Tourism & Hospitality Sector: Taking India To The World

Sagar Bhosale
/ Categories: Special Report
Tourism & Hospitality Sector: Taking India To The World 

Bustling with the diversity of breathtaking landscapes and traversing from the mighty Himalayas, the tourist trails in India lead from the oceanic havens of western coasts and the southern backwaters to the historical cities of Rajasthan. From the unabashed celebration of love in Khajuraho to the intensity of ancient faith in Varanasi, the trails meander into other places of vibrant colours and rich cultural heritage. India 's tourism industry and hospitality sector contributes over 9.6 per cent to the country's GDP, generating revenues worth Rs.14.1 trillion in 2016 and making India the seventh largest tourism economy in the world.

Flagged as a largely 'luxury' sector, tourism has been generating tremendous employment opportunities both in the organised as well as unorganised sector. In the year 2016, the sector generated over 40 million jobs and posted the second largest tourism generated employment opportunities in our country as compared with other countries in the world. The sector accounts for over 9.3 per cent of the total jobs in the country. Expected to record a CAGR of 14.05 per cent by 2027, presently India is one of the fastest growing G20 countries on the tourism front. However, most of the growth in the Indian tourism sector isprimarily attributed to the tremendous increase in domestic tourists and travellers rather than the footfalls of foreign visitors. About 88 per cent of the sector's contribution to the country's GDP is credited to the revenues generated by the domestic travellers.

Majorly driven by the rapid urbanisation and breeding of the travel-touring culture in the multinational company offices, the tourism sector of India is most likely to witness exponential growth as a result of the demographic dividend. With over 50 per cent of the country's population under the age of 25 by 2020, the country is likely to be brimming with young and enthusiastic travellers deriving travel inspirations from the social media platforms. The growth story of the domestic travel industry extensively spins around the increase in consumption of the incomeearning youth, which is likely to go up further with the increasing GDP and per capita incomes. The aviation sector, which is placed at the centre of the growing tourism industry is also playing a tremendous role in making the erstwhile difficult and exotic locations of the Indian travel panorama more accessible and more affordable.

The benefits of the rapidly growing aviation industry in the country is only set to multiply with the aviation companies increasing their fleet sizes and connectivity and the government implementing affordable flying with schemes like UDAAN. The other initiatives taken by the government to boost tourism, such as Swadesh Darshan and The National Mission for Pilgrimage Rejuvenation and Spiritual Augmentation Drive PRASAD), launching of a mobile application for tourists and introduction of an Incredible India Tourist Helpline, has brought notable traction in the sector.

While the the foreign visitors only contribute roughly 12 per cent to the country's tourism revenues, the footfall of foreign visitors has been steadily increasing in India in the recent years. The revenues from foreign tourists amounting to Rs.1.5 trillion in 2016 make up about 5.4 per cent of the country's total exports against a global average of 6.6 per cent. The 9 million aggregate international arrivals in India in 2016 account for a tenth of the foreign arrivals in countries such as France. Currently at the 40th position in the global ranking for foreign visitors, India is buckling up to tap its explored potential and registering a handsome growth in the number of foreign visitors in India in recent times. With increasing popularity of e-visa facility, the country recorded an influx of 15 per cent in foreign tourist arrivals at 56.74 lakh between January 2017 to July 2017, as compared to 49.03 lakh in the same period in 2016.

While the highest number of foreign visitors arrived from Bangladesh, the US and the UK were far behind, followed by tourists from France. Foreign tourists availing the facility of e-visa recorded a significant increase of over 73.3 per cent to 1.19 lakh tourists in July 2017 as compared to same month in the previous year. The government initiative to liberalise the country's visa regime through e-visa with 161 countries under this scheme is set to give a further boost to arrival of foreign tourists in the country.

Furthermore, the development of tourists circuits, greater connectivity of tourist havens through domestic flights, building of highways and higher railway connectivity is likely to provide more foreign tourists an impetus to travel in India. The promotion of homestays and affordable accommodation by the tourism ministry will further add to the travel motivations of the foreign tourists. By 2027, the influx of foreign tourists is likely to witness a hike of 6.1 per cent per annum, according to the report of the World Travel & Tourism Council. A greater number of foreign visitors are also being lured by the increasing promotion of the Government of India as a convenient, affordable and proficient health care destination. Reckoned as one of the fastest growing medical tourism destinations in Asia, the medical tourism sector of India, estimated to be worth USD 3 billion, is expected to reach USD 9 billion by 2020.

