Submitted by Section C Group-11 PGP2011553 ANKIT PANDEY PGP2011605 KUSHAL CHITTAM PGP2011752 NIRAJ SOUNDARARAJAN PGP2011772 PAUL PRATAP PGP2011799 PULKIT MAHESH PGP2011834 ROOPAKSHI PATHANIA PGP2011917 SREE RAMYA T.
ADR = Average Daily Rate; RevPAR = Revenue per available room = Average Daily Rate*Occupancy
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.
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.
Mid-Market segment
Budget Segment
Heritage Hotels
Others
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
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
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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)
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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
INFERENCES
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.
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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.
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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.
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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.
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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:
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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.
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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.
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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
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
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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
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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%
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The GE matrix is colour-coded to represent different industry segments Budget Hotels Mid market Hotels Premium Hotels Resorts
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