Sie sind auf Seite 1von 26

Portfolio Analysis of Hotels Industry

Portfolio Analysis of Hotels Industry


Portfolio Analysis of Hotels Industry Table of Contents

Industry Overview3 Factors for Growth of the Industry...3 Challenges and Trends4 Key Metrics4 Industry performance...4 Critical Success Factors.5 Analysis of factors influencing this industry..5 Models of Ownership.6 Revenue and Cost Structure..6 Hotel Industry Classification in India7 Porters Five Forces Analysis.8 Industry Analysis- GE/ McKinsey Matrix.11 Company Analysis..12 Indian Hotels Company12 Strategic Outlook.13 SWOT Analysis for Indian Hotels..13 BCG Matrix for Indian Hotels..13 Management Discussion and Analysis..15 Ansoff Matrix for Indian Hotels Company..16 Joint ventures, subsidiaries, associates17 Partnerships and Alliances...17 Parenting Advantage.18 Impact of Union Budget 2012-13 on the Hotel Industry and Recent Developments..18 Appendix.19 References....26

Portfolio Analysis of Hotels Industry Industry Overview:

Tourism in India is the largest service industry, with a contribution of 6.23% to the national GDP and 8.78% of the total employment in India. Visiting foreigners has reached a record 3.92 million and consequently International Tourism receipts have also risen to US $ 5.7 billion. The World Travel and Tourism Council (WTTC) have named India along with China as one of the fastest growing tourism industries for the next 10 to 15 years. The Indian hospitality sector is expected to show a healthy growth and according to the Ministry of Tourism, the contribution of tourism to India's GDP is 5.9 per cent as compared to worldwide average of 11 percent. Year to date hotel performance results for 2011

ADR = Average Daily Rate; RevPAR = Revenue per available room = Average Daily Rate*Occupancy

Factors for Growth of the Industry:

Growth in Tourism: India being a land of rich natural diversity has consistently been on the tourists radar and tourism has been on a growth trajectory. India is presently considered as a provider of low cost medical treatments which has led to the development of India as a destination for medical tourism. India is to become a major hub for medical tourism with revenues from the industry estimated to grow to $2.2 Bn by 2012.

Portfolio Analysis of Hotels Industry

Opening of the Aviation Sector: The opening up of the aviation sector has also provided the much needed thrust. Emergence of Budget Hotels: Major players diversifying into the mid-market segment to develop budget hotels has also been an added driving force. Such hotels are constructed to tap prospective consumers who seek stay at affordable price. International companies are increasingly looking at setting up such hotels. Shortage of Hotel Rooms: Imbalance in increase in tourists both domestic and foreign who are not being supported with equal number of rooms is a latent source of opportunity for growth. India currently has 200,000 hotel rooms spread across hotel categories and guest houses and is still facing a shortfall of over 100,000 rooms. Major Events: Additionally, the rise in major events being organized in India has also posed as a chief driver for the sector. Infrastructure Development: Infrastructure development especially in Tier II and Tier III cities has also led to growth in travel and tourism industry which has thus led to growth of hotels industry.

Challenges and Trends:

However, the sector is also facing certain challenges. Factors such as socio-political concerns, lack of infrastructure and increasing operating costs pose as barriers to the growth of this sector. The major trends identified in the market are entry of foreign players, franchising model of operation and special services for female guests. This sector is also affected by certain Government regulations such as the setting up of Hospitality Development and Promotion Board, changes in the taxation system as well as tourism enhancement.

Key Metrics:

Two key metrics used to analyze the Hotel industry are as follows: Average occupancy: The average percentage of the times in a year when the room is occupied. This number usually fluctuates as the hotel industry is highly cyclical with high demand for rooms when tourist influx is high.

Portfolio Analysis of Hotels Industry

Average room rate: Average rate charged per night per room. This number can also fluctuate with demand.

Critical Success Factors:

Site & Location: This is the most critical factor. Distance from Central Business District, accessibility & transportation systems are crucial. Positioning & Guest Profile: Investment made in the assets and services, target customers, services offered, the people providing these services and pricing play a major role in the success of a hotel. Brand Recognition: Branding is the most challenging amongst all marketing strategies. It is important in places where people are brand-conscious Financial Strength: New hotel properties have a high break-even point. Early mover advantage is used by existing players Maintaining Consistency: All staff must have same attitude. Since image can be tarnished by minor slip-ups, positive outlook & ability to work as a team are most important Yield Management: Process of understanding, anticipating and influencing consumer behaviour so that revenue or profits can be maximised from a fixed, perishable resource. Sell the right resources to the right customer at the right time and right price. Industries using yield management include airlines, hotels, stadiums and other venues with a fixed number of seats and advertising. Combination of historical and current information management, policy supports, procedural support and statistical models Applications of IT: New roles like cutting costs & luring customers. With expanding operations, monitoring of assets was necessary. This led to the creation of Property Management System. Major advantages are reduction in costs, lesser use of human resources & ease of operations Differential Pricing: Discounts offered leading to increased occupancy rates but ARR does not increase proportionally. Magnitude of discount varies with client location & size of hotel

Analysis of factors influencing this industry:

Travel destinations can be classified into two groups: Business and Leisure. The following are the factors influencing these categories: Cyclical nature This industry, the hospitality sector, witnesses sustained growth and increasing Average Room Rates (ARRs) and Occupancy Rates (ORs) during favourable macroeconomic determinants such as higher nominal GDP. On the contrary, the trend tends to decline during phases of economic downturn. Business destinations are sensitive to macroeconomic indicators to a greater extent. Terror acts such as the attacks on the World Trade Centre, in Bali, Mumbai, etc., the outbreak of the H1N1 influenza, bird flu and other such deadly diseases have resulted in a decline in Free Trade Agreements (FTAs) during the respective periods caused a negative effect on RevPARs. Seasonal changes This industry is highly influenced by seasonal factors. The peak season for business and leisure destinations is the period January-March. Business destinations maintain ORs at a constant rate of about 5-10% lower than the peak season from April-November. But in December, they exhibit a

Portfolio Analysis of Hotels Industry

sharp increase due to the Christmas-New Year holiday across the world. On the other hand, leisure destinations are faced with lower ORs of about 55% during the period May-October while it is above 70% in December. Average Length of Stay and Occupancy Patterns There is higher demand for rooms in business destinations during weekdays and the average length of stay is between 2 to 2.5 nights with lower occurrences of double occupancy. In the case of hotels in leisure destinations, one can see a higher OR during weekends and a longer stay of around 2-3 nights coupled with an increase in double occupancy.

