private islands and 12 resorts and spas Presence across 52 destinations in 12 countries Operating across the market segments: Luxury Premium Mid-market value
Taj
Flagship brand of traditional luxury full-service hotels, resorts and palaces Two speciality brands: Taj Exotica and Taj Safari
Vivanta
Contemporary-luxury hotel brand that is building a more cutting-edge, modernchic esthetic Caters to an upscale market, it is positioned a step below the flagship Taj brand. Located at both business and vacation destinations
The Gateway
This is a mid-market brand positioned below the Vivanta by Taj brand, and contains properties in both business and vacation destinations.
Ginger
Ginger is the Tata Groups economy hotels brand across India.
EIH LTD.
Founded in 1934 Operates 28 hotels and 3 cruisers in 5 countries Also operates airport restaurants, flight catering services, travels and tours services, corporate air charters and printing press Operating across market segments: Luxury 5-Star
The Oberoi
Caters to luxury segment Operates 28 hotels and 3 cruisers in 5 countries
Trident
Falls in 5-star segment Operates 9 hotels in India and a hotel in Jeddah, Saudi Arabia
OPERATIONS RESEARCH
IHC Ltd. EIH Ltd.
Major revenues from operations in India Catering to luxury, premium, mid-market and budget segments Revenue concentration on Indian luxury segment Increased outbound traffic is a key risk
More diversified portfolio Catering to luxury and 5-star segment Revenue concentration on super premium and premium segments Crude oil prices may affect travel and tourism
15414.3
9389.7 11235.6
16202.6
14740.5
16744.2
7,563.90
9432.9
Reasons for moderation in sales: Competition from International Hotel Chains Mumbai terror attacks Air Catering business continues to be under pressure
100
100
100
75.6
76
77.7
Financial charges
Non-cash charges
9.6
12.3
9.8
5.8
6.9
6.4
Others
9.0
4.8
6.1
Mar-11
71.9
38%
9.1 11.9 14
40%
7.9
5%
9%
8%
11.3
3.7
1.7
Others
.6
.4
4.6
Employee Cost Repairs & Maintenance Power & Fuel Raw Material Others
Expenses as % of Sales
100.00 95.00 90.00 85.00 80.00 75.00 70.00 Jan/06 Jan/07 Jan/08 Jan/09 Jan/10 Jan/11 Expenses as % of sales have increased to above 90% of sales for both companies eroding its profit margins Operating expenses accounts for more than 75% of total expenses Industry with high operational leverage High payroll costs, higher provisioning of retirement benefits Operating cost of new hotels opened Depreciation for the last year increased due to capitalisation of new properties IH EIH
2340.3
1704.4 1531 1412.5
PAT Margins
25 20 15 10 5 0
Mar 06 Mar07 Mar 08 Mar 09
20.8 15.5
19.5 19.2
20.5 18.5
15.8 13.4 9.5 6.3 8 5.5
Mar 11
IH EIH
Mar 10
PAT Margins are falling for both the companies Slow growth in revenue coupled with low PAT margins make the company unattractive for investors EIH has seen a higher erosion in PAT margins compared to IH which shows lower cost efficiencies for EIH
Net cash from operating activities was higher Investments have increased due to renovation of existing properties and replacement/up-gradation of existing fixed assets R&S has decreased primarily due to a provision for premium on redemption of NCDs
In short the company has strained its short-term liquidity position by high borrowings to cater to its expansion plans, as indicated by the lower current ratio, lower interest coverage ratio and an increase in debt to equity ratio
Current assets have significantly declined and NWC has decreased substantially for 2 consecutive years which doesnt augur well for an industry which needs an effective WC mgmt for its high operating costs Restoring one of the Tajs hotels might have reduced the capital WIP and increased the net block
R&S has increased substantially due to issue of shares and warrants at a premium; indicating the company is moving from owed funds to owned funds
The company paid a lot of its debts and increased its investments in mutual funds with the cash raised from equity In short the company is undertaking steps to financially deleverage itself because for an industry with a high operational leverage it is necessary to achieve a balance between the financial and operational leverage to minimize risks
9738.72 2379.21
Liquidity Ratios
Current Ratio
4 3.81 1.99 1.77 1.31 0.95 2008-09 2009-10 0.48 2010-11 Indian Hotels 4
3
2 1 0
3
2 1 0
1.90 1.67
1.23 0.92 2008-09 2009-10 0.45 2010-11 Indian Hotels
Liquidity Ratios
Cash Ratio
2.5 2 2.16 0.07 0.06 0.05 0.04 0.03 0.02 0.01 0
1.5
1
0.03
0.5
0
0.09 2010-11
2008-09
2009-10
2010-11
Indian Hotels
Indian Hotels
Turnover Ratios
Total Assets Turnover
0.4 0.3 0.2 0.1 0 2008-09 2009-10 2010-11 East India Hotels Indian Hotels 0.35 0.34
Inventory Turnover
60 50 40 30 20 10 0 54.69 43.86 31.90 44.34 30.39
0.29
0.29
0.30 0.31
25.62
2008-09
2009-10
2010-11
Indian Hotels
Turnover Ratios
Debtors Turnover
20 15 10.51 10 5 0 2008-09 2009-10 2010-11 East India Hotels Indian Hotels 8.09 16.78 13.6159 50
15.2932
8.58
30
20
10
0 2008-09 2009-10 2010-11 East India Hotels Indian Hotels
Leverage Ratios
Debt Equity Ratio
1.2 1 0.8 0.6 0.4 0.2 0 0.9856 0.7216 0.7243 8
0.7912 0.5796
0.3184 2008-09 2009-10 2010-11
2 0
3.5237
Indian Hotels
Leverage Ratios
Interest Coverage Ratio
5 4 4.68 3 2.5 3.52 2.33 2.17 2.86 1.98 2 1.5 1 0.5 0 2008-09 2009-10 2010-11 Indian Hotels 2008-09 2009-10 2010-11 East India Hotels East India Hotels Indian Hotels 1.94 1.02 1.72 0.73
3
2
0.88
1
0
Profitability Ratios
Gross Profit Ratio
0.5 0.4 0.3 0.2 0.44 0.32 0.27 0.18 14 12 10 8 6 4 2 0
0.32
0.28
0.1
0 2008-09 2009-10
2010-11
Indian Hotels
Indian Hotels
Profitability Ratios
Return on Capital Employed
20 15 10 14.58 9.29 7.09 5.89 7.41 6.32 80 60 40
5
0 2008-09 2009-10 2010-11 East India Hotels Indian Hotels
20
0 2008-09 2009-10 2010-11 East India Hotels Indian Hotels
5
4 3 2 1
0
2008-09 2009-10 2010-11