final economics india 6a
TRANSCRIPT
Investment In India
2016
HOTEL INDUSTRY FIONA CAO (31560); KWOK CHI KWAN SISI(30338)
CLASS 6A (INRODUCTION TO ECONOMICS)
2
Table of Content
Ø INTRODUCTION 4
Ø WHAT IS HAPPENING IN THE WORLD 4
US ELECTION 4 ISIS ATTACK 5
Ø WHAT IS HAPPENING IN INDIA? 7
PESTEL ANALYSIS – AN OVERVIEW OF INDIA 7
Ø WHAT IS HAPPENING IN THE HOTEL INDUSTRY? 11
Ø HOTEL INDUSTRY IN INDIA 13
Ø MARKET STRUCTURE 14
MARKET SIZE 14 GOVERNMENT INITIATIVES 15 MONETARY POLICY TOWARDS HOTEL INVESTMENT 16 REASON AND OPPORTUNITY TO INVEST 18
Ø WHY UDAIPUR? 19
Ø EXTERNALITIES 22
Ø MONETARY 23
FINANCIAL STATEMENT ANALYSIS 23 THE OBEROI GROUP MISSION 23
Ø LABOR 29
Ø ABOUT OBEROI UDAIVILAS HOTEL: 30
PHYSICAL ANALYSIS 30 ROOM RATE (SUMMER SEASON) 31
Ø SUSTAINABILITY AND COMPETITOR ANALYSIS 31
ROOM RATE COMPARISON 31 ELASTICITY 32 OCCUPANCY COMPARED TO THE WORLD 33 EIH GROUP 33
Ø COMMENTS & RECOMMENDATIONS 35
3
SWOT ANALYSIS – AN OVERVIEW OF INDIA 35 SWOT ANALYSIS - HOSPITALITY INDUSTRY SECTOR IN INDIA 37
Ø REFERENCES 40
4
Ø Introduction
This report is about the investment in hotel industry in India. We will start from
the major events in the world right now and in India. Then we will talk about the
hotel industry from a new perspective. Depending on the research about the city
Udaipur and the facts about the hotel Oberoi Udaivilas, we will determine the
pros and cons for the investment. In the conclusion, we will leave our final
comments and recommendation about the sustainability of the investment and
whether it is a good idea to invest or not.
Ø What is Happening in the World
US Election
We start from a broad panic news: US election. It will take place on
November 8, 2016. And why we say it is a panic news? A study survey from
BuzzFeed, one of the biggest Internet
media in the world, says that Donald
Trump has 97-99% of chance to win the
election if he wins the republican
domination. And the formula only has
been wrong once since 1912.
(BuzzFeed, 2016) Let’s have a look at
the current situation about the republican domination. As we can see from
the map, the blue part, which reflects Trump, has the biggest majority.
Trump has the majority support, 37.05%, compared to the second place Ted
Cruz who has 26.92%. (RealClear Politics, 2016) The Reason why we need
5
to worry is because we all know that Donald Trump is a rude racist who
behave very strangely and have weird mind. He is very “famous” for
against all the immigrations in U.S. U.S is the most popular immigration
destinations in the world. In the report in 2013, U.S. has 20% of the total
immigration population in the world and has the most immigration
population in the world. And according to the official registration, around
45.8 million immigrations live in U.S. which take place of 13% of the total
population. (Zong & Batalova, 2015) And Indian immigrants cover around
5% of the whole immigration population and play the most important role
in technology development in U.S. (Zong & Batalova, 2015) If Trump wins
the election, will he really exile all the immigration out? Will U.S. develop
normally after it and how it will affect the whole world since it is still the
country with the biggest economical influence. Will it egg people on
enough to start war or revolution? The world will remain panic until one
reasonable elector win the “prize of president of U.S.A”.
ISIS Attack
(MailOnline, 2015)
ISIS is trying to expand all around the world as we can see from the map
6
above. And for the current information, it already started Ramadan attacks
in Indonesia and Brussels. It seems stopped at the boarding of India for the
moment. But according to Indian Official News, it conformed that around
30,000 people in India are ready to work for ISIS to against their own
nation. And the government started to block their communication as much
as possible to reduce the possibility of terrorist attack. (India News, 2016)
The following news which is from Washington and reviewed by 3 US
Intelligence Officials that ISIS is preparing to attack New Delhi might
enhance with the news before. (PTI, 2015)
In conclusion, there are so many things are happening right now in the
world, from economics to political, from racism to terrorism, so they define
an unstable situation with plenty uncertainty for the moment, especially
nowadays the technologies allow more connection among all the nations,
except North Korea. So we are all bounded together and influencing more
than we can imagine.
7
Ø What is Happening in India?
PESTEL Analysis – An overview of India
Political – Legal Factor
• The world's largest democracy and a multi-lingual federal state
• A nuclear-armed state and federal political system
• Conflict with Pakistan since 1947 over the disputed territory of Kashmir
• Encourage economic reform and foreign investment since 1980s
• Robust legal and Intellectual Property Regime (IPR)
• Strong commitment to calibrated financial liberalization
• Common Law is enforced in India
• A well developed tax structure with a three-tier federal structure
(Union Government, the State Government and the Urban7 Rural Local Bodies)
• India is aggressively pushing for a more liberal global trade regime, especially
8
in services.