Models of Ownership:
Broadly, there are four ownership models in the hotel industry. They are: Full Ownership: This type of ownership warrants huge capital allocation and the owner undertakes higher risk. It also gives the owner full control over pricing, operating expenses and business decisions. Management Contract: Under this form, certain individuals called as operators run the hotel and receive remuneration directly from the owner as a percentage of sales, around 2-3%, and an incentive fee, around 8-9% of operating profit. Franchise: In this case, franchisors license their brands, thereby giving the hotel owner to use the brand and reserve rooms. The franchisees need to comply with certain conditions and standards stipulated by the franchisors and are subjected to checks. Franchisees pay fees in the form of an initial fee plus a royalty. Lease and License: Here, the owner of the property leases it for a definite duration. The lease rental is deducted from the gross revenue and a penalty is imposed if the agreement is not adhered to. Also, the licensor earns revenue in the form of a license fee and the revenue earned is given to the operator.

Revenue and Cost Structure

Hotel revenues are classified primarily under three categories: Room revenues: These are all the revenue received from room tariffs. It contributes 50-55% of the hotel revenues and has an operating margin in the range 65-75%. The total room revenue is calculated as Room revenues = Room nights sold * Average room rate where, Room nights sold = Number of rooms * Occupancy rate *Time period

Portfolio Analysis of Hotels Industry

F & B revenues: This includes revenues from restaurants and banquets. Food and beverages provide 30-35% of the hotel revenues and have operating margins in the range of 40-60% percent. Various factors play a key role in determining F & B revenues : Occupancy rate of the property, Banquets and Conferences, Hotel Location Other revenues: Other revenues include revenues from spa services, telecommunication services, laundry services and transport services provided by the hotel. These contribute 10-15% of the total hotel revenues.

Hotel Industry Classification in India

Hotels in India are broadly classified into 7 categories by the Ministry of Tourism, Government of India based on the service they offer. These 7 categories are five-star deluxe, five star, four star, three star, two star, one star and heritage hotels. These hotels can be clubbed into various segments as shown below Figure 1 Structure of Indian Industry
Structure of Hotel Industry in India

Premium and luxury segment

Mid-Market segment

Budget Segment

Heritage Hotels


Premium and Luxury segments This segment comprises the high-end 5-star deluxe and 5-star hotels, which mainly cater to the business and upmarket foreign leisure travellers and offer a high quality and range of services Mid-Market Segment This segment comprises 3 and 4 star hotels, which cater to the average foreign and domestic leisure traveller. This segment also caters to the middle level business travellers since it offers most of the essential services of luxury hotels without the high costs since the tax component of this segment is lower compared with the premium segment. Budget Segment These comprise 1 and 2 star hotels referred to as Budget Hotels. These categories do not offer as many facilities as the other segments but provide inexpensive accommodation to the highly priceconscious segment of the domestic and foreign leisure travellers. Heritage Hotels In the past four decades, certain architecturally distinctive properties such as palaces and forts, built prior to 1950, have been converted into hotels. The Ministry of Tourism has classified these hotels as heritage hotels. Others At any point in time, applications for classification are usually pending with the Ministry of Tourism because of which such properties remain unclassified. The number of hotel rooms pending classification has declined from historical 15-20 per cent to 5 per cent of the total rooms available in the recent past

Portfolio Analysis of Hotels Industry

The Ministry of Tourism, Government of India has set some guidelines for the star classification as given in the table
Hotels - Star classification criteria
Criteria Minimum number of lettable rooms Minimum size of bedroom excluding bathroom in sq ft Minimum size of bathroom in sq ft Percentage of rooms with A/C

1-star 10 120 30 > = 25 D D D D

2-star 10 120 30 > = 25 D N D D

3-star 10 140 36 > = 50 N N Multi Cuisine N N

4-star 10 140 36 100 N N Multi Cuisine N N N

5-star 10 200 45 100 N N Multi Cuisine N N N

5-D 10 200 45 100 N N Multi Cuisine N N N

PC available for guest use with internet access Telephone facility for guests in room Cuisine offering (Indian and continental) Bar/permit room2 Parking space Staff: Knowledge of English Other facilities Lobby and separate ladies and gentleman's cloakrooms Swimming pool Book Shop Travel desk facilities Money changer Safe keeping / in room safe Criteria Luggage facilities Beauty parlour/ barber shop Florist and general purpose stores Laundry and dry-cleaning service 24-hour reception information and telephone service N: Necessary; D: Desired 5-D: 5-star deluxe; A/C: Air conditioning
1 2

D N D 1-star D D N

D N D 2-star D D N

N D D N D 3-star N D D N

N D D N D N 4-star N D D D N

N N N N D N 5-star N D D N N

N N N N D N 5-D N D D N N

Except in hill stations where heating arrangements need to be provided Is mandatory in whichever states it is permissible

