Till a few years ago, business of standalone budget hotels
such as Exotica on Noida Expressway could hardly be of interest to marquee global financial companies
such as Goldman Sachs.
But things change.
Last month, Goldman Sachs
Investment Partners along with Accel Partners invested $25 million in FabHotels, an online aggregator of budget hotels
such as Exotica. To be sure, budget is not the only segment that is attracting private equity or venture capital
firms. Last year, Goldman Sachs
invested $66 million in Samhi Hotels, which has high-end hotels
under partnership with Marriott, Starwood, Hyatt
In the last five years, Indian hospitality industry including the technology-led aggregators such as Oyo Rooms
has seen investments worth over $700 million from the likes of Blackstone, APG, Sequoia Capital
across 37 deals.
“We see significant growth potential in the budget lodging market in India and believe itis ripe for disruption,” said Shweta Bhatia, head of Asia investments at the Venture Capital
and Growth Equity team at Goldman Sachs
Also, last year following the investment in Samhi Hotels, Sonjoy Chatterjee, chairman of Goldman Sachs
India, said, “On the back of reform momentum, India is witnessing a steady recovery in economic activity driven by domestic demand. We anticipate this to lead to an upturn in the hotel sector.”
A report by Google India pointed out that only 20 per cent of the total hotel inventory is currently available online. With over 300 million Indians online and growing rapidly, several players including new and established ones are focused on bringing quality budget accommodation online across the country. While the availability of this new inventory works for online aggregators such as FabHotels, growing business travel to India is fuelling demand for high-end hotels
such as Samhi are building.
Data from the Ministry of Tourism shows that domestic tourist visits to states/union territories (UTs) grew by 15.5 per cent y-o-y to 1.65 billion (provisional) during 2016. The top 10 states/UTs are accounting for about 84.2 per cent to the total number of domestic tourist visits. Foreign tourist arrivals (FTAs) in India increased 19.5 per cent year-on-year to 630,000 in May 2017. FTAs on e-tourist visa increased 55.3 per cent year-on-year to 68,000 in May 2017.
Global consultancy firm KPMG in a report said India was expected to move up five spots to be ranked among the top five business travel market globally by 2030.
Business travel spending in the country was expected to treble until 2030 from $30 billion in 2015, it said. “Hotel industry is seeing interest from private equity for both asset light and asset heavy models as rising economy is fuelling demand for both budget and business hotels,” said Arun Natarajan, founder Venture Intelligence.
“While budget hotels
are largely targeting sales representatives travelling to small towns, premium hotels
are looking for opportunity from rising business travel by senior executives,” Natarajan added.