Hotel chains struggle with low bookings

The Indian Hotels Company last week announced an additional non-cash provision of Rs 500 crore on its books citing macroeconomic depression and the adverse effect it had on some of its investments.

The Indian Hotels Company last week announced an additional non-cash provision of Rs 500 crore on its books citing macroeconomic depression and the adverse effect it had on some of its investments. The company, which operates the Taj Group of hotels, is however not alone in signalling tough times.

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Several luxury hotel chains including Hotel Leelaventure and ITC’s hotels division have seen sluggish growth over the first nine months (April-December) of 2013-14 as the economic slowdown coupled with a room supply-demand mismatch in several cities put pressure on occupancies and room rentals.

According to online portal hotels.com, room rates in five-stars across India fell in 2013, with rates in Delhi declining 12%, while those in Mumbai down 7%.

During April-December 2014, average room rates fell in most major cities, citing data by STR Global, a company that benchmarks hotel data. Supply of luxury rooms outstripped demand in markets such as Chennai, where room supply rose over 10%, while demand was up just 0.3% and in Delhi-NCR, where supply rose 6.6% against a 4.8% rise in demand over a year ago.

"The board looked at indicative term sheets for a bridge loan. But the terms of the loan didn’t meet the company’s requirements and CMD Vivek Nair has been authorised to negotiate the terms of the bridge loan," a company spokesperson told HT.

And given the overall slowdown and political uncertainties this year, things are unlikely to pick-up soon, analysts said. "The slowdown is not expected to lift in near-term," said Neha Majithia of Microsec Capital.

Analysts said hotel chains are looking at management contracts instead of greenfield expansion.