The hospitality industry in India was seeing tremendous growth in the last few years, which was slightly marred by the Covid-19 impact in 2020. Considered a sunrise industry, it shows a huge potential for manifold growth in the future. The hospitality sector is one of the most profitable, accounting for more than 8% of the country’s workforce and an estimated 15 million jobs being created in the last few years. It is one of the top sectors attracting FDI or Foreign Direct Investment in the country.
Here’s a detailed look at the hospitality sector in India, along with a glimpse of some of the top-performing stocks in this sector.
What does the hospitality sector include?
Hospitality, in simple terms, is a generous reception of guests that encompasses entertainment and leisurely time at a destination of choice. India has been known as a traditionally hospitable country since the people have been following an ancient culture of welcoming guests with open hands. Hospitality is known to be the very essence of India. However, transforming it into a commercial industry is attributed to westernisation and rapid economic development.
The hospitality sector in India broadly includes the following:
- Lodging and boarding
- Food and drinks
- Amusement parks
- Theme parks, etc
Recent growth in hospitality sector
Within the hospitality industry, the hotel performance across most major cities in India saw significant growth in 2021 after the end of the Covid-19 second wave and before the third wave set in. Apart from leisure travel, the sector saw revenues coming in from corporate travel as businesses restarted after lock-downs. Due to this recovery in recent months, there has since been improved confidence in the sector.
People are increasingly going on staycations, long weekend getaways, and also social gatherings such as weddings. This has resulted in business growth for the hospitality sector. Additionally, better road infrastructure across the country, especially holiday destinations like hill regions, has provided a much-needed boost to road travel.
Such an immediate recovery after Covid-19 led downturn may not have been possible if it was not for the change in the mindset of travellers. This is majorly attributed to the higher vaccination percentage across the nation. Experts believe that this sector will likely recover fully this year despite the uncertainty about new Covid variants and consequent waves.
Prospects of the hospitality sector
The hospitality sector in India is expected to attain a value above Rs. 1,000 bn by the end of 2023. This estimate is considering the industry’s expansion rate at a CAGR of nearly 5% observed during the 2018-2021 period. This growth is highly attributed to the high number of foreign tourists and business executives visiting the country through 2018-2019 combined with the higher disposable income of the Indian population, as seen in the last decade.
Some of the country’s top hotel brands include:
- Marriott International,
- ITC Hotels,
- Oberoi Hotels & Resorts.
- The Indian Hotels Company Limited,
- Lemon Tree Hotels,
- Accor Hotels,
- Radisson Hotel Group,
- Hyatt Hotels,
- Sarovar Hotels and
- Intercontinental Hotels Group
As per statistics of 2017 and 2018, the occupancy rate of some of these hotels increased by nearly 65% due to rising demand from leisure as well as business travellers.
What will drive growth in this sector?
In the year 2017 alone, the net foreign tourist arrivals in the country were 10.04 Mn and this number increased to 6.75 Mn by August 2018. This meant a year-on-year growth rate of 7.5%. As the country continues to attract foreign tourists and business travellers, the growth in hospitality is set to resume as Covid-19 restrictions ease.
The Indian government eased its hospitality-related investment policy to allow 100% foreign direct investment (FDI) in the country’s tourism construction projects, hotel and resort developments, and establishment of recreational facilities. This has proven to be a major boost towards the development of new hotel chains in the country.
Possible hindrances to growth in this sector
The implementation of the goods and services tax (GST) was seen as a growth-deterrent by the hospitality industry as customers felt the pinch of high expenses being levied. Rising competition has been another challenge faced by most businesses involved in the hospitality sector.
As the Indian consumer mindset is experiencing a drastic shift due to rising exposure to foreign tourism combined with Covid-19 related hygiene expectations, hospitality businesses are facing many challenges to meet many of these expectations.
Top stocks in the hospitality sector in India
Mentioned below are the top hospitality companies (as per market capitalisation) listed on the Indian stock exchanges.
1. Indian Hotels Company Ltd. – market cap of Rs. 33,000 cr
Indian Hotels Company Ltd’s first hotel, Taj Mahal Palace & Tower, was opened in Mumbai. Taj is associated with premier hospitality, luxury dining, high-end interiors and personalized services that are world-class. Some of the food-chain that this chain offers include Italian, Sichuan, Thai, and Mexican. The company runs hotel chains under various brand names like Taj hotels, Taj Exotica, The Gateway Hotel, Taj Safari, and Ginger. It also has three personal jets operated under the Taj Air brand name.
2. EIH- market cap of Rs. 9,000 cr
Known for its hospitality, businesses operated under the Oberoi and Trident brands, EIH Ltd operates and manages luxury hotels, find-dine restaurants, travel and tours along with management contracts. The company ventured into foreign markets through a luxury resort named The Oberoi Lombok in Indonesia. The company also operates a luxury cruiser in Kerala under the name Motor Vessel Vrinda. The company offers airline catering, restaurant and airport bar management, car rentals, and corporate air charters.
3. Sapphire Foods – market cap of Rs. 9000 cr
Sapphire Foods is India’s largest franchisee for Yum Brands. This omnichannel restaurant operator came up with an IPO at end of 2021. It owns and operates nearly 204 KFC restaurants across India and the Maldives. It also has 231 Pizza Hut restaurants operational in India, Maldives and Sri Lanka while two of its Taco Bell restaurants are located in Sri Lanka.
4. Westlife Dev- market cap of Rs. 7000cr
Westlife Development Limited is an operations and investment company that sets up and manages quick-service restaurants in India. It operates fast-food franchise restaurant McDonald’s across the western and southern regions of India.
5. Chalet Hotels- market cap of Rs. 6,000 cr
Chalet Hotels Ltd is a developer, operator and asset manager of various luxury hotels and serviced apartments in India. Its business segments include hospitality, real estate, and rental businesses. It has nearly 7 fully operational hotels with commercial and retail spaces near its hospitality assets. Some of the hotels include Bengaluru Marriott Hotel Whitefield, JW Marriott Mumbai Sahar, The Westin Hyderabad Mindspace, Lakeside Chalet Marriott Executive Apartments, Four Points by Sheraton Navi Mumbai, Renaissance Mumbai Convention Centre Hotel, and Novotel Pune Nagar Road.
Because the Indian hospitality industry is one of the primary contributing sectors to the country’s economic growth, it is imminent that this sector has a huge growth potential in the near future. Investing in hospitality company stocks can therefore be a good way to diversify an investor’s portfolio.
The hospitality sector faced severe losses at the time of the Covid-19 onset in 2020. However, with ease in lockdowns and the opening up of the economy, the sector has been recovering since 2021 and is expected to gain momentum in 2022.
The hospitality sector in India has started gaining momentum since 2021, as Covid-19 lockdowns eased in the country. However, since the threat of the pandemic still looms, it is hard to say whether the sector will be impacted once again.
Airlines form part of the aviation industry and also a part of the broader tourism industry. Therefore, although closely connected, airlines are not directly part of the hospitality sector.
To identify top stocks for investment in hospitality sector, you must first learn about the sector and its current as well as future scenario. This will help in narrowing down companies that have matched the growth of the industry and may, therefore, be good investment avenues for positive future returns.
A sectoral study gives good insight into the positives, weaknesses, historical trends, and growth opportunities about the sector. This can form the base of any investment to be made in the sector and guide an investor toward making smart investment decisions.