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How and why mid-market hotels are taking over India’s branded sector

December 10, 2018

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In the late 1980’s Esso commissioned a survey of its UK customers and found less than 7% travelled onto Mainland Europe with their cars. Why this reticence on the part of families clearly capable of making their way from Poole to Provence in an overcrowded Metro? And no, it’s not what you think: back in those days we hadn’t even thought of Brexit. As Esso found out, there was a more homely explanation: the Continent simply had far fewer automated pumps on its forecourts, so drivers were in danger of having to talk with an attendant and you know how the English are with languages. Better leave the car behind than risk the unseemly spectacle of sign language on the forecourt with a Frenchman.

And when you think about it, that’s all quite interesting. It’s the reason petrol stations have gradually come to look exactly the same all over the world: with the pumps all roughly in the same place, all self service and roughly the same kind of shop to pay in. It’s why you can now buy a burger (from a screen) in identical McDonalds outlets from Vienna to Vladivostok without once having to speak a word of German or Russian, and it’s why Esso long made sure you can buy your petrol the same way. There’s simply no need to leave the car at home anymore…so we don’t. We buy more petrol instead and everyone’s happy.

Economists call this phenomenon Brand Synergy and until recently India’s mid-market Hotel Sector was widely perceived to be more or less dead to its charms. A senior analyst on the subcontinent memorably (and anonymously) put it as follows: “…it was like an airline that uses a Boeing 747 for travel between Delhi and Mumbai, a Dakota for Kolkata-Delhi, and a Dornier for Bengaluru-Pune”. The poor old travellers never knew what to expect when they got there. Just like trying to buy petrol by word of mouth.

But not anymore…

The subcontinent’s mid-market Hotels including Ibis Styles, Lemon Tree Hotels and Eco Hotels have all made progress over the last decade in adopting a much more uniform approach to product profiling, achieving a consistency in specification that has now seen the mid-market secure nearly half the branded hotel sector: spurred on, no doubt, by an increasing number of private equity investors, none of whom are noted for being slow in recognising brand synergies when they see them.

All of which has made the mid-market uniquely well placed to take advantage of the surge in India’s middle class and increasingly urbanised travellers that has doubled airline occupancy rates over the last seven years.  And with the average cost of building a mid-market room coming in at between Rs 3 Million and Rs 7 Million, breaking even within six years, it all makes bottom line economic sense too. Compare that with the larger branded chains where average construction cost for each room is Rs 15 Million and break even takes 15 years: more than twice as long.  In the past 10 years alone the mid-market has expanded at more than 15% annually (according to Howarth HTL) and now accounts for 43% of total branded stock.

Having got away its successful IPO earlier this year (raising Rs 311 Crore from key investors), Lemon Tree Hotels last week took the trend a stage further by launching its brand overseas: signing a deal for the first of its hotels to open in Dubai next year. It will be the first mid-market hotel on the luxury studded Al Wasi Road, sitting literally in the shadow of the Burj Al Arab and Al Waleed Real Estate’s CEO didn’t miss the significance:  “There was a need for a mid-market hotel of this calibre in this location and India has been the largest source of tourists into Dubai, as well as the UAE as a whole, for over three years now.” To save you Googling it up, the exact figure is 13%: India now accounts for a whopping 13% of total tourist numbers into the Emirates, which shouldn’t come as a surprise to anybody given the subcontinent’s wealth and proximity as well as the population’s found mobility.

And now they’ll recognise at least one familiar, distinctively Indian hotel brand when they get there…Plus ca change.

Red Ribbon Asset Management is the founder of Eco Hotels, the world’s first carbon neutral mid-market hotel brand, offering “green hospitality” as part of a progressive roll out across India which intended to take full advantage of current market opportunities on the subcontinent. The brand offers sustainable living without compromising on standards of hospitality and is designed to cater to commercial and recreational travellers alike.

Red Ribbon CEO, Suchit Punnose said:

Working as part of the Eco Hotels Project has certainly taught me the importance of branding and product profiling in the hospitality sector, so I was pleased to read about the renewed emphasis on branding generally and unsurprised to see that it has now increased the mid-market share to just shy of 50%. Monolithic 2000 room hotel chains are no longer the first choice for travellers, especially given all the evidence suggests they are increasingly looking for accommodation that also complements their preference for sustainability.