In the wake of such growth prospects, the performance of stocks related to Indian tourism sector has been gradually enhancing every year. The sector, with an aggregate one-year return of 23.35 per cent, has largely outperformed S&P BSE Sensex in equity returns for the past one year. The sector boasts of an EPS growth of 33.09 per cent on a year-on-year basis and has multi-bagger stocks including Asian Hotels (North) and Kamat Hotels (India). While Asian Hotels (North) has recorded a growth of 192.78 per cent in its stock price, Kamat Hotels recorded an increase of 157.23 per cent in its share price. Among the other top tourism sector companies, Royal Orchid Hotels recorded 75.3 per cent returns, Sayaji Hotels 67.79 per cent returns and Transcorp International recorded 45.75 per cent returns in the past one year. However, companies such as Graviss Hospitality, Viceroy Hotels, CHL and TGB Banquets and Hotels witnessed a decline of over 30 per cent in their share prices during the past one year.

The sector, presently delivering an average RoCE of 7.98 per cent, is set to soar in the markets in the coming times on the back of potential growth opportunities and an ever-increasing demand. The government's thrust on infrastructure development in general and tourism in particular is likely to benefit the tourism stocks in the long term. The wide expanse of untapped opportunities in the segment places the tourism sector heavyweights in a sweet spot to chart an exponential growth in the coming years. While convenient visa procedures, increased safety for foreign travellers and growth in amenities is set to bring in more foreign footfalls, the Indian tourism sector is on the cusp of unbridled growth waiting to be unleashed by the young and travelenthusiastic domestic crowd.

EIH LTD
CMP : Rs.168.50
BSE CODE : 500840
Face Value : Rs.2
BSE Volume : 9974 


 
EIH Ltd is a flagship company of the Oberoi Group, which is one of the largest hospitality groups in India. The company, together with its subsidiaries, is engaged in the ownership, management and operation of five star deluxe and five star properties in metropolitan and tourist destinations in India and in select tourist locations abroad. In addition to this, the company also provides flight and airport services, car rentals and air charter services.

In the December quarter of FY18, EIH's revenue came in at Rs.362.07 crore, witnessing a marginal increase by 0.4 per cent YoY. The operating profit stood at Rs.83.91 crore for the December quarter, declining by 9.7 per cent YoY. The EBITDA margin contracted by 258 bps YoY to 23.2 per cent in the third quarter of FY18. The net profit after tax came in at Rs.42.65 crore, witnessing a decrease of 24 per cent YoY.

On an annual basis, the company posted a 10.70 per cent decrease in its revenue to Rs.1277.55 crore in FY17 from Rs.1430.65 crore in FY16. The company's PBDT decreased by about 12.18 per cent to Rs.238.34 crore in FY17, as against a PBDT of Rs.271.41 crore in FY16. The profit after tax of the company declined by about 4.87 per cent to Rs.96.53 crore in FY17 as compared to Rs.101.47 crore in FY16.

The GST Council revised the rates for luxury hotels to 12 per cent and 18 per cent, depending on the tariff slabs, from earlier 28 per cent. The revised rates would tone down the tax burden on the company to manageable levels and improve profitability.

On the valuation front, EIH is trading at a PE multiple of 85.57x as against its peer Indian Hotels (254.36x). The company's return on equity (RoE) and return on capital employed (RoCE) stood at 4.76 per cent and 2.78 per cent, respectively. The company is virtually debt-free and has been maintaining a healthy dividend payout of 58.63 per cent.

The Oberoi, New Delhi, that was originally scheduled to reopen in April 2018, started the commercial operations ahead of schedule in January 2018. This would help the company generate revenues at par with earlier levels and contribute more than 14 per cent share towards revenue.

Also, over the next 2 to 3 years, the company plans to open some new hotels consisting of about 900 rooms. These hotels would be situated across various locations in India, Morocco, Kenya and Qatar. All these hotels are currently under construction and are expected to start operations within the next 2-3 years. The company did not raise any additional debt for the expansion and is managing well through its working capital. Consequently, the finance costs and its debt-to-equity ratio will stay unaffected.

The above factors, along with the boom in tourism in India, would trigger the company's topline growth going forward. We recommend a BUY on the stock.

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