Notes 1) In a 5-D hotel, in addition to the features present in a 5-star hotel, the standard of service and amenities would be of a superior quality. Source: Department of Tourism (DoT)

Porters Five Forces Analysis:

Portfolio Analysis of Hotels Industry

Buyer power Unlike its international counterparts, the Indian industry was not affected by a decline recently and so may emerge from the global recession period stronger. Within the hotels and motels industry, where switching costs are rather negligible and competing on price alone is no longer a key to success, brand recognition and innovation helps to attract first-time customers and also repeat business. Due to a high reliance on sophisticated technology and systems and the growing importance of mobile communication channels, some suppliers may exert strong supplier power. Supplier Power Suppliers in this industry are defined as property owners, developers and real estate companies, interior design and furnishing companies, architects, management and training service providers, marketing companies, industry consultants, and information and computer technology (ICT) manufacturers. Real estate companies are often much smaller companies than hotel and motel operators and rather than being globalized, they are usually local to the property they develop, which reduces their financial muscle and ability to negotiate favorable contracts. Furthermore, hotels can integrate backwards and operate their own real estate business. The quality and availability of supplier services and equipment is essential to the hotel and motel industry. The industry is also labor intensive. Staff costs are significant as success in the hotel industry is strongly influenced by the quality of the service provided. Supplier power is assessed as moderate overall. New Entrants The hotels & motels industry is strongly influenced by travel and tourism trends. It is possible to enter the industry in a relatively low-key way by opening a small, independent hotel or motel as a sole proprietor. However, the industry is capital intensive, and for a large-scale entrance, upfront investment in buildings, dcor and furnishings, ICT infrastructure and staff is expensive. To sustain revenue growth in the premium market, operating a chain of hotels is often an important strategy as it reduces dependence on tourism in any particular location. Regulations in terms of real estate and buying abroad need to be taken into consideration and can therefore be restrictive in some countries. The purchase, leasing, and management of property may involve legal and financial complexities, necessitating spending on professional services. Overall, the likelihood of new entrants is moderate. Threat of Substitutes Substitutes to hotels and motels include alternative forms of leisure accommodation, such as camping facilities or recreational vehicles, or informal accommodation with friends and family. Switching costs range from negligible to high (e.g. the purchase price of a recreational vehicle). While all these substitutes offer the same basic function of a place to stay, up-market hotels and motels often provide added benefits, such as spas and restaurants. The switch is often out of necessity rather than choice so when consumers are in a more generally affluent position, the threat from substitutes is likely to decline. The threat of substitutes is assessed as moderate. Rivalry There are also a large number of independent players present in the industry apart from the existing houses. Larger number of players means increased competition.

Portfolio Analysis of Hotels Industry

Many larger operators have diversified to some extent and own additional businesses, such as casinos, restaurants and shops. To attract and sustain more business, operators try to offer more and more complex packages and value-added services, such as free breakfast and parking, free third night, etc. A recent trend among major hotel chains is lifestyle hotels whic cater to the conscientious traveler's demands for eco-friendly practices, social responsibility, and affordable style. The largest hotel and motel operators are fairly well insulated from unpredictable market conditions by geographical diversification. However, others are based largely or exclusively in one country.


Portfolio Analysis of Hotels Industry Industry Analysis- GE/ McKinsey Matrix

Following our classification of the hotel industry, we try to analyze the performance of all the players across segments using a GE/McKinsey matrix

The GE matrix is colour-coded to represent different industry segments Budget hotels Mid market hotels Luxury Hotels Resorts

We take a sample of 26 companies across the industry and analyze them on Industry attractiveness and Business Strength. The result is plotted in the above graph. The whole procedure is explained in the appendix

Looking at sub industries, budget hotels are least attractive, mainly because of high competition while resorts are most attractive. Industry attractiveness increases as the star level of the hotel increases. Sayaji Hotels come out to be a relatively poor player , with EIH Associates and Max Charles leading the charts. In the Mid Market segment, TAJ GVK is an outright performer due to its high efficiency of operation. It is also the largest market share holder. Strikingly, Leela Ventures though has a high brand strength, falls low on efficiency and hence is on the left end of the spectrum. Here also EIH and Indian Hotels lead the way. Both fare well on efficiency and brand strength. With 38% market share, it is the market leader. In Resorts, it is a slightly monopolistic market with only 3 major players. With 61% market share, Mahindra is the leader and also the strongest business.


Portfolio Analysis of Hotels Industry

Company Analysis
In 2010, within hotels, 16% of value sales were accounted for by the top four players. Indian Hotels (Taj brand and others, such as Ginger, The Gateway and Vivanta) led in 2010 with a 7% value share, followed by ITC (Welcome Heritage, Sheraton and Fortune Hotels) with a 4% share, EIH (Oberoi and Trident) with a 3% share and Hotel Leela Venture (The Leela) with a 1% value share. For our analysis we have chosen IHCL. Another reason for choosing this group is that in order to tap into the emerging middle-class in the country, and the growing trend for travelling amongst this group, most of the large hotel chains have entered the mid-priced segment, along with their existing luxury brands; for example the Ginger brand by IHC. Because of their quality services at an affordable rate, these reputable budget hotels are very popular with upper middle-income customers, as well as business travellers, especially junior and mid-level executives. At the same time, these hotels are considered to be safer than cheap and non-reputable budget hotels for the travellers.