And that’s important because the boom in Indian tourism (domestically and internationally) is playing a significant part in driving forward the subcontinent’s resurgent hotel and hospitality sector. It’s certainly an area that cannot be overlooked when seeking out the best investment opportunities over the coming years.

That’s why I’m very proud that Red Ribbon has played such a significant role in the creation and development of the Eco Hotels Project, spearheading the response to that demand in an environmentally friendly manner.

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Hospitality with Responsibility: The Explosive Growth of India’s Mid Market

October 08, 2018

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Jawaharlal Nehru famously championed “hospitality with responsibility” and riding high as it is on the crest of an unprecedented surge in tourism, India is holding hard to the father of the nation’s message. Not least because public awareness of environmental imperatives has never been higher on the subcontinent, leading Prime Minister Modi’s Government to respond (characteristically) with a programme of market driven “green hospitality” initiatives that embrace everything from streamlined Visa procedures through to water sustainability programmes and everything in between. The result is a striking pattern of explosive growth in India’s important mid market sector where the bulk of those initiatives are currently taking root.

And it’s not all about the environment either, with most analysts also pointing to the importance green hospitality is having on financial performance as well, and not just on the bottom line either where reduced energy costs and leaner waste targets have an obvious potential to cut operating costs. Environmentally friendly policies also have an almost unique potential to attract the new generation of business and social travellers who are placing sustainability at the top of their checklists, with even the hardest nosed business travellers supporting the trend: Deloitte’s, scion of the pinstriped traveller, has published polling results taken from 1,000 businessmen and women, no less than 95% of whom wanted more green initiatives with 38% admitting to checking whether their chosen hotel was sufficiently green before deciding to book.

Put it another way, in less desiccated language not favoured by Deloitte, Eco Hospitality has now become an essential part of Mid Market’s success story on the subcontinent… and there’s no sign of it losing any of that importance any time soon.

Just look at Lemon Tree Hotels and Eco Hotels both of which are blazing a trail in making the most of the opportunities India’s mid market hospitality sector has to offer, each of them pursuing ambitious expansion programmes and delivering above market rate returns for investors.

Red Ribbon Asset Management is the founder of Eco Hotels, the world’s first carbon neutral mid market hotel brand, which has “green hospitality” built into its genetic structure. The company has embarked on an ambitious programme to roll out a chain of new facilities across the subcontinent, designed to take full advantage of market opportunities currently available in India’s mid market segment. The brand offers sustainable living without compromising on quality and will cater for commercial and recreational travellers alike.

Red Ribbon CEO, Suchit Punnose said:

India has become something of a crucible to test out trends in the hospitality sector. As most of us will have observed over recent years “green tourism” and “green hospitality” have become increasingly dominant in determining the choice of hotel for business and recreational travellers alike: part of a global environmental trend that seems, ironically, to have picked up pace even more following Donald Trump’s withdrawal of the United States from the Paris Climate accords.

But what makes India different from other bellwether economies worldwide is the sheer pace of the change that is currently taking place on the subcontinent. Number of travellers choosing to travel to and across India has reached an all time high, carriers are reporting exceptional volumes and occupancy rates and the mid sector is picking up a larger percentage of these travellers than ever before. I’m sure that will all in lead to an acceleration of the rate at which the trend for “green tourism” evolves in India as opposed to other markets across the world, meaning we can expect to see green tourism’s importance on the subcontinent before anywhere else.

As the article also points out, Eco Hospitality is an essential part of this trend so I’m very much looking forward to seeing how things develop, especially with Red Ribbon’s Eco Hotel project playing such an important part in the market.

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The Phenomenon of Eco Hospitality

September 14, 2018

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This year’s Sustainable Travel Report has reinforced the continuing momentum of Eco Hospitality in India: 84% of business and recreational travellers now confirm a preference for sustainable destinations, and as the saying goes, “sustainability starts where you stay”. Two thirds of travellers are willing to spend 5% more on accommodation if it meets sustainable criteria, meaning everything from water and energy consumption through to macro environmental management systems. But to get a real feel for the importance of those findings, you have to place them side by side with tourist and business statistics on the subcontinent and, in particular, for the first half of this year. It helps explain why India is currently experiencing an Eco Phenomenon.