• For direct tax, the investor is required to pay tax on net income earned in India
but the rates of taxes differ among structures.
• For company incorporated in India is required to pay 30% cess
(tax+surcharge+education) on net income earned.
• The state government incentives include: stamp duty exemption for land
acquisition
• Service Tax for Hotel: The Government has exempted renting of rooms with a
declared tariff of less than Rs.1000 from the applicability of service tax.
• Indian law has listed raping as a crime in 2013
Economic Factor
• Fast-growing and powerful economy
• GDP growth rate is faster than China.
(Projected 7-7.5% in 2016-17, 5.70 % in 2020.)
• Consumer prices is accelerating for the sixth straight months
(Increased from 5.61% to 5.69 % in January 2016)
• Policy towards foreign capital are liberalized and the share of foreign equity
participation has increased while the activities are fully permitted by the
Foreign Direct Investment
• Foreign Investment Promotion Board (FIPB) helps to promote and channelize
the foreign investment in India
• Food inflation reached the highest in seventeen months (6.85% in December
2015). A moderate inflation would help anchor inflation expectations and
foster both consumer spending and investment.
• The buying power of Indian consumer is high (middle-class and upper-class)
• The Twin Balance Sheet problem is one of the major short-term challenges to
private investment and a full-fledged economic recovery. It refers to the
9
impaired financial positions of the public sector banks burdened with high
non-performing assets; and some corporate houses, which are under financial
stress as demand has slowed down globally (Newindianexpress, 2016)
Socio - Cultural Factor
• The second most populous country in the world (1.31 billion in 2016)
• Population growth rate at 1.2% → 1.53 billion in 2030
(Poverty, illiteracy, high fertility rate, rapid decline in death rates or mortality
rates and immigration from Bangladesh and Nepal.)
• 65% current population is below 35 years old
• The birth rate is 22.22 births/1,000 population
• The largest illiterate population in the world (74.04% in 2011)
• Highly diverse in languages, cultures and religions
• Hinduism is the most dominant religions in India (80%)
• Strong consumerism in the domestic market.
• Discrimination due to the caste system (e.g. quota system for government jobs
and university seats for the lower caste)
• Rape and violence against women are a massive problem in India
Environmental Factor / Negative Externalities
• Serious environmental problem is a big issue due to the lack of education,
industrialization and urbanization
• Nearly 30% of India's gross agricultural output is lost every year due to soil
degradation, poor land management and counter productive irrigation.
• Water pollution caused by improper disposal of industrial waste and chemical
e.g. The Ganges which is the India’s holy river has become one of the most
polluted river in the world that is full of sludge and poison
• Poor management and abuse of power causing mass deforestation of India.
Protected areas are largely declassified so that commercial activities can take
10
place but new areas are not reclassified. (Wakefield, 2015)
• Tourist centers such as Goa suffers due to badly managed development and
excessive tourism due to the lack of legislation and policy enforcement.
• India is one of the country with the worst qualities of air in the world in the big
cities like Delhi and Mumbai
Technological Factor
• There is an increase technological cooperation between state-owned and private
players over the last few years
• Rising in mobile sector with an expected GDP reached 8.2% by 2020
• India has strong focus in industrialization and technological development.
(Nuclear energy sector, nanotechnology, pharmaceutical industry etc.)
• The government invested heavily for the technology-driven Green Revolution to
revamp the agriculture sector
• There is an aspiration for India to become the world’s top five scientific powers
by the Indian Government.
• Increased investment on sophisticated technology that captures data and creates a
compelling Management Information Service
11
Ø What is happening in the Hotel
Industry?
We all know that the hotel
industry contains Luxury, Boutique, Economic, hostile kinds and so on. And the price
is dropping through the range in the traditional hotel industry. Then let’s discover
something really huge and brand new.
Major Trend in Hospitality Industry!
According to the founder of Hospitality Gal, the most significant event is happening
in hotel industry is the emerging of Airbnb. We can see from the chart below that in
shortly 3 years, the users of Airbnb have expanded more than ten times. The growing
is out of control and what influence did it bring to the industry?
The nightly booking doubled the size from 40 million to 80 from 2014 to 2015.
(Gerhard, 2015) Only in NYC in year 2015, the hotel industry lost the revenue of $2.1
billion due to the customers switching to the choice of Airbnb. (Gerhard, 2015) And it
indicates that if the expansion continues, the industry will continue have at least $4
billion negative impact for year 2016. Moreover, it caused almost 2800 people loss
their jobs in the hotels. (HMN Newswire, 2015) The reason behind the truth is
(GrowthHackers, n.d.)
