Hospitality deals pick up after a lull as HNIs, family offices check in

Family offices, high net-worth individuals and institutional investors are looking at the sector, say advisory firms

After a two-year lull, the deal pipeline in India’s hospitality sector, which has witnessed a strong revival since the second wave of the pandemic receded, is running full.

Family offices, high net-worth individuals (HNIs) and institutional investors are looking at the sector with renewed interest, according to investment and transaction advisory firms working on multiple deals.  Most of them declined to divulge details of the deals for reasons of confidentiality.    

The cumulative debt of the tourism, hotels and restaurant sector rose 8.2 per cent year-on-year (YoY) to Rs 64,408 crore as of March 25, 2022 against Rs 59,519 crore on March 26, 2021, according to the Reserve Bank of India.  Around  20-25 per cent of  the  aforementioned latest debt is stressed, as per industry estimates.

“With supply remaining constrained and demand being strong, the revenue per average room (RevPAR) is expected to go up sharply in the coming months,” said Puneet Chhatwal, chief executive officer (CEO) and managing director (MD), Indian Hotels Co (IHCL), at an interaction earlier this week.

IHCL has been exiting non-strategic and non-core assets as part of the asset-light strategy, and plans to divest stake in more such properties.

Chhatwal said the process had slowed during the pandemic but has picked up again. He added that ‘lots of buyers have emerged lately’ and IHCL will be willing to work with those who are willing to invest and allow IHCL to manage the property.

Nandivardhan Jain, CEO of Noesis Capital Advisors, an investment advisory firm, points out that if the growth momentum seen in the first two months of the current fiscal sustains over the next four quarters, the sector is likely to see an investment worth two billion dollars (a billion dollar each in debt and equity) over the next three years.

“Quite a few micro-markets have surpassed the pre-pandemic levels by 10 to 15 per cent. This has generated significant interest from the investors for hospitality as an asset class,” said Jain.

He added that the deal flow looks much healthier in comparison to the previous financial year.

Jaideep Dang, MD – hotels and hospitality group at JLL India pointed out that availability of equity is better now as compared to the last 2-3 years. He also said that capital markets are better positioned to make investments in hospitality and leisure. Interested investors in this space include a few private equity players and corporates, and a few public-listed entities.

“Hotel trading activity has picked up in 2022 as investors are keen to take investment decisions that they have been otherwise holding on to for the last couple of years because of uncertainty,” he said.

While some of the assets have been up for sale for two years now, the deals haven’t fructified owing to a wide gap between what the buyer was willing to pay and what the seller wanted, Saurabh Gupta, managing partner at Hotelivate, a hotel transaction advisory and asset management firm, said.

“For the first time in two years, one is seeing a situation where the owner is looking to get rid of the property and the buyer is willing to pay a good price as the market is on the upswing,” said Gupta.