The subcontinent will be the fourth biggest tourist economy in the world within the next four years, bigger than Italy, the United Kingdom and Australia put together and a major factor in this explosive growth is internal demand. In May alone airlines in India reported a 16.6% growth in passenger numbers, carrying 11.9 million customers with 80% occupancy (Spicejet reported an astonishing 94.8% occupancy rate). And with tourist numbers on the subcontinent riding at such an all time high with 84% of tourists preferring sustainable destinations (they have to stay somewhere when they arrive), even the most rudimentary of economists could spot an emerging trend.

Certainly Lemon Tree Hotels and Eco Hotels haven’t been slow to pick it up: both companies are currently spearheading key innovations in India’s hugely significant mid market hotel segment, with eco hospitality at the heart of each of their business models.

No surprise then that JP Morgan reported Lemon Tree in June to be delivering better than average cost control and execution ratings as well as higher return rates on room occupancy. Better Eco credentials aren’t just a honey pot for prospective travellers, they make sound business sense too with reduced commodity use (and costs) delivering straight to the bottom line. JP Morgan have also pinpointed enhanced operating leverage as a driver for future growth for at least the next three years, which is likely to deliver improved capacity for better pricing and capacity structures.

Lemon Tree and Eco Hotels continue to roll out new hotel units across the subcontinent, with the former last month investing another Rs 850 Crore into its aggressive expansion programme. Interestingly enough, Lemon Tree’s President Vikramlit Singh has also again highlighted a continuing mismatch between demand for hotel rooms and availability as a likely source of future profitability, so there’s no sign of those capital programmes losing their momentum anytime soon.

Red Ribbon Asset Management is the founder of Eco Hotels, the world’s first carbon neutral mid market hotel brand, offering “green hospitality” as part of a progressive roll out across India, designed to take full advantage of market opportunities available on the subcontinent at the moment. The brand offers sustainable living without compromising on quality and will cater for commercial and recreational travellers alike.

Red Ribbon CEO, Suchit Punnose said:

Market changes rarely come about in isolation, with one revolutionary event: the iPhone would have been an expensive mirror without something to plug it into. And the same goes for economic trends generally where we should look for the confluence of a number of key factors before drawing any conclusions. That certainly applies to the Indian Eco Hospitality sector where a huge uptick in business and recreational travel on the subcontinent has coincided with a surge in demand for sustainable destinations. With mid market hotels already roaring ahead, added eco credentials are giving the platform a turbo charger.

And I would add a third factor too. As may not be generally known the whole, vast expanse of the subcontinent currently has less hotel rooms that the island of Manhattan alone. So the point mentioned at the end of the article also has considerable importance to my mind: demand for hotel rooms is in any event seriously outstripping supply and that is bound to make for a more profitable outlook. A turbo charge for the turbo charger perhaps?

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Eco Hospitality as part of India’s Climate Change Agenda

September 14, 2018

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What exactly do we mean by Eco Hospitality? McDonalds has its own unique take on things, announcing plans to serve rice at tourist resorts on the subcontinent: rice with extruded cheese or spicy packet sauce. Take your pick. And PepsiCo India has a global sustainability agenda as well, planning to reduce the size of its Lays and Kurkure snacks in a valiant effort to “limit the company’s global footprint”. No sign yet of any plans to reduce the price of the smaller bags though. But beneath these slightly risible gestures there is a serious point. We have all witnessed the cruel after effects of the recent monsoons in Kerala, which have displaced hundreds of thousands and claimed the lives of hundreds more. And global warming is widely identified as a key factor behind the unusually heavy rainfalls.

So its welcome news that with or without extruded cheese on our rice and smaller bags of crisps, the subcontinent is already working at the forefront of global climate change policies, especially since the United States withdrew from the Paris Climate Accords last year, and India certainly knows what Eco Hospitality means because Eco Tourism is now an integral part of its economy.

Take one small example: operating at the epicentre of this month’s flooding in Kerala, the Tourism Department announced an initiative last month which will literally light up tourist spots by installing solar powered street units, including along the entire length of the beautiful Kovalam Beach where LED lighting systems link the seashore to local thoroughfares. The solar units are also hooked up to the Internet through a mobile app that will monitor power usage and report in if units are damaged or tampered with. It all costs Rs 31 Lakh but will save the State much more in electricity costs and, much more importantly, will help preserve the State’s precious environment for the future. There are also plans to extend the project to Varkala and Akkulam.