12
because that the customers don’t feel the power of customer relationship and local
society connection from most of the luxury hotels compare to Airbnb. And the price
for Airbnb is also much reasonable and lower than the average 3-4 stars’ hotels with
the same level of service and incentives. The report also predicted that the only way to
turn around the situation is the aggressive customer relationship development and
unique experiences creation from the luxury and boutique hotels. And it might turn
the situation around and gain back the loss of revenue, market share and popularity
from Airbnb. (GERHARD, 2015)
Meanwhile, a report done by Indian Hospitality Industry indicates that they predicted
Airbnb will have at least 100% organic growth in the market steadily in the coming
year. Airbnb aims India as one of their best opportunity. To achieve the goal, they set
their 2 main values: money access to amenities and local experience. (Sharma, 2014)
With the deep understanding of the customers and hotel industry, Airbnb expanded its
market like a aggressive giants from the option of renting single bed to the option of
renting a palace or private island. They basically use the more reasonable prices target
more potential customers. And it is incredible for the consumers and scary for the
hotel industry. Airbnb has more than 5,000 lists only in India. And from the map
below, we can tell they control their main market on the boarder of the India where
the most of the tourists are headed to. (Airbnb, 2016)
The range is from 10 CHF to 1000 CHF, and the average is 60 CHF per night.
13
Ø Hotel Industry in India
(Statista, 2015)
According to the chart, we can say that the tourists and hospitality industry in India is
very season and fluctuate. But in general, it is increasing year by year. So it means
during the summer time, India even receive less than half of the tourists in winter. On
the rank of the most tourist-receiving countries ranking list, India is on the 41th
position with almost 7 million total amount. On the other hand, number one France
has 84.6 million of tourist, which is more than 12 times of India. (IndexOmundi, n.d.)
So as a position of a country in the Hotel industry, the demand is not really
competitive compare to other countries, such as France, U.S., Spain, China and other
European countries.
14
For India as a receiving country, most of the tourists come from USA and UK. And
we combine all the western European countries together. It will take almost more than
25% of all. And the majority of the tourists come to India is for a new culture
experience instead of other purpose.
Ø Market Structure
The market structure of the hospitality industry in Udaipur is “Monopolistic
Competition”. With more than 300 hotels available ranging from Big Hotel Chain like
Oberoi Udaivilas (our hotel), The Trident Hilton and The Taj Lake Palace that target
upper class tourist to other 3 Star and Heritage Hotel and even other economic hotels.
There are also more hotel groups entering this small city like Radisson and Leela
Group showing that fierce competition exists in Udaipur. All the hotels are price
maker and there are no perfect competition exists. It is common that they use their
location or product mix as a competitive advantage to differentiated their products,
their products and service provided are similar yet not identical.
Market Size
15
From the statistic above, it shows that the number of foreign tourists arrivals (FTAs)
is growing steadily, there are over 7.1 million foreign tourists arrived in 2015. By
2025, it is expected that the numbers will reach 15.3 million, according to the World
Tourism Organization. The number of FTAs through e-Tourist Visa is 56,477 in
October 2015 and it has increased by 21 times when compared to 2,705 tourist in
October 2014. This indicates that online hotel booking in India is expected to double
up in 2016 with the increasing penetration of apps in smart phone and the Internet.
(IBEF, 2016)
Government Initiatives
The major initiatives taken by the Government of India to give boost to the tourism
and hospitality sector of India are as follows:
• The Cabinet of India has approved the signing of Memorandum of
Understanding (MoU) between the Ministry of Tourism of India and the
Ministry of Trade Industry and Tourism of Colombia in order to boost
cooperation in the field of tourism between the two countries.
• The Central Government has given its approval for signing of a Memorandum
of Understanding (MoU) between India and Cambodia for cooperation in the
16
field of tourism with a view to promote bilateral tourism between the two
countries.
• Ministry of Tourism has sanctioned Rs 844.96 crore (US$ 142 million) to
States and Union Territories to develop tourism destinations and circuits
during FY 2014-15, it includes projects relating to Product/Infrastructure
Development for Destinations and Circuits (PIDDC), Human Resource
Development (HRD), Fairs and Festivals & Rural Tourism.
• The Heritage City Development and Augmentation Yojana (HRIDAY) action
plans for eight missions cities (Varanasi, Mathura, Ajmer, Dwaraka, Badami,
Vellankini, Warangal and Amaravati) have been approved by HRIDAY
National Empowered Committee for a total cost of Rs 431 crore (US$ 64.7
million).
• The government plans to cover 150 countries under e-visa scheme by the end
of 2016
• Under ‘Project Mausam’ the government has proposed to establish
cross-cultural linkages and to revive historic maritime cultural and economic
ties with 39 Indian Ocean countries.
(IBEF, 2016)
Monetary Policy towards Hotel Investment
17
• 100% Foreign Direct Investment (FDI) is allowed under the automatic route in
tourism and hospitality, subject to applicable regulations and laws.
• 100% FDI allowed in tourism construction projects, including the
development of hotels, resorts and recreational facilities.
• Services provided by Indian tour operators to foreign tourists in relation to
tours wholly conducted outside India are being exempted from levy of service
tax.