Indian Hotels Company

The Indian Hotels Company (IHCL) and its subsidiaries, collectively known as Taj Hotels Resorts and Palaces, is one of Asia's largest and finest groups of hotels. Incorporated by the founder of the Tata group, Jamshedji Tata, the company opened its first property, the Taj Mahal Palace, in Bombay in 1903. The Taj, a symbol of Indian hospitality, completed its centenary year in 2003. Taj Hotels Resorts and Palaces comprises 93 hotels in 53 locations, including 25 Ginger hotels across India, with an additional 16 international. From world-renowned landmarks to modern business hotels, idyllic beach resorts to authentic grand palaces, each Taj hotel offers an unrivalled fusion of warm Indian hospitality, world-class service and modern luxury. Areas of Business: Brands Taj Vivanta The Gateway Ginger Stars Assigned 5-Star/5-Star Deluxe 4-Stars 3-Stars 2-Stars Category Luxury Mid-market Mid-market Budget

Taj is their flagship brand for the world's most discerning travellers seeking authentic experiences given that luxury is a way of life to which they are accustomed. Each Taj hotel reinterprets the tradition of hospitality in a refreshingly modern way to create unique experiences. Vivanta - IHCL unveiled brand Vivanta in September 2010. It is positioned as a premium brand below the luxury bracket occupied by brand Taj. The company utilised social networking sites such as Facebook and Twitter as well as news agencies such as the BBC and the FT to create a global buzz around the new brand. Gateway is a pan-India network of hotels and resorts that caters mainly to business and leisure travellers and is designed, keeping the modern nomad in mind. It is more about simplicity compared to the above two segments. Ginger is their revolutionary concept in hospitality for the value segment. Intelligently designed facilities, consistency and affordability are hallmarks of this brand targeted at travellers who value simplicity and self-service.


Portfolio Analysis of Hotels Industry

Strategic Outlook
The Taj Group of Hotels comes under the Star category in the BCG matrix drawn for the TATA group the reason being the highest market share of 7% as mentioned above and the high industry growth rate. Travel accommodation sees outlet growth of 9% and current value growth of 21% in 2010. The company has started using the Balanced Scorecard approach to use it as a system for strategic planning and management rather than being just a system for performance management.

SWOT Analysis for Indian Hotels

Strengths Wide variety of hotels present in the country in all segments that can fulfil the demand of the tourists. They can go for the Taj or if it is the price sensitive customer, Indian hotels are offering them Ginger. Established brands because of the continued history of Indian hotels. People associate Taj hotels with luxury. TATAs parental advantage adds another feather to Indian hotels.

Weaknesses Compared to the other hotels in order to provide the best service, Indian hotels are very heavily staffed which adds to their cost. Occupancy gets affected by Security scenarios like what happened in Mumbai terror attack. Such huge brands are greatly affected.

Opportunities Demand Supply Gap in India. Last year there was a huge dearth of hotels in major cities like Noida, Chandigarh and Goa. People are moving towards budget hotels because this is something that people can save upon which points towards the opening of more number of Ginger Hotels.

Threats Taj caters to a lot of foreign tourists whose arrivals fluctuate a lot in current recession scenario. We saw that the number of foreign tourist arrivals had fallen down in India post the global economic recession. There is competition from foreign hotel chains like the Marriott, Shangri-la. These are entering India in large numbers and trying to establish a strong foothold here which might actually be possible given the demand supply gap.

BCG Matrix for Indian Hotels

BCG Matrix has been developed for the 4 hotels that come under Indian hotels. These come in the three segments Luxury, Mid Market and Budget. The market growth rate for each of the 3 segments is given in the table below. The overall industry growth rate is 15%. This is where the line separating high and low industry growth rates has been drawn in the BCG matrix.


Portfolio Analysis of Hotels Industry

On the basis of market share calculations of the 4 hotels their market share has been listed in the table. The relative market share is also mentioned which is the market share relatives to the largest competitor in that segment. The relative market share would thus be greater than one if the Indian Hotels brand is the market leader. The line separating high and low market share is drawn for relative market share equal to one. The following is the table showing all the data

Hotel Ginger Gateway Vivanta Taj

Market share (Cr) 85.410 138.396 260.750 1228.333

% share 4.89 7.57 13.89 26.97

Largest competitor EIH Oriental Oriental EIH

Competitor's Share (%) 9.79 13.89 12.5 25.1

Relative share 0.499 0.545 1.111 1.075

Market Growth (%) 16 12 12 18

As can be seen from this table Taj is the market leader in the Luxury segment and Vivanta in the mid market segment although it is slightly upscale. In Budget segment EIH is the market leader and its also the market follower in Luxury segment. Oriental is the largest competitor in mid market segment. The BCG matrix is drawn below.

Key Takeaways from BCG matrix

Ginger is a Question mark. An intensive strategy needs to be adopted and more number of Ginger hotels needs to be opened in new cities to increase its market penetrations and leverage the high growth nature of the Budget Hotel segment. If its successful it might just become a Star in the future. Taj Hotels is a Star. It has the maximum brand value with all the history associated with it. More investment needs to be pumped into it to maintain its star status so that it doesnt shoot beyond the maturity phase of its product life cycle. Vivanta is a Cash Cow. The main reason for this is the economies of scale that are being offered its position as a market leader. Its position need to be maintained because this cash may be of use in the other segments.


Portfolio Analysis of Hotels Industry

Gateway turns out to be a Dog from the BCG Matrix. But the growth rate of the segment is actually not that low so its almost at the border of the Dog and the Question Mark. It could be combined with Vivanta which is a cash cow in the same segment or it could be made more budget oriented like ginger which enjoys a high market growth rate and is likely to bear high profits in the future.

