Sept. 2: An expected surge in supply of premium hotel rooms may take the sheen off Indian hotel firms’ plans to raise tariffs and revive profitability, though analysts expect the second half to fare better than the first.
Hotel chains such as Indian Hotels Co Ltd, EIH Ltd and Royal Orchid Hotels Ltd are increasing capacity and plans to raise tariffs by 8-15 per cent as tourism demand revives in Asia’s third largest economy.
But competition has been heating up in the Indian hospitality sector with global majors such as Starwood Hotels & Resorts, Marriot International and Hyatt Hotels, also keen on tapping the market.
Due to this, Indian hotels are also losing their edge to effect any substantial rise in room rates, which in effect is putting a squeeze on EBITDA margins.
“Because of the huge supply coming in, hoteliers are not able to increase the room rates to the extent they would have liked to and they are also below the pre-crisis levels of 2008,” said Mr Sridhar Chandrashekar, head of research at Crisil. “At an EBITDA level hotel companies used to enjoy margins around 40 per cent (in 2008). Now it will be slightly below 40 per cent,” he added.
Indian Hotels Company, which operates the Taj chain, has announced its plan to raise room rates by October — its first in nearly two years — as rates lag occupancy. EIH Ltd, owner Oberoi and Trident hotel chains in which Reliance Industries has a 14.8 per cent stake, also plans to raise rentals by 8-10 per cent from October.
The rates are unlikely to touch the levels witnessed before the two-year slowdown that crippled discretionary spending. “Occupancies will run around 75 per cent for December quarter.