• Regarding on the tax incentives, there is an investment-linked deduction of the
Income Tax Act is in place for establishing new hotels in the 2-star category in
India, thus permitting a 100% deduction in respect of the whole or any
expenditure of a capital nature excluding land, goodwill and financial
instruments incurred during the year
• The state government incentives included subsidized land cost, relaxation in
stamp duty, exemption on sale/lease of land, power tariff incentives,
concessional rate of interest on loans, investment subsidies/tax incentives,
backward areas subsidies and special incentive packages for mega projects.
(Make in India, n.d)
• In order to encourage investment in hospitality sector, the Reserve Bank of
India (RBI) has notified that hotels are taken out of the high risk category of
real estate exposure, meaning that t banks will give loans to companies at a
lower interest rate. (Times of India, 2009)
18
Reason and Opportunity to Invest
• Tourism sector accounted for 7.5% of the GDP in 2015 and it is the third
largest foreign exchange earner for India.
• FTAs during February 2016 were 8.47 lakh while FTAs February 2015 were
7.61 lakh and 7.56 lakh in February 2014 with an annual growth of 11%
(Tourism Breaking News, 2016)
• India is ranked 15th in the world in terms of International Tourism Receipts
with a share of 1.58% of the world's tourism receipts.
• India offers geographical diversity, attractive beaches, 32 World Heritage Sites
and 25 bio-geographic zones.
• India has a diverse portfolio of niche tourism products –adventure, cruises,
medical, wellness, sports, MICE, eco-tourism, rural, film and religious tourism.
• The centrally non-profit funded scheme of Swadesh Darshan (12 Theme based
Tourist circuits) and PRASAD (Philanthropic Relief, Altruistic Service And
Development) are introduced to suitable Public Private Partnership (PPP) to
improve the sustainability of the projects to develop and improve tourist
infrastructure
• Potential in developing medical tourism with the presence of world-class
hospital and skilled medical professionals
19
• Potential in developing cruise tourists as a choice of destination with India’s
vast beautiful coastline, virgin forests and undisturbed idyllic islands
• Rural tourism schemes have been implemented by the Ministry of Tourism in
2002-03 with the objective of highlighting rural life, art, culture and heritage
in villages that have a core competence in art, craft, handloom, textiles and the
natural environment.
• Although Eco-tourism is at a nascent stage, there are conscious efforts to save
the fragile Himalayan eco-system and the culture and heritage of indigenous
people.
• Investment opportunities in the setting up of tour operations and travel
agencies cater to burgeoning tourist inflow.
(Make in India, n.d)
Ø Why Udaipur?
20
Udaipur is also known as “the Venice of the East”. It is one of the most charming
cities located in Rajasthan, India. Rajasthan is regarded as the top 5 states of
foreign tourists’ destination in India. Udaipur has a well-connected transportation
system. There are daily flights directly connected to major cities like Delhi,
Mumbai, Jaipur and Jodhpur by Jet Airways, Kingfisher & Indian Airlines. The
rails are connected to Jaipur, Delhi and Ahmedabad with overnight express trains
service. There are also two major highways for vehicles, which are the “NH-8 of
Golden Quadrilateral” and “NH-76 of NSEW Corridor”. The infrastructure of
Udaipur has been improved throughout the decades, for example, the Maharana
Pratap Airport is now declared as International airport and the Air Authority of
India also plan to extend the runway length and the increase the capacity of Aero
bridges to 9 to invite more airline companies. As lakes are the lifelines of the
region, the "Mansi Wakal Project" about the construction of dams and tunnels
were completed in 2007 to make the City's lakes will not dry.
21
One of the factors that make investors considered to invest in Udaipur is that it is
a renowned tourist destination with an appealing character on it. There is an
average of 1.2 million tourists a year with annual spend of Rs. 1800 crores.
Currently, there are two world’s Best Luxury hotels: The Oberoi Udaivilas (our
hotel) and The Taj lake Palace Hotel. Furthermore, Udaipur is a rapid growing
city with a tourism-growing rate of 25%.
From the perspective of Tourism and Hospitality Industry
Southern Rajasthan for sure is a must-go destination for rural tourism for people
to rest and relax, make adventures and to pilgrimage. Udaipur, which is located
in the western Rajasthan, is famous for its palaces and relics and age-old forts.
Udaipur is also one of the Top Five favorite tourist spots for heritage destination
with an average of one out of every three foreigners will definitely visit. The
rage and the nature of the sightseeing options in the city can attract both the
foreigners for outbound tourism and Indian for inbound tourism, such as the
limpid and large Lake Pichola and the City Palace, Udaipur is also a popular
choice for both the Indians and non-resident Indians to have their annual holy
sojourns, Shrinathji & Eklingji are the 2 most important ancient temples for
Hindu pilgrimage. The “ Royal Wedding” concept is also a unique business in
Udaipur with an average of 10 such extravagant events take place every year.
(Satguru Real Estate, 2014)
22
The view of Lake Pichola
The architecture of the City Palace, Udaipur
Ø Externalities
The positive externalities are that the Government of India has announced plans to
restore 25 Cultural World Heritage Sites. The plans included landscaping, signage and
interpretation centers in order to improve the facilities for tourists.
(EIH Limited, 2015)
The negative externalities are already listed in PESTEL analysis above.