It might seem slight and insignificant given the scale of the recent disaster, but when Kerala recovers (as it will), it is one step further forward towards addressing the environmental issues that contributed to last week’s events. And on any basis it’s a lot better than extruded cheese and a bag of crisps.

Another good example of an Indian business looking to work in harmony with its environment is Lemon Tree Hotels where every hotel in its chain on the subcontinent will now adopt a stray dog from the local area and give it a home in the lobby. As history tells us, small steps can make a difference if we take them together. And as Eco Hotels has also demonstrated with its innovative “green hospitality” brand, the concept doesn’t just make environmental sense: it makes good commercial sense too, with lower operating and capital costs factoring into a leaner business model. Lemon Tree’s shares jumped 2% in a single day on 17th August, so the model is obviously working.

Red Ribbon Asset Management is the founder of Eco Hotels, the world’s first carbon neutral mid market hotel brand, offering “green hospitality” as part of a progressive roll out across India which is designed to build and expand on economies provided by the platform in conjunction with explosive growth in the Indian tourism sector (and mid market hotels in particular). The brand offers sustainable living without compromising on standards of hospitality and will cater for commercial and recreational travelers alike.

 

Red Ribbon CEO, Suchit Punnose said:

I think we were all shocked to witness the scale of the devastation that has unfolded in Kerala this month, and our best wishes and sympathies go out to all of those who have been so severely affected. But it is right too that we try to understand the reasons behind this, the worst monsoon flooding in India for more than a hundred years and its difficult to resist expert suggestions that global warming and avoidable harm to the environment could well be a major cause. So it is obviously important that we should try to do something about those long-term trends as well.

I am proud that India is working at the cutting edge of climate change policies across the globe and, in however small a way, those policies will I am sure help to make Kerala a safer and more secure, even more beautiful place to live in the future. Eco hospitality is a vital part of that equation for an area which is so heavily dependant on international and domestic tourism. As the article says, small steps taken together can change the world.

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New Sustainability Initiatives: India’s way forward

January 30, 2018

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At the close of the year, barely noticed by the world’s press, India’s Environment Minister, Harsh Vardhan, issued a major policy statement setting out the steps which the Modi Government is planning to take next to reduce air pollution in the subcontinent’s major conurbations (as well as taking a swipe at the municipal authorities in Delhi for, in his view, doing too little too late to get with his programme (but more of that in a moment)).

Vardhan outlined a series of reduced vehicle-based pollution targets, with the added imposition of new (restricted) emissions tolerances and thresholds and they will have application in all of India’s major conurbations…including Delhi.

Although these new initiatives are certainly a step in the right direction, there is (as the Minister himself admitted last month in his inaugural speech), still a lot much to be done: “The Government of India is doing its best regarding the matter… Pollution levels did not touch the severe category on 214 days this year, compared to 181 days in 2016, due to the proactive steps taken by the central government but there are certain critical issues like water sprinkling to curtail air pollution. Likewise, landfill sites are not being maintained properly”.

It was then that Vardhan took the opportunity to criticize Delhi’s local government, alleging it was not doing enough to adhere fully with the exising guidelines designed to manage environmental pollution. Naresh Agrawai (representative, not for Delhi but Uttar Pradesh so it wasn’t as though he was personally aggrieved by the comments) responded to these arch comments by inviting the Minister to refrain from criticizing farmers in his region for supposedly causing pollution through burning stubble or husks after harvest: “Farmers are blamed for causing pollution by burning stubble/husk. The government should take steps to deal with the situation, rather than blaming farmers, because vehicle/industrial emissions and others are also the reasons for it.” He suggested that Mr. Vardhan’s Government could better occupy its time by instead imposing heavier taxes on the owners of polluting four-wheel drive cars in India’s big cities.

And so it goes on: with the Modi Government blaming Delhi’s local government and the farming lobby blaming Modi’s Government and the local Delhi government signing up to the Government’s new programme and saying nothing. But at least it has signed up.

Because, of course, beneath all the politics these are deadly serious issues, so it has to be encouraging in these turbulent times to find a consensus emerging across all political classes in India: determined to do something to secure the future of the environment. All of which is also consistent with India’s new role as the world’s leading sustainability superpower and now the key remaining custodian of the precious commitments enshrined in the Paris Climate Accords.