Management Discussion and Analysis:

Economic Overview: Economy is back to its pre-crisis growth trajectory. Services sector continues its near double digit run. With the institutional reforms the economy's growth is expected to be in double digits in the near future. One of the biggest challenges is the poor state of its infrastructure. With an improved network of highways, railways and airports visitors and tourists will be able to explore the country and visit places that might have been inaccessible or left out, thus providing impetus to the hospitality industry too. Future Expansion Plans: The company has been allotted around 6 acres of land at Yelahanka near Bangaluru for hotel projects. The Company is also planning to enter the value for money segment through the 'Ginger' brand in Andhra Pradesh. Risk Management: Economic Risks: The hotel sector may be unfavourably affected by changes in global and domestic economies, changes in local market conditions, excess room supply, government policies and regulations, fluctuations in interest rates and foreign exchange rates and other natural and social factors. Socio-Political Risks: The Hotel industry faces risk from volatile socio-political environment, internationally as well as within the country. India, being one of the fastest growing economies of the world in the recent past, continues to attract investments. Security Risks: The Hotel industry demands peace at all times to flourish. The biggest villain in South East Asia has been terrorism supplemented by political instability. Risk of wage inflation: The hotel industry needs quality employees and with demand for the same improving across the industry, the Company feels that wage inflation would be a critical factor in determining costs for the Company. Foreign Exchange Risk: The Company may be impacted by the fluctuation of the Indian Rupee against other foreign currencies. To mitigate this risk the Company has migrated to single currency billing in Indian Rupees. Project Implementation Risk:


Portfolio Analysis of Hotels Industry

The Company may be impacted by delays in implementation of projects which would result in increasing project cost and loss of potential revenue.

Ansoff Matrix for Indian Hotels Company:

Penetration- Hotels under Taj Brand: A number of hotels were added to the portfolio in the luxury segment under the brand name of Taj since 1970s. The growth in this segment has been tremendous since Taj wanted to establish its presence in all the Tier I cities in India. In the new scheme of things, Taj will be the brand for the company's global foray - a magnet to get customers to its other properties. Market Development Through Global Expansion: Taj went for global expansion to build seamless connectivity to global customers who would also be potential customers of the companies properties in India. They adopted the strategy of entering into management contracts with small equity positions instead of outright ownership to spread available resources. The company has identified some gateway cities that feed markets in India and elsewhere in large numbers. The brand recall of Taj is low in the West, but once a customer stays with it the probability of him choosing it again is as good as any other brand. Diversification- Catering Services: Taj identified the need for world-class in-flight catering and invested in state-of-the-art facilities to provide catering that has become the talk of the industry in 1976. It has also entered into joint ventures to form Taj Sats to expand to other South Asian countries. Taj Air: Taj diversified into the aviation segment with Taj Air in 1993 to bring world--renowned service and Indian hospitality of the Taj Hotels Resorts and Palaces to the Indian aviation industry. Taj Air is globally recognized as the finest executive charter airline service in the country. It has earned reputation by redefining luxury, by consistently placing a premium on privacy, flexibility, safety, and reliability. TajAir is the preferred choice for its worldwide coverage, highly personalized experience and luxury on board Emerging Market Needs:


Portfolio Analysis of Hotels Industry

Over the years, new segments have emerged within the hotel industry. Within cities too, what appeals to one set of customers may not appeal to another set of people. Hence, Taj had to enter other segments in order to protect its market share. But entering into other segments with the same brandname would dilute the value of Taj. Hence a multi-brand portfolio strategy was adopted. Gateway: The primary strategy for The Gateway Hotels is to pave the way into untapped Tier-II cities and bring in a new class in hospitality in those cities. This constitutes all prominent economic, commercial and industrial centres. Cities that fit well into this strategy are those that act as a hub of commercial activity across critical industry sectors. The Gateway Hotel has been the largest brand in its category ever since its launch in 2008. The brand is targeted at a younger traveller who has had his first taste of success, is wired and works round the clock. It could have one specialty restaurant and one all-day diner. Of course, in the same city, it could be 15-20 per cent cheaper than Vivanta by Taj. Ginger: Ginger is a no-frill hotel for the budget traveller. The profit margins in this segment are much lesser compared to the luxury segment. Since domestic market is prone to lesser fluctuations, this segment was entered into as a strategy for de-risking current revenue stream. It is often located near the railway station or the bus stand. It does not run a restaurant - the function is outsourced. It was management guru CK Prahalad who had advised Ratan Tata that there was a huge gap between state-run guest houses and luxury hotels. The Indian Hotels Company had thus come out with IndiOne. That brand eventually gave way to Ginger. Product Development- Vivanta: Vivanta by Taj was lauched in 2010 after conducting extensive customer understanding studies. They could be 15-20 per cent cheaper than a Taj hotel, often located in the same city, is targeted at a younger traveller vis-a-vis Taj, and competes with the likes of Hyatt, Westin and Sheraton. Vivanta by Taj is wired hard to work and play. Jiva Spas: Taj launched spas of international standards with a unique treatment menu, the first and one of a kind Indian Spa. Jiva spas is the only luxury brand in Spas segment in India.

Joint ventures, subsidiaries, associates

Taj Sats Air Catering: a joint venture with Singapore Airport Terminal Services, a subsidiary of Singapore Airlines, TajSats Air Catering is the largest airline catering service in South Asia Roots Corporation: a wholly owned subsidiary that operates the Ginger chain of budget hotels in India.

Partnerships and Alliances

Taj Hotels partners with all the major airlines so that its guests get opportunity to earn frequent flier miles with any of the airline frequent flyer programmes whenever they stay at the Taj at rack rates or corporate rates.