23
Ø Monetary
Financial Statement Analysis
Oberoi Udaivilas is one of the hotel properties under the Oberoi Group, which was
found in 1934. Oberoi is the majority shareholder in EIH Ltd with 32.11% stake. The
founder is Mr. Rai Bahadur Mohan Singh Oberoi. The Oberoi Group is now a chain
of 30 business and luxury hotels in India and abroad. These hotels, in five stars and
the "de-luxe" category, include two brands - the Oberoi and the Trident.
(EIH Limited, 2016)
24
The Oberoi Group Mission
We are committed to meeting and exceeding the expectations of our guests through
our unremitting dedication to every aspect of service.
Our People
We are committed to the growth, development and welfare of our people upon whom
we rely to make this happen.
Our Distinctiveness
Together, we shall continue the oberoi tradition of pioneering in the hospitality
industry, striving for unsurpassed excellence in high-potential locations all the way
from the Middle east to the Asia-Paci c.
Our Shareholders
As a result, we will create extraordinary value for our shareholders.
25
The Oberoi Group prefers to grow slowly and keep standards intact and make its
brand to be strongly differentiated in the luxe and upscale categories. Despite of the
global economic crisis during 2008 and the 26/11 attacks in Mumbai, you can see that
EIH’s revenues were still growing and have an increased in net profit. In 2007/08, the
company made a net profit of Rs. 223.63 crore on revenue of Rs 1,315.73 crore,
according to the numbers from the CMIE Prowess database show. Net profit in
2013/14 recovered from proceeding years but still stood at Rs 111 crore.
(Kaushik, 2015)
26
27
28
Highlights of the financial year 2014-2015
• During the financial year 2014-2015, the Company’s total Revenue was
Rs 13,663 million compared to Rs 12,789 million in the previous year
representing an increase of approximately 7%.
• The Board recommends a dividend of Rs 1.10 per equity share of Rs 2 in
respect of the financial year 2014-2015.
• Average Net Profit of the Company for the last three Financial Years Rs
1189.19 Million.
• Earnings Before Interest, Depreciation, Taxation, Exceptional items and
Amortization (eBIDtA) was Rs 3059 million as compared to Rs 2793 million
in the previous year. This shows an increase of approximately 10% .
• Profit Before Tax was Rs 1512 million compared to Rs 1448 million in the
previous year which is an increase of about 5%.
• The Profit After Tax was Rs 966 million as compared to Rs 950 million in the
previous year which is an increase of about 2%.
• The Oberoi Group is optimistic that the number of foreign travellers to India
will increase from 7 million in 2014 to at least over 10 million by the year
2017.
(EIH Limited, 2015)
29
Ø Labor
India is “famous” for its caste.
And we can see from the chart above that most of the business man are Vaishya and
most of the employees in the hotels are from the bottom “Sudra” or even
Untouchables. Slavery still exists in India nowadays, and almost 45% of the slavery
around the world are in India and Pakistan alone. (Shiha, 2014) And India has the
biggest slavery population in the world.
5 out of 6 households only get less than CHF 2920 per year as a family. (Unitus, n.d.)
It shows the labor costs in the industry is rather low compare to the world. But how
does caste work in the labor? The caste is still highly not changeable in India society.
Even though in the business, people from different castes have to meet each other, but
still the relationship, the marriage have already been defined the positions and jobs for
different castes. It raises the huge problems of discriminations and unfairness. And
30
somehow influence the economics growth in a negative way due to the perception
since anyone who is against the caste is against the laws. This is a problem but also a
fact existing for centuries and becoming a major element in Indian culture. It means
most of the staff in Hotel industry are not well-educated who has lowest income and
don’t have sense of social security.
Ø About Oberoi Udaivilas Hotel:
ü The Oberoi Udaivilas Hotel is the top 15 hotels and resorts in Asia for the
last 4 years.
ü Ranked No. 1 in India
ü On the world top 100 Hotel list, it is on the 4th place
ü In 2014, “Readers’ Choice Awards” for Condé Nast Traveler
Physical Analysis
1. According to Forbes, the hotel is in on the top 10 luxury hotels in India
and described as “the best place to feel like loyalty”. (Forbes, 2007)
2.
The facilities are just like all the boutique luxury hotels with all the
luxury rooms, spa, swimming pool, gardens and etc. The hotel is just
located next to the famous “banks of lake Pichola”. But when we talk
about Aribnb before, we know that nowadays our customers are more
looking for intensive unique experience. So for this hotel, you will
arrive specially by a boat to the entrance. And they have private camels
31
for guests to experience. And the guest will be offered Indian cooking
class in the hotel. All of these, is exactly what Airbnb cannot offer.
3. The hotel was built for ten years and finished in 2002. The idea behind
the design is to deliver a royal custom historical looking palace. And it
is on its own bay in the center of the lake.