Red Ribbon Fund Management has always placed India at the heart of its portfolio strategies. Not only because it is the most exciting Growth Market on the Planet but also because India is consistently demonstrating a commitment to environmental protection which is consistent with Red Ribbon’s own core philosophies.

So it’s good to note there is no sign of Prime Minister Modi’s Government slowing up or faltering in that commitment. The rest of the world might care to take notice…

Red Ribbon CEO, Suchit Punnose said:

The article is right to cut to the quick of a process of political manoeuvring that can all too often obscure the importance which the environmental and its proper protection has for all of us, and especially so here at Red Ribbon where the wellbeing of the planet has been at the core of our investment philosophies since the company was founded more than a decade ago.

Yes, we do live in turbulent times where the derogation of the United States from the Paris Climate Accords has made the process of environmental protection more turbulent than it used to be, but we should still recognise that the Indian Government is continuing to take a solid lead in the process in the absence of Washington’s involvement and the latest policy commitments issued by the Modi Government in December are very much to be welcomed. It is, indeed, good to see that it is not letting up in its zeal to have a positive impact on the planet’s future.

Not least because we all stand to gain from that commitment.

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India takes the lead: A Global Renewable Hub

July 26, 2017

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India’s place as the key Global Hub for Renewable Energy Generation is becoming more evident by the month: GE Energy Financial Services (GEEFS) has just announced plans to invest $90 Million towards development of a Major Portfolio of 500 MW in partnership with the RattanIndia Group.

Anjali Rattan, Chief Executive of RattanIndia, explained the background to the deal:

“RattanIndia and GEEFS are partnering to develop 500MW of solar asset technology. GEEFS will be investing $90 million for the 500MW solar portfolio and has already invested in 210MW solar projects with RattanIndia located in Government Solar Parks at Bhadla (Rajasthan), Allahabad (Uttar Pradesh), Pavagada (Karnataka) and in RattanIndia’s  home territory of Katol (Maharashtra)”.

All this comes in the immediate context of Prime Minister Modi’s Government having set India an ambitious target of adding 175 GW of clean energy by 2022; and that commitment was made in the teeth of last month’s withdrawal of the United States from the Paris Climate Accords (surely making GE’s latest substantial investment in the subcontinent’s renewable energy programme all the more striking).

GE obviously recognises the importance of India as the leading Growth Market in the World at the moment and such huge resourcing programmes provide dry powder for companies like RattanIndia to ride the tiger of India’s ambition. But bear in mind too that this is very far from being a one off venture into the subcontinent’s Renewable Energy Sector.

GEEFS has previously invested in Welspun Renewables’ Neemuch Plant in the Anantapur District of Andhra Pradesh, and there is also a parallel project in Betul in Madhya Pradesh as well as Greenko’s wind energy projects in Northern India.

These crucial developments have also, importantly, been aided by a significant reduction in the applicable tariffs for Indian solar energy generation: from Rs10.95 to 12.76 per kilowatt hour (kWh) in 2010-11. The applicable rates hit a new low of Rs2.44 per unit in May of this year where, at the auction of 500MW capacity at the Bhadla solar park in Rajasthan and last year, RattanIndia Solar won a 50MW solar project at a tariff of Rs4.43 per kWh. Through its subsidiary Yarrow Infrastructure Ltd, it also won a 70MW solar project at a tariff of Rs4.36 per kWh in an NTPC Ltd run e-auction.

So it should come as no surprise to learn that India’s installed solar power generation capacity has risen more than fourfold in the last six years. Prime Minister Modi’s Government has been promoting Solar Power as part of that evolutionary process as well as recently deciding to continue its programme of exempting solar power producers from interstate supply charges for an extended period down to December 2019:  “The decision was taken by the Ministry of Power in consultation with the Ministry of New and Renewable Energy and other stakeholders since imposition of charges would have raised the cost of using solar power from another state by Rs1-2.50 per kWh, depending on the distance it is transmitted and voltage at which it is supplied.”