Portfolio Analysis of Hotels Industry

Victorian Jungfrau Collection: Taj strategic joint marketing alliance will develop cross-promotional opportunities for both companies to harness each other's strengths in their respective markets. Okura Hotels & Resorts: The Okura-Taj strategic marketing alliance brings together 7 Okura hotels across 3 countries and 9 Taj Luxury hotels in 5 countries. Combined reservation services are made available through the Okura CRO and the Taj Reservations Worldwide. Allows members of the Okura Club and Taj Inner Circle to earn and use loyalty points at the participating hotels Silversea Cruises: The Silversea-Taj partnership will provide guests with a total of 19 Taj Luxury Hotels and four Silversea ships offering not only comparable service and quality, but also distinct experiences in unique destinations to choose from. The Shilla Hotels & Resorts: The Shilla-Taj marketing alliance will offer guests a portfolio of 19 hotels (17 under the Taj Luxury Hotels portfolio and 2 from The Shilla Hotels & Resorts). These hotels are treasured historic landmarks and destinations unto themselves. They share a mutual culture, which places a premium on offering high-quality service while maintaining the unique appeal of each hotel.

Parenting Advantage
The Parenting Advantage model is a framework that describes how a parent company can (help) create value. In the article, "From Corporate Strategy to Parenting Advantage", Michael Goold and Andrew Campbell argue that the parent company should not only add value to a business unit, but add more value than any other potential parent - they call this: "Parenting Advantage". Brand Equity: Since Indian Hotels Company Limited is an established corporation with Taj as a wellrecognized brand name, having Tata as the parent company brings no serious benefit to the company in the form of brand equity. Tata Group does not associate its name with IHCLs global brand, Taj. From observing this emergent strategy, we can conclude that the Tata brand is not leveraged to publicise the luxury hotels internationally. Service Quality: In the last few years Taj has undertaken a number of steps to significantly enhance service levels to be in line with the best in class and to build superior customer relation. Taj has constantly benchmarked itself with the key international luxury chains and strived to raise the bar. Taj's service excellence philosophy, has at its core, delivery through people, processes and culture. Tata Business Excellence Model (TBEM) will play a significant role in raising the bar of service provided. The model works under the aegis of Tata Quality Management Services (TQMS), an inhouse organisation mandated to help different Tata companies achieve their business excellence and improvement goals.

Impact of Union Budget 2012-13 on the Hotel Industry and Recent Developments:
The increase of service tax to 12% from the existing rate of 10%, a rise of 2%, will adversely affect the hotel industry. Also, the abatement provided for accommodation in hotels has been reduced from 50% to 40%. Thus, the effective tax rate for hotel accommodation will rise to 7.2% from the present rate of 5%. But, this increase would be offset by the availability of tax credit for input services. The announcement to allow100% deduction to the franchisee model is on the positive. Overall, it can be interpreted as a relatively neutral effect with a slight negative influence on the sector.


Portfolio Analysis of Hotels Industry

In the Financial Year 2010-11, hotels were included in Section 35 AD of the Income Tax Act 1961 which enabled the sector to avail investment-based deductions on all capital expenditures made except on land for hotels that are 2-Star and above in nature throughout India. This attracted new investments in this sector. The government had allowed 100% FDI in the hotel and tourism industry.


Portfolio Analysis of Hotels Industry Appendix:

Vertical Parameter Market Growth Market Profitability Intensity of Competition Efficiency Brand Strength Access to Financing Captured by 5 year industry CAGR Industry average operating margins Herfindahls Index Data Envelopment Analysis Ability to charge premium for commodity Debt-Equity ratios

Industry Attractiveness

Business Strength

Sample set of companies From each of the segments in which we have classified the industry, we choose few representative companies. These are those players within the industry of whom financial statements are publicly available.
Premium Hotels Asian Hotels (N) Bharat Hotels EIH Hotel Leela Venture Ltd. ITDC Indian Hotels Mid-market hotels Taj GVK hotels Oriental Hotels Asian Hotels (W) Bhagwati Banq. The Byke Hospitality Ltd Budget Hotels Advani Hotels Asian Hotels (E) Blue Coast Hotels EIH associate Hotels Formento Resorts Graviss Hospitality Ltd. Kamat Hotels Mac Charles India Ltd. Sayaji Hotels Sinclair Hotels UP hotels Resorts Mahindra Holiday & Resorts Sterling Holiday resorts India Country Club (India)

Rationale of the choice of above parameters and description of the methodology For gauging industry attractiveness, we have considered market growth and market profitability to take an outsiders perspective and an existing players incentive on how attractive the industry is. The better is the market growth and more are the operating margins, the more will an existing player try to consolidate his position and a new entrant be eager to come in. Competition and Rivalry is another important factor which needs to be looked at. The more cut throat is the competition, the better the industry can perform and the more efforts individual players have to put in. This factor is captured by Herfindahls index for each sub-industry. For estimating, strength of each player, the single most important parameter is the efficiency. Simply put it is the capability to convert a set of common inputs to outputs and we determine how well the companies perform on a relative scale. Brand Strength is the second parameter. With this , we try to find how strong is the intangible brand because hotels are an industry where value added services form a major part. This factor is captured by taking the starting price of Double bed A/C rooms in all of the sample set hotels and putting them on a brand strength scale. Finally, we use the Debt-Equity ratios to estimate how easy it will be for these companies to have access to new financing for expansion purposes.


Portfolio Analysis of Hotels Industry

Data Envelopment Analysis A non-parametric technique, Data Envelopment Analysis harps on the fact that any industry converts certain inputs into certain outputs and finds out how efficiently they are able to utilize these inputs. We choose capital employed, gross fixed assets, current assets and operating costs as the inputs. Our desired set of output is operating income and EBITDA. Let xi denote all the input parameters and yi be the output parameters. Let u be the weight vector for inputs and v be the input vectors for outputs. The efficiency parameter will be then , vyi / uxi This will give how efficiently each hotel is using xis to make yis. We use solver analysis to maximize weighted average outputs upon inputs for the industry, making sure that the efficiency parameter for the individual companies not becomes more than 1 and the weights are appropriate. Let xij be jth input parameter for ith company and yij be jth output parameter for ith company. Let xi be ith input parameter for the industry and yi be ith output parameter for the industry. Solver formulation Maximize vyi / uxi Subject to, vyij / uxij <= 1 , for i goes for all companies and v >= 0 and u >= 0 and uxi = 1

