Hotels to take IPO route for expansion

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Indian hotel companies like Unison, Bharat Hotels and Ramee Group are planning to opt the initial public offering, IPO or the private placement route given an upbeat demand in the burgeoning hospitality sector in the country. Recently, Lemon Tree, Sarovar, Viceroy, Leelas, Royal Orchid have opted for private equity placement or sale of promoter share, reports The Economic Times.

Bharat Hotels is looking at raising approximately Rs 1,000 crore to fund its expansion plans, which include the restoration of various its projects across the country.

The size of the IPO or private placement offer would be in the range of Rs 400-450 crore, industry sources said. The decision to raise funds by way of a private placement or an IPO will be taken by the Unison Group within next 3-4 weeks, sources said.

Unison Hotels has chalked out Rs 2,000-crore capex, which will see it setting up eight hotels in the next five years. Ramee Group of Hotels is looking at expanding its portfolio to 15 hotels in India.

"With a buoyant economy, this is the best time for the hotel companies to undertake expansion and acquisition plans, said Alok Agarwal of Motilal Oswal.

The country is witnessing a spurt in hotel expansion as India is facing a severe shortage of quality hotel rooms because of increased business activity and a spurt in leisure travel by the country's burgeoning middle class, as well as international tourists.

The demand-supply mismatch is likely to last till mid-'07 with most of the fresh supply coming in '08. Delhi will see the maximum number of branded hotels coming up to 10,856 followed by Mumbai at 9,318 and Bangalore at 7,794.

A buoyant economy, growth in aviation and real estate, improved infrastructure and the easing of restrictions on foreign investments is expected to fuel the demand across star categories in a majority of markets across India. Foreign tourist arrivals have grown by 15% in the first eight months of this year.

"The domestic hotel industry is witnessing a lot of interest among private equity investors and several international hospitality chains are looking to enter the country," said Umesh Saraf, MD, Unison Hotels. Over the past few months tier II cities like Jaipur, Gurgaon, Hyderabad, Pune and Bangalore have witnessed growth both in terms of occupancy and room rates. While occupancy is around 75-80%, room rates are up by 15-20%.