Room Rate (Summer Season)
(Room with 2 people) Premier Room Suites
Oberoi Udaivilas CHF 395 CHF 650/ 11,000 (pool +
terrace)
Indian Hotel Industry CHF 340 (109) CHF 1,363 (suite)
West-Europe Average CHF 698 CHF 3,900
Ø Sustainability and Competitor Analysis
Room Rate Comparison
(Room with 2 people) Premier Room Suites
Oberoi Udaivilas CHF 395 CHF 650/ 11,000 (pool +
terrace)
Indian Hotel Industry CHF 340 (109) CHF 1,363 (suite)
West-Europe Average CHF 698 CHF 3,900
The price compare to the Indian average is a bit above. But compare to their
main target market, West-Europe, it is much lower.
32
Elasticity
(Patil, 2015)
According to survey from Credit Suisse, top 10% of the population the
people share almost 76.3% of the wealth in India. And from the chat we can
see that the trend is getting bigger gap between the rich and poor year by
year. Around 50% of the household only earn around CHF 1230 per year.
Meanwhile the statistics shows that even the gap is getting more obvious,
but the actually the number of the millionaire are rising as well. The number
of millionaires has grown 23% between 2013-2014. India became the 11th
top number of millionaires in the world. (Assocham, 2014) And it estimates
that the growth will continue up to 70% by the year 2018. And the fact
behind is driven by young and well-educated entrepreneurs. (Maceda, 2015)
Even during the economy slowdown in 2013, spending on luxuries for
Indians grew 30%. The majority of the consumers are young millionaires
driven by consumption in smaller towns and cities. So we can conclude that
for the poor population in India, the luxuries can’t be afford by the majority
of the whole population. The high-ended products for the rich population in
India is not price elastic. And the demand is growing. (Assocham, 2014)
On the other hand, for the main target market western European tourists and
American tourists, the luxuries good are more price sensitive due to the big
33
difference between the price gap in India and their countries. So we can say
from the market size growing side, the hotel based on its location and India
is quite sustainable.
Occupancy Compared to the world
Compare to the lower star hotels, Oberoi Udaivilas has higher occupancy.
With the premium price, they can gain back higher revenue. But compare
with other countries in Asia part, India has lower occupancy, which is 58.4%
to 68.1%. Then compare to the top popular destinations in Europe averagely,
India’s growing pace is much slower and fluctuated. (Statista, n.d.)
EIH Group
Despite from the macro side, let’s just see in India Hotel Industry.
The stock price is on the 2nd place compare to the other three major
34
competitors. But let’s see more about other fact: Profit.
Oberoi Udaivilas belong to the EIH group in India. Even though the biggest
competition Indian Hotels Co. has the highest profit after tax. But when we
zoom in to see the growth in the past 12 years, EHL has the most steadily
growth compare to the other two major competitors and less fluctuated.
(Puliyenthuruthel, 2015)
35
Ø Comments & Recommendations
SWOT Analysis – An overview of India
Strength
• Expected to be the 3rd largest economy in the world by 2030
• Sustained availability of quality workforce for the next 2 to 3 decade making
the country a popular choice for international company to outsource work
• The cost of manpower is relatively low when compared to other countries
• Strong technical and engineering capabilities backed by top-notch scientific
and technical institutes.
• Many Indian manufacturing Companies in several sectors today are among
the most competitive and formidable in the global competition
Weakness
• Economic inequality with mass of the rural population remains impoverished
due to the influenced by the ancient Hindu caste system
• Corruption is a major issue that adversely affects India economy.
• The worst country for female tourists due to high sexual harassment and rape
rate. (Dutta, 2015)
• Discrimination in the whole society (Indian castes)
• Around a quarter of the population is still below the poverty line
• Severe Environmental problems need to be solved
Opportunity
• Scope for the entry of private business in different sectors for business
• Inflow of Direct Foreign Investment (DFI) is likely to increase
36
• Many foreign companies tend to set up R&D facilities in India due to the
generous incentives and lower labor cost
• Megatrends of the expand of middle-class will drive economic growth
• Expected to be the top three manufacturing destinations by 2020
Threat
• Communal, caste and regional tensions continue haunting Indian politics,
sometimes threatening its long-standing democratic and secular ethos.
• Lack of skilled labor force in India (only 2%), which is much lower when
compared to the developing nations
• Economic progress is hampered by corruption, widely regarded as endemic
and engulfing every level of politics and society.
• Indian is facing problem with inadequate or lack of access to vital fresh water
resources
• Population explosion and the population growth rate is too high
37
SWOT Analysis - Hospitality Industry sector in India
Strength
• India has several tourist attractions with rich and unique natural and
cultural heritage, attracting lots of tourists to visit.
• Numbers of international and reputable hotel brand are entering the Indian
market, meeting the needs of international tourists
• The cost of labor is relatively low which provide a better profit margin for
investor and boost growth potential of the hospitality industry
• Easy to cope with high demand of tourist since there are sufficient supply
with more than 1000 of hotels with approx. 97,000 rooms availability
• For the local target market, it has lower price elasticity
• For the main foreign target markets, the price are much more attractive
compare to other destinations
Weakness
• One of the barriers of entry is due to the high cost of land; availability of
cheap land at a good location is a challenger for developer, especially in
the urban area.
