Hotel Bonanza
Friday, December 15, 2006
|
4 comments
With the growth in India, the hotel business, of course, is booming as well. Sequoia has validated this opportunity with its investment in Royal Orchid Hotels, a Bangalore chain.
I am, however, also intrigued by the opportunity in smaller hotels in the non-major-metro destinations that are becoming key for business travelers because of the steel and infrastructure boom.
On my way over, I sat next to French woman. She was traveling to meet her English boyfriend in Durgapur, who is working on an infrastructure project. I asked her where she would stay. She didn’t have a good answer.
From my own knowledge of traveling through India over the years, the offerings in smaller towns are generally a lot weaker than in the metros. I see, therefore, an opportunity for a business hotel chain of, say, 15-30 rooms each, strategically placed in the towns that are beneficiaries of the steel boom, for example. There may be similar opportunities around power plants, ports, textile towns, etc.
In our relentless focus on IT, we often forget other sectors that also offer eco-systems that represent great opportunities for entrepreneurship.
I don’t remember off the top of my head but last I head the Tata’s (and Ambani’s and Bharti group too) were thinking of such offerings. The Motel8’s and Choice Hotels of India are in the making!
It is interesting you mention the opportunity of “business hotels” in non-metros. I was recently discussing with a friend of mine who has started a chain of branded business hotels (35-40 rooms). The deduction of our discussion was that the fixed cost associated with a small hotel / motel is very high and limiting that to 35-50 rooms is generally not suitable.
Amit,
I guess that depends on your assumptions of the fixed costs.
Also, one very key thing to consider is the real estate aspect of such ventures. Real Estate appreciation in India is tremendous right now, and in case of a hotel of the size we’re discussing, if the property is “owned”, as opposed to leased, is also a major factor in contributing to long term appreciation of enterprise value.
Sramana
The trend nowadays is towards budget hotels and service apartments. In cities where the IT sector is booming, such hotels are a distinct success. We need VC’s to look at the IInd tier cities and upcoming IT destinations in India.