It all points of course towards a brighter future for Renewable Energy on the subcontinent; underpinning Red Ribbon Asset Management’s decision (since it was founded more than a decade ago) to place Renewables at the very heart of it’s Mainstream Impact Investment Strategies. Strategies that generate above market rate returns for its investors whilst at the same time supporting stronger, long-term businesses; creating long term, resilient projects and delivering better impacts on the community, on our wider society and on the environment.

Read about Rattanindia and GE 

Read about Welspun Renewables

 

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What are the new investment plans for wind generation in India?

February 13, 2017

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It should come as no surprise to those keeping a close watch on developments in the renewables sector that India’s largest energy producer, NTPC, has last month announced its decision to move into wind production. The proposed new 50 MW Facility will be built in Gujarat and as the company is also substantially owned by the Government, sources close to management believe there should be little difficulty in securing consent for an early completion of the project.

Indeed, Prime Minister Modi’s Administration is taking an increasingly active role in supporting wind generation projects right across the subcontinent.

Shortly before Christmas, for example, the Government announced its decision to introduce “Viability Funding” for the wind sector; and faced as it was with the threat of losing key subsidies by the end of the financial year, participants in the sector will have welcomed the new measures with open arms. The previous Union Budget had capped accelerated depreciation relief from April 2017 onwards which was seen in many quarters of Government as a retrograde measure, at least undermining existing governmental commitments to the Beijing and Pittsburgh Climate Change Protocols. The new Viability Funding Policy will go a long way to addressing those concerns by further bolstering the position of wind as a key transformative catalyst for renewables growth.

The Policy Initiative (with planned payments pitched at 80% of growth targets) will also undoubtedly be seen as a welcome recognition from Central Government of the key role which is to be played by Gujarat in future renewable energy development, fitting in very appropriately with NTPC’s new investment plans for wind generation in the State.

And although it is correct that the existing Generation Based Incentive of 50% from target will be phased out under the new plans from April 2017 onwards, it remains the case that of 28,279 Mw of wind power generated in India, 70% will still be built on accelerated depreciation budget programmes. Taking the NTPC Gujarat Project as an example of how that will work in practice, no less than 80% of the Project’s expected development costs will ultimately be paid back by Central Government if, as seems likely, the Project is completed on schedule.

Speaking last month when the new Policy was announced, an official from Prime Minister Modi’s Office said: “As the generation based incentive expires, the Government is introducing a new incentive for procurers of wind power. The idea is to pay distribution companies the difference between their procurement cost and the viable tariff”.

There can be no doubting the significance of these developments. As bids for solar powered units have spiralled downwards over recent months to less than Rs 5 per unit of production there has been a marked reluctance from most Indian States to pay more than the depressed base figure; so it is to the Government’s credit that it has recognised the economic necessity of bridging the expectation gap with an effective package of subsidies

Close to 11,000 MW of wind-powered generation, no less than forty percent of the total wind generation capacity on the subcontinent had previously faced delayed payments from participating States, some of which had even cut their generation targets during the summer of last year. The new policy deals timeously and constructively with that threat.

Wind power is not, of course, a sector which is dependant on government support and these are fundamentally realistic measures introduced to meet an external market threat; so we should remind ourselves that for over a year up to 2012, the wind sector received no government support at all and despite this 1,700 additional MW of wind power had been added to overall stock by 2016 against a Central Government target of 2,400 Mw making India the fifth largest renewables energy generator in the world. The new measures are a timely helping hand to what is already a strong and robust sector, but for all that they are still to be welcomed.

Red Ribbon CEO, Suchit Punnose said:

There is obviously a key dynamic operating between the photovoltaic and wind-powered sectors; and in an evolving market they will inevitably complement one another, so I have been paying close attention to the softening of bid prices for solar powered units over recent months and it seems to me that the Government is absolutely right to step in with a package of measures to prevent this impacting adversely on wind markets. It is the right measure at the right time and a clear signal of the Government’s commitment to wind power as a key part of the renewables platform in India.

Added to that, of course, the new Viability Funding Policy will provide a solid basis for growth to the renewables sector as a whole; and with the imminent phasing out of Generation Based Incentives that is certainly to be welcomed.

It is also reassuring to confirm our own long-held conviction that economic forces must inevitably converge to reinforce the business case for projects tackling environmental issues. Policies discriminating in favour of projects delivering a measurable positive impact, is also good news for investors seeking to align their financial portfolios with their values.

 

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