• Inconsistent standard of services in some hotels when compared to the
world standards
• Insecurity for the foreign tourists, especially females
• Very seasonal
• Long-term payback, low percentage for ROI
38
Threat
• The growth of guesthouses replacing tradition hotels is adversely affecting
the hospitality industry
• Political unrest upset the tourists coming to visit India
• The massive problem of waste disposal and severe water pollution will affect
the scenery of the tourist spots
• The rise of Airbnb which take over the market share of hotels
• Excess supply of rooms remains subdue with a marginal increase in
occupancy
• If the increase in supply is not offset by the increase in demand will lead to
rising costs and falling average room rates.
39
In conclusion, we find out that whether investing in India or hotel industry has pros
and cons. The final decision depends on which side on the scale of consideration is
more valuable and important to the investors.
Opportunity
• Potential growth in the number of inbound tourists pushing the demand
with promotion of numbers of attractions
• Potential growth of tourists visiting benefit from the introduction of
e-Tourist Visa covering 150 countries
• Potential to India to become a top-notch destination for medical value
travel
• Domestic demand for both business and leisure travel is expected to grow
• Unique experience and totally different experience and culture
40
Ø References
Airbnb, (2016).
India List. Available from:
https://www.airbnb.com/s/india?guests=&checkin=04%2F20%2F2016&checkout=04
%2F22%2F2016&ss_id=z9q0i3ua&ss_preload=true&source=bb&s_tag=Bg-sEiwL.
Accessed on 3.18.2016.
Assocham, (2014). India’s Luxury Market p in 2013 and Likely to Break All Times
Record in 2014. Available from: http://assocham.org/newsdetail.php?id=4327.
Accessed on 3.19.2016.
Bbc. (2015). India profile - overview. Retrieved 12 March, 2016, from http://www.bbc.com/news/world-south-asia-12557386 Borpuzari, P. (2015). Economic Survey 2015: Only 2% skilled work force in the country. Retrieved 6 March, 2016, from http://articles.economictimes.indiatimes.com/2015-02-27/news/59585147_1_national-skill-development-corporation-economic-survey-total-employment
BuzzFeed, (2016). Seven Facts Will Piss You Off. Available from:
https://www.facebook.com/BuzzFeedVideo/. Accessed on 3.08.2016.
Dutta, S. (2015). 11 Worst Countries for Solo Female Tourists: Sexual Harassment and Rape. Retrieved 18 March, 2016, from http://www.insidermonkey.com/blog/11-worst-countries-for-solo-female-tourists-sexual-harassment-and-rape-369695/ Eih limited. (2015). Annual Report 2014-2015. Retrieved 17 March, 2016, from http://www.eihltd.com/investor_relations/EIHLimited_AR2014-2015.pdf
Forbes, (2007). India’s Top 10 Hotel. Available from:
http://www.forbes.com/2007/11/16/hotels-top-india-forbeslife-cx_pl_1116hotelsindia
41
_slide_3.html. Accessed on 3.18.2016.
Gerhard J., (2015). The Naked Truth About Trust, Hotels and Airbnb. Available from:
http://www.tnooz.com/article/trust-sharing-economy-hotels-airbnb/. Accessed on
11.11.2015.
GrowthHackers, (n.d.) Airbnb: The Growth Story You Didn’t Know. Available from:
https://growthhackers.com/growth-studies/airbnb. Accessed on 11.11.2015.
HNN Newswire, (2015). HVS: Airbnb takes $2.1b out of NYC hotels. Available from:
http://www.hotelnewsnow.com/Article/17007/HVS-Airbnb-takes-$21b-out-of-NYC-
hotels. Accessed on: 11.11.2015.
Ibef. (2016). Tourism & Hospitality Industry in India. Retrieved 18 March, 2016, from http://www.ibef.org/industry/tourism-hospitality-india.aspx Indiafilings. (2016). Service Tax for Hotel Industry. Retrieved 10 March, 2016, from https://www.indiafilings.com/learn/service-tax-for-hotel-industry/ Indiaonlinepages. (2016). Population of India 2016. Retrieved 3 March, 2016, from http://www.indiaonlinepages.com/population/india-current-population.html
Index Omundi, (n.d.). International Tourism, Number of Arrivals – Country Ranking.
Available from: http://www.indexmundi.com/facts/indicators/ST.INT.ARVL/rankings.
Accessed on 3.18.2016.
Indiatimes. (2016). Economy to grow at 7-75% in 2016-17, 76% in current year. Retrieved 28 February, 2016, from http://timesofindia.indiatimes.com/budget-2016/economic-survey/Economy-to-grow-at-7-7-5-in-2016-17-7-6-in-current-year/articleshow/51152075.cms Indiatimes. (2016). Moody's pegs India's GDP growth at 75% in 2016-17. Retrieved 28 February, 2016, from http://timesofindia.indiatimes.com/business/india-business/Moodys-pegs-Indias-GDP-growth-at-7-5-in-2016-17/articleshow/51035133.cms
42
India News, (2016). Alarming! 30,000 people in India ready to work for ISIS to wage
war against their own nation. Available from:
http://zeenews.india.com/news/india/alarming-30000-people-in-india-ready-to-work-f
or-isis-to-wage-war-against-their-own-country_1849922.html. Accessed on
3.12.2016.
