Hotel industry to see fewer entrants as costs rise

MUMBAI, June 27 (Reuters) - India's hotel industry may see fewer entrants as project costs surge and visitors prune travel plans, though room rates stick to higher levels, officials said.

India's inflation jumped to 11.42 percent in mid-June after the government raised petrol and diesel prices by about 10 percent earlier this month.

"It is ahead of last year but slightly below expectations so it is soft I'd say, but it's a soft period as well," Raymond Bickson, managing director of top hotel operator Indian Hotels Co. Ltd (IHTL.BO), referring to visitors in the first quarter.

The third and fourth quarters bring in 60 percent of the year's turnover for India's hoteliers, he added. Indian Hotels posted a consolidated net profit of 3.8 billion rupees on net sales of 29.2 billion rupees in the year to March 2008.

In an analyst presentation, it showed average room rates grew across India's major cities, except Bangalore and Hyderabad, while aggregate demand per day was flat at the industry level. Supply of rooms per day also grew a marginal 2 percent.

Foreign and local visitors at hotels were lower and the industry's occupancy was about 10 percent less in the first quarter over last year's, Sushil Gupta, managing director (west) of Asian Hotels Ltd (ASHT.BO).

Asian Hotels posted a net profit of 497 million rupees on net sales of 1.45 billion rupees in the quarter to December 2007.

The growth rate in the number of foreign tourist arrivals has shrunk marginally to 11.5 percent at about 2.3 million visitors between January and May 2008, from 12 percent growth in the year-ago period, as per provisional tourism ministry data.

Developers have been rushing to build hotels in India to fill the shortfall of rooms but rising land, financing and construction costs could dent profits for them.

The rise in interest costs would have almost 10-12 percent difference in the project cost, Vivek Nair, vice chairman of Hotel Leelaventure Ltd (HTLE.BO) said, "To finance projects at these high rates of interest, you got to charge high room rates."

The industry expected a demand for 100,000 rooms more for an estimated 10 million foreign visitors by 2010, but estimates could taper if the situation continues, Nair added.

It posted a consolidated net profit of 1.5 billion rupees on net sales of 5 billion rupees in the year to March 2008.

New players would have second thoughts about entering the market, Chender Baljee, chairman of Royal Orchid Hotels Ltd (ROYL.BO) said, "I think this was a correction badly needed in the hotel industry. It's a reality check."

Royal Orchid posted a net profit of 347 million rupees on net sales of 1.3 billion rupees in the year to March 2008.

Although people would look to cut expenditure, new projects spur travel and hotel stay. Demand for luxury properties from India's affluent is rising, Leelaventure's Nair said.

The number of millionaires in India rose 22.7 percent to 123,000 people, the fastest in the world, according to a survey by Capgemini and Merrill Lynch.

"The country as a whole has over 70 percent occupancies. The market, compared with other global markets is still strong," Indian Hotels' Bickson said.

Shares in Indian Hotels, Hotel Leelaventure, Royal Orchid and Asian Hotels were down between 43 and 23 percent during the first half of the calender year. (Editing by Prem Udayabhanu)