DATA SHEETS Efficiency

Inputs capital employed Asian Hotels (N) Bharat Hotels EIH Hotel Leela Venture Ltd. ITDC Indian Hotels Asian Hotels (W) Bhagwati Banq. Lemon Tree Hotel Oriental Hotels Taj GVK hotels The Byke Hospitality Ltd Advani Hotels Asian Hotels (E) Blue Coast Hotels EIH associate Hotels Formento Resorts Graviss Hospitality Ltd. Kamat Hotels Mac Charles India Ltd. Sayaji Hotels Sinclair Hotels UP hotels Mahindra Holiday & Resorts Sterling Holiday resorts India Country Club (India) 1375.49 1635.30 3411.76 5410.27 305.32 4692.92 421.04 241.30 637.10 506.70 452.58 63.86 36.68 770.35 434.62 303.21 47.90 293.96 545.93 218.16 221.31 82.09 63.74 504.88 40.04 837.41 gross fixed assets 1058.60 1320.55 2619.69 4622.39 140.19 2605.18 372.97 255.75 248.60 386.79 493.66 16.47 67.56 213.60 251.74 386.05 68.40 181.34 390.77 114.15 247.62 48.62 82.92 542.03 262.12 519.08 current assets 39.81 378.86 1047.97 580.98 458.46 535.36 51.59 62.39 206.00 142.64 45.80 19.33 9.97 39.68 45.26 52.79 34.74 130.39 240.45 108.22 40.45 43.78 29.74 952.63 225.90 176.77 operating costs 21.13 51.23 115.19 52.44 162.02 196.70 12.11 9.76 7.62 42.50 23.70 25.80 5.05 11.42 10.88 19.72 9.07 8.95 13.71 12.15 15.09 1.58 13.81 17.99 6.66 12.72 Outputs operating income 72.15 91.28 240.68 114.21 -11.74 380.28 35.77 21.60 56.47 45.76 77.11 3.23 3.00 36.24 21.26 43.36 9.79 12.98 38.23 35.37 21.43 7.10 19.24 151.88 -26.82 40.78 EBITDA 83.03 125.08 328.12 182.64 -6.14 488.74 46.00 26.14 68.04 61.15 97.72 4.09 5.48 43.03 30.05 56.11 12.80 18.19 50.74 40.75 33.68 8.51 21.86 171.98 -22.56 59.21 Efficiency 0.463 0.451 0.552 0.241 -0.025 0.727 0.655 0.512 1.000 0.526 1.000 0.118 0.360 0.746 0.550 0.719 0.576 0.377 0.550 1.000 0.623 0.666 0.746 1.000 -0.394 0.553


Portfolio Analysis of Hotels Industry

Access to financing
Premium Hotels Asian Hotels (N) Bharat Hotels EIH Hotel Leela Venture Ltd. ITDC Indian Hotels Budget Hotels Advani Hotels Asian Hotels (E) Blue Coast Hotels EIH associate Hotels Formento Resorts Graviss Hospitality Ltd. Kamat Hotels Mac Charles India Ltd. Sayaji Hotels Sinclair Hotels UP hotels From capitaline D/E(Mar'11) 0.62 0.86 0.59 3.89 0 0.85 Mid Market hotels Asian Hotels (W) Bhagwati Banq. Lemon Tree Oriental Hotels Taj GVK hotels The Byke Hospitality Ltd Resorts Mahindra Holiday & Resorts Sterling Holiday resorts India Country Club (India) D/E(Mar'11) 0.22 0.76 0.48 0.7 0.43 0

0.39 0 1.27 2.24 0.25 0.05 2.42 0.01 1.96 0 0

1.88 0 0.29

Herfindahls Index
HHI Premium Hotels Asian Hotels (N) Bharat Hotels EIH Hotel Leela Venture Ltd. ITDC Indian Hotels Budget Hotels Advani Hotels Asian Hotels (E) Blue Coast Hotels EIH associate Hotels Formento Resorts Graviss Hospitality Ltd. Kamat Hotels Mac Charles India Ltd. Sayaji Hotels Sinclair Hotels UP hotels Sales (Cr.)'2010-11 240.78 398.91 968.6 525.82 367.18 1673.5 4174.79 33.73 82.55 90.28 173.45 44.15 69.25 120.7 50.96 111.78 14.99 69.56 861.4 Fraction 0.057675 0.095552 0.232012 0.125951 0.087952 0.400858 Square 0.003326 0.00913 0.053829 0.015864 0.007736 0.160688 0.250573 0.001533 0.009184 0.010984 0.040545 0.002627 0.006463 0.019634 0.0035 0.016839 0.000303 0.006521 0.118133 Mid Market hotels Asian Hotels (W) Bhagwati Banq. Lemon Tree Oriental Hotels Taj GVK hotels The Byke Hospitality Ltd Resorts Mahindra Holiday & Resorts Sterling Holiday resorts India Country Club (India) Sales (Cr.)'2010-11 137.24 115.6 74.67 234.74 259.28 33.24 854.77 Fraction 0.160558 0.135241 0.087357 0.274624 0.303333 0.038888 Square 0.025779 0.01829 0.007631 0.075418 0.092011 0.001512 0.220641

0.039157 0.095832 0.104806 0.201358 0.051254 0.080392 0.140121 0.05916 0.129765 0.017402 0.080752

487.13 0.655811 0.430088 38.66 0.052047 0.002709 217 0.292142 0.085347 742.79 0.518144

