The negative impact on India’s expanding hospitality industry

The negative impact on India’s expanding hospitality industry
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First Published: Thu, Nov 27 2008. 11 16 PM IST

Updated: Thu, Nov 27 2008. 11 16 PM IST
The hospitality industry will, doubtless, bear the brunt of the terrorist attacks, with two of the country’s most prestigious hotels being under siege. The damage caused by the firing and blasts inside the hotels will only form a small portion of the overall cost the industry will have to bear. Analysts expect travel advisories to be issued soon. Tourists as well as business travellers are expected to arrive in much lower numbers as a result.
But it’s important to note that the Indian hospitality industry has already begun witnessing a slowdown in growth, even before the attacks. With economic activity slowing down across the globe, business travel as well as tourist arrivals have already been hit. Foreign tourist arrivals grew by a healthy 13.8% in July, but the growth rate slipped to 2.8% in October. The terrorist attacks and its negative impact will only make matters worse.
That this comes at a time when the industry has been expanding capacity may only make things worse. One positive factor that may offset some of the negative impact is the sharp depreciation in the rupee. Since luxury hotels charge in foreign currency (primarily US dollars), the depreciation in the rupee results in higher revenues and profitability. But in a scenario where revenues and occupancy rates are expected to decline, that’s little compensation.
The negative impact of the slowdown has already been priced in by the markets, with the share price of Hotel Leela Venture Ltd down 77% from its peak, The Indian Hotels Co. Ltd down 73%, and EIH Ltd having 63% of its value from its 52-week high. EIH has fallen the least because rumours of a stake sale by its promoters has buoyed the stock. While Indian Hotels now trades at about eight times trailing earnings, Hotel Leela trades at less than six times trailing earnings.
These stocks are expected to correct further to reflect the impact of the terrorist attack, when markets open on Friday.
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First Published: Thu, Nov 27 2008. 11 16 PM IST