Knoema. (c2011). India Inflation Forecast 2015-2020 and up to 2060, Data and Charts. Retrieved 28 February, 2016, from http://knoema.com/sllksof/india-inflation-forecast-2015-2020-and-up-to-2060-data-and-charts
Maceda C., (2015). Millionaire Population in India Growing Fastest: Study. Available
from:
http://gulfnews.com/business/money/millionaire-population-in-india-growing-fastest-
study-1.1547179. Accessed on 3.19.2016.
MailOnline, (2015). The sick ambitions of a caliphate bent on carnage: Chilling map
predicts where ISIS will seize new land, strike the West with 'lone wolf attacks' and
awaken 'sleeper cells'. Available from:
http://www.dailymail.co.uk/news/article-3134534/The-sick-ambitions-caliphate-bent-
carnage-Chilling-map-predicts-ISIS-seize-new-land-strike-West-lone-wolf-attacks-aw
aken-sleeper-cells-end-Ramadan.html. Accessed on 3.12.2016.
Makeinindia. (2016). Tourism & Hospitality . Retrieved 16 March, 2016, from http://www.makeinindia.com/sector/tourism-and-hospitality
Newindianexpress. (2016). 'Twin Balance Sheet Challenge Hitting Private Investment'. Retrieved 28 February, 2016, from http://www.newindianexpress.com/business/news/Twin-Balance-Sheet-Challenge-Hitting-Private-Investment/2016/02/27/article3298866.ece
Patil P., (2015). Richest 1% Own 53% of India’s Wealth. Available from:
43
http://www.livemint.com/Money/VL5yuBxydKzZHMetfC97HL/Richest-1-own-53-of
-Indias-wealth.html. Accessed on 3.19.2016.
Puliyenthuruthel J., (2015). The Oberoi Returns. Available from:
http://www.businesstoday.in/magazine/corporate/oberoi-hotels-aims-to-be-best-brand-
prs-oberoi-on-eih-growth/story/214448.html. Accessed on 3.19.2016.
PTI, (2015). ISIS Preparing to Attack India: Report. Available from:
http://timesofindia.indiatimes.com/india/ISIS-preparing-to-attack-India-Report/article
show/48264942.cms. Accessed on 3.17.2016.
RealClear Politics, (2016). 2016 Re publican Presidential Nomination. Available from:
http://www.realclearpolitics.com/epolls/2016/president/us/2016_republican_president
ial_nomination-3823.html. Accessed on 3.12.2016.
Sharma S., (2014). What is happening at Airbnb India. Available from:
http://yourstory.com/2014/05/airbnb-india/. Accessed on 3.18.2016.
Sinha K., (2014). India is Now the World’s Slave Capital: Global Slavery Index 2014.
Available:
http://timesofindia.indiatimes.com/india/India-is-now-the-worlds-slave-capital-Global
-Slavery-Index-2014/articleshow/45178623.cms. Accessed on 3.19.2016.
Statista, (2015). Number of foreign tourist arrivals in India from 2008 to 2015, by
month. Available from:
http://www.statista.com/statistics/206889/number-of-foreign-tourist-arrivals-in-india-
by-month/. Accessed on 2. 18 .2016.
44
Tradingeconomics. (2016). India GDP Annual Growth Rate. Retrieved 28 February, 2016, from http://www.tradingeconomics.com/india/gdp-growth-annual Tradingeconomics. (2016). India Inflation Rate. Retrieved 28 February, 2016, from http://www.tradingeconomics.com/india/inflation-cpi
The Hans India. (2016). Trends affecting the Indian Hospitality Industry in the year 2016. Retrieved 12 March, 2016, from http://www.thehansindia.com/posts/index/Technology/2016-01-21/Trends-affecting-the-Indian-Hospitality-Industry-in-the-year-2016/201510 Tnn. (2009). Now, hotels can get loans at lower rates. Retrieved 18 March, 2016, from http://timesofindia.indiatimes.com/business/india-business/Now-hotels-can-get-loans-at-lower-rates/articleshow/5016268.cms Tourismbreakingnews. (2016). 11% growth in foreign arrivals in Feb ’16 month on month. Retrieved 18 March, 2016, from http://tourismbreakingnews.com/tag/foreign-tourist-arrivals/
Unitus, (n.d.). Defining “Base of the Economic Pyramid” in India. Available from:
http://usf.vc/resources/defining-base-of-the-economic-pyramid-in-india/. Accessed on
3.19.2016.
Wakefield, O. (2015). Environmental Issue in India. Retrieved 12 March, 2016, from http://www.all-about-india.com/Environmental-issues-in-India.html Weberience . (2016). SWOT Analysis of Hotel Industry. Retrieved 10 March, 2016, from http://pestleanalysis.com/swot-analysis-of-hotel-industry/
Zong J. & Batalova J., (2015). Frequently Requested Statistics On Immigrants and
Immigration IN THE United States. Available from:
http://www.migrationpolicy.org/article/frequently-requested-statistics-immigrants-and
-immigration-united-states. Accessed on 3.10.2016.