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The trend of shifting from a standalone hotel to be part of a branded hotel chain will help us build a robust Indian hospitality ecosystem

Since its inception in 2009, Noesis Capital Advisors has provided consultancy and advisory services to more than 1900 hotel owners, hotel operating companies, hotel investors and financial institutions. Its reach is in more than 60 cities of South Asia where it is servicing 68 international, national and regional hotel brands across various hotel formats ranging from ultra luxury to economy segment. In an exclusive interview,  Nandivardhan Jain, CEO, Noesis Capital Advisors speaks about the investment scenario in the country’s hospitality sector and the regions which showed the most active room inventory buildup

Noesis has been in the industry for almost a decade now. How has the hospitality sector evolved over the years in terms of investment?

From mid-2008 to mid-2017, the hospitality industry has witnessed a downturn with low occupancies, marginal growth in room ARRs, financial stress among operational hotels and underdevelopment as hotels struggled to complete projects due to limited access to the capital market. Fortunately in the last 24 months with the signs of improvement in occupancies and ARRs, fresh capital is flowing into the industry. One of the other critical reasons, hotel real estate pricing, has also settled at realistic levels. In 2017, we acted as the exclusive transaction advisor to one of India’s largest foreign direct investments of US$ 50 million for an under construction 300 rooms upscale hotel next to Mumbai International Airport. One of the reasons for the success of this transaction was a justified asset value.

Management or Franchise? How can a hotel owner decide which is the best operating model?

Under management route, the operator controls hotel operations fully on daily basis. Therefore operator accountability to perform on pre-determined budgets also increases. This helps hotel owner as well to free his bandwidth. In the Indian context majority of operators prefer and insist on management contract only because in organised space most of the hotel owners are first generation owners.

Under the Franchise format, we have limited brand options in India. This make great sense to owners who are passionate to operate the hotel themselves. Franchise fees for the brand are limited between two to three per cent of room revenues only. Brand support is limited to sales and marketing, sharing technical know how and quarterly property audits. Both models have their own pros and cons – it largely depends on owner priorities.

How many projects is Noesis providing consultancy for at present? Projects in the pipeline?

In the first three quarters of this financial year, we have successfully completed 46 assignments. Nature of assignments are Debt Syndication, Hotel Investment Advisory, Feasibility Report, Operator Search and Recruitment. Some of the transactions in one of the important cities of the Western region, Pune are Hotel Fidalgo (Asset Acquisition), Erstwhile Hotel Fortune Inn Jukaso (Asset Acquisition), Lemon Tree (Operator search) and Hotel Mint Koregaon Park (Lease Acquisition). On a pan India basis, we have a current pipeline of 32 projects under various nature of assignments.

Which region in India has shown the most active room inventory buildup? Which are the regions to look out for till 2020?

Southern and Western regions have shown the most room inventory buildup in recent past in both organised and unorganised space. Quality connectivity and infrastructure is one the vital reason for this buildup.

There is immense potential in the Eastern region as well, as it is still largely an untapped market. With infrastructure catching up we foresee quality room supply coming to Eastern India within the next couple of years. State capital cities like Patna, Bhubaneswar and Ranchi, which have good air connectivity, also have a very limited supply in the organised space.

There is a lot of consolidation happening in the industry. Comments.

Consolidation after a few intervals is always good for the industry. This helps in building up the scale and brings efficiency in the business, which in turn adds value to all the stakeholders.

Out of the 58 hotel advisory assignments Noesis handled last year, 37 were conversions from standalone to the branded hotel chain. Is that indicative of an emerging trend?

Total rooms inventory in our country is of 4.3 lakh out of which branded operator operates 30 per cent and 70 per cent are standalone hotel operations. The conversion of the hotel from standalone to organised space makes a clear case of financial value add in monthly GOP and asset appreciation. In the last 36 months, 7133 rooms have been added in the organised space from standalone hotel operations. This trend of shifting from a standalone hotel to be part of a branded hotel chain will further gain momentum, and will help us build a robust Indian hospitality ecosystem.

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