Tourism – Turning into integral part of lifestyle
In the past few years, the Indian tourism sector has experienced a sea change in its landscape, with travel being considered an integral part of one’s annual calendar. With income levels expected to rise along with various initiatives by the Government of India to enable the travel & tourism ecosystem, this should augur well for the hospitality industry. Strategic initiatives include relaxed FDI policies, revamping of the ‘Incredible India’ campaign, various schemes viz. UDAN, PRASAD, National Heritage City Development, Augmentation Yojana (HRIDAY) and extension of e-visa to 166 countries. The recent move by the government with regard to lowering the e-visa fees and reducing GST rates for hotel rooms will again make India a more attractive destination. Going ahead, all these factors are expected to keep demand growth healthy. With supply growth slowing down, we believe the industry is at the cusp of an uptrend.
Tourism remains key focus area of government
The Indian travel & tourism industry plays a significant role in the nation’s growth through employment, revenue generation as well as foreign exchange earnings. Being among the top 10 contributors to global travel and tourism GDP, it plays a significant role in economic and social aspects, generating $247.3 billion in 2018, growing by 6.7% and contributed 9.2% to the Indian economy. The government has announced various initiatives in enabling the travel and tourism initiatives. The latest moves were GST rate reduction for hotels and lowering of visa fees. The fees under the new e-visa scheme have been brought down substantially from $80-100 to $30-45. Further, the recent GST rate reduction (from 28% to 18% for tariff above | 7500 and from 18% to 12% for tariff below | 7500 for hotels) has made the cost of tour in India cheaper and more competitive.
Industry to witness uptrend with demand outpacing supply
Demand for India’s hospitality sector will continue to benefit from underpenetration of hotels in India vs. developed economies, moderation in new room supply, improved connectivity, rising income levels and growing service sector that will aid increased business travels. Inbound tourism is also on a growth trajectory aided by favourable policies and developments such as e-visa, expansion of visa on arrival facility, the Incredible India 2.0 campaign and better regional connectivity. The supply growth projection of 5% in the next five years would help keep occupancy levels healthy. Average occupancy levels are expected to increase to 73% by FY23E, which should create room for ARR improvement for the companies, going forward.
Chalet Hotels and Lemon Tree Hotels set to reap benefits
The hospitality sector was in troubled waters since late 2008 due to substantial supply growth coupled with a slowdown in demand. Occupancy has revived since FY14 and more notably from FY15, as demand conditions have improved and new supply has slowed. The upward trend in RevPAR has mainly been occupancy led and is expected to gain further momentum. With supply slowing down and demand expected to improve with government initiatives to boost tourism (e-visa, GST rate cuts, revamping “Incredible India”), improving connectivity (UDAN scheme, road projects, etc) an uptrend looks to be on the cards for the hospitality industry. We like Chalet Hotels and Lemon Tree Hotels in this space. We initiate coverage on Chalet Hotels with a HOLD rating and on Lemon Tree Hotels with a BUY rating.
Tourism - key focus area of government
In the past few years, the tourism sector in India has experienced a significant change in its landscape, with travel being considered an integral part of one’s annual calendar. The Government of India along with the state governments are also playing a key role in enabling the travel and tourism ecosystem. Strategic initiatives including relaxed FDI policies, revamping of the ‘Incredible India’ campaign, the Ude Desh Ka Aam Nagrik (UDAN), Pilgrimage Rejuvenation and Spirituality Augmentation Drive (PRASAD), National Heritage City Development, Augmentation Yojana (HRIDAY) schemes and extension of e-visa to 166 countries have helped expand the nation’s travel and tourism scenario. Foreign tourist arrivals (FTAs) in 2018 were at 10.56 million compared to 10.04 million in 2017. It has also earned foreign exchange to the tune of US$28.9 billion, accounting for 5.4% of total national exports. Being among the top 10 contributors to global travel and tourism GDP, it plays a significant role in economic and social aspects, generating US$247.3 billion in 2018 growing 6.7% and contributed 9.2% to the country’s economy. The recent move by the government with regard to lowering the visa fees and reducing the GST rates for hotel rooms will again make India a more attractive destination. In turn, this would help augment the tourist arrivals growth. This, coupled with an expanding middle class population, will provide opportunities for greater number of Indians to travel domestically.
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