HHI of sub industry

Brand Strength
7200 10000 8500 16000 11400 10000 2999 4200 5600 14000 12000 5000 Asian Hotels (N) Bharat Hotels EIH Hotel Leela Venture Ltd. Indian Hotels ITDC Asian Hotels (W) Bhagwati Banq. Lemon tree Oriental Hotels Taj GVK hotels The Byke Hospitality Ltd A/C Double room rent 7200 10000 8500 16000 11400 10000 2999 4200 5600 14000 12000 5000 Advani Hotels Asian Hotels (E) Blue Coast Hotels EIH associate Hotels Formento Resorts Graviss Hospitality Ltd. Kamat Hotels Mac Charles India Ltd. Sayaji Hotels Sinclair Hotels UP hotels Country Club (India) Mahindra Holiday & Resorts Sterling Holiday resorts India A/C double room rent 6850 6400 8550 17000 7000 11250 5550 8161 4700 3860 6500

For resorts, as rooms are available only on membership, through basic research we have concluded that they have more brand strength than most hotels


Portfolio Analysis of Hotels Industry

Market growth and market profitability

market growth Premium hotels Mid market hotels Budget hotels Resorts market profitability Premium hotels Mid market hotels Budget hotels Resorts

5 year industry CAGR 18.42% 12.44% 16.16% 11.51% industry operating margins 26.38% 29.43% 24.67% 25.06%

Market share
market share market share in sub industry 5.33% 9.91% 25.10% 12.15% 8.74% 38.78% 7.33% 6.16% 6.31% 12.50% 13.89% 1.78% Advani Hotels Asian Hotels (E) Blue Coast Hotels EIH associate Hotels Formento Resorts Graviss Hospitality Ltd. Kamat Hotels Mac Charles India Ltd. Sayaji Hotels Sinclair Hotels UP hotels Mahindra Holiday & Resorts Sterling Holiday resorts India Country Club (India) market share in sub industry 1.37% 5.61% 5.12% 9.79% 2.61% 3.98% 7.38% 4.41% 6.25% 1.06% 4.02% 61.03% 6.63% 24.80%

Asian Hotels (N) Bharat Hotels EIH Hotel Leela Venture Ltd. ITDC Indian Hotels Asian Hotels (W) Bhagwati Banq. Lemon Tree Hotel Oriental Hotels Taj GVK hotels The Byke Hospitality Ltd

Weight of parameters and ranking criteria The weights of each parameters are assigned as follows
Vertical Parameter Market Growth Market Profitability Intensity of Competition Efficiency Brand Strength Access to Financing Weight 33% 33% 33% 50% 35% 15%

Industry Attractiveness

Business Strength

After data and subsequent analysis has been done, for all the parameters we rank then on the basis of which percentile block they fall into.
Percentile Block 0 to 12.5% 12.5% to 25% 25% to 37.5% 37.5% to 50% 50% to 62.5% 62.5% to 75% 75% to 87.5% Score 0 1 2 3 4 5 6


Portfolio Analysis of Hotels Industry

87.5% to 100% 7

After scores have been assigned to each parameter, weighted average with the weights assigned is found out to get the single value for industry attractiveness and business strength. With both these as axis and the market share as bubble size, a bubble chart is plotted.
Name Advani Hotels Asian Hotels (E) Asian Hotels (N) Asian Hotels (W) Bhagwati Banq. Bharat Hotels Blue Coast Hotels Country Club (India) EIH EIH associate Hotels Formento Resorts Graviss Hospitality Ltd. Hotel Leela Venture Ltd. Indian Hotels ITDC Kamat Hotels Lemon tree Mac Charles India Ltd. Mahindra Holiday & Resorts Oriental Hotels Sayaji Hotels Sinclair Hotels Sterling Holiday resorts India Taj GVK hotels The Byke Hospitality Ltd UP hotels business strength 1.8 4.75 2.5 3.25 1.3 2.4 3.4 5.05 3.85 4.95 3.8 3 2.1 5.05 2.8 1.85 4.3 5.45 6.1 3.4 2.35 3.55 3.5 6.2 1.4 4.75 industry attractiveness 0.53 0.53 0.7 0.64 0.64 0.7 0.53 0.88 0.7 0.53 0.53 0.53 0.7 0.7 0.7 0.53 0.64 0.53 0.88 0.64 0.53 0.53 0.88 0.64 0.64 0.53 market share 1.37% 5.61% 5.33% 7.33% 6.16% 9.91% 5.12% 24.80% 25.10% 9.79% 2.61% 3.98% 12.15% 38.78% 8.74% 7.38% 6.31% 4.41% 61.03% 12.50% 6.25% 1.06% 6.63% 13.89% 1.78% 4.02%


Portfolio Analysis of Hotels Industry

Following is a bubble plot for the 26 companies cutting across the hotel industry in India.

The GE matrix is colour-coded to represent different industry segments Budget Hotels Mid market Hotels Premium Hotels Resorts


Portfolio Analysis of Hotels Industry References:

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. Industry Characteristics, CRISIL Research, Date-July 29, 2011 Hotels and Motels in India, Datamonitor report October 2011 India Tourism Reports, Q2 2012, Business Monitor International Industry Insight-Indian Hotels, Cygnus Business Consulting and Research 2011 Premium hotels market size stands at Rs.112 billion as of 2010-11, CRISIL Research, Date July 29, 2011 Revival in demand pushes up revenue, CRISIL Research, Date July 29, 2011 Large Supply additions to hamper RevPAR growth, CRISIL Research, Date Aug 1, 2011 Hotels employ a variety of business models, CRISIL Research, Date - July 29, 2011 Impact of Union Budget 2012-13 on the hotel industry Expectations from the Union Budget 2012-13 - A table copied from the heading 'Hotels') Management Discussion and Analysis of Taj Hotels - Euromonitor Report on Travel Accommodation in India