1. Hotel Sector By: Harshita Jagwani

2. Industry Overview Hotel industry has seen huge growth. Strong GDP Growth combined with FDI inflows Increase in business travel. High occupancy levels resulted in to high room rentals which in turn resulted in to higher operating margins for the hotels. Exponential growth potential prompted most of the hotels to add capacity additions in the last 2-3 years which will now come in to stream. Industry experienced an unexpected turnaround during last year as there was a significant dip in the Occupancy levels across different cities.

3. Major Cost Heads% of sales F&B (A)13.5 Staff Cost (B)22.4 License Fees (C)5.9 Fuel, Power & Light (D) 9.1 Interest (E)6.1 Depreciation (F)5.8 Tax (G)12.2 Others (H)25.0 Hotel Occupancy Client Wise Data SegmentsPercentage Foreign Leisure Tourists (A) 13 % Foreign Business Travellers (B) 9 % Domestic Leisure Tourists (C) 26 % Domestic Business Travellers (D) 38 % Others (E)14 % Cost Breakup as % of sales

4. Financials

5. Asian Hotels

6. Indian Hotels

7. TAJ GVK Hotels

8. Hotel Leela Venture

9. EIH ltd

10. Royal Orchid Hotels

11. Dividend yield: Name of the HotelFY05FY06FY07 FY08 (As on 1st Aug 08) Indian Hotels17.2410.41.192.24 Asian Hotels1.751.621.390.22 Hotel Leela venture3.272.880.811.61 TAJ GVK Hotels6.670.771.613.48 EIH9.5210.511.492.1 Royal Orchid02.432.967.32

12. P/E

13. Future Outlook Demand V/s Supply: As per the estimates from Crisil, room supply is expected to grow at 16% CAGR whereas demand is expected to grow at 12% CAGR for FY07-FY12E. Thus Supply outweighs the demand. Most of the major hotels such as Royal Orchids, Indian Hotels, Taj GVK have huge expansion/capex plans in pipeline. For this, they will be raising substantial amount of debt, which is going to directly impact their bottomline.

14. Future Outlook…cont’d Occupancy levels have reduced Y-O-Y across the industry: -2.18 -1.30

15. Future Outlook… Negatives Outweighs the positives PositivesNegatives Tourism development initiativesRise in Inflation Estimated 600% growth in medical tourismSharp Increase in airfares Increase in Crude Oil prices World Travel & Tourism council has stated that going forward India will be among the top 3 fastest growing marketsHuge Demand-Supply Mismatch All the listed hotel players in the market have good brand visibility. Apart from that they also have tie ups with airlines & various International consultantsRecession in US Slowdown in IT / ITeS sector, markets such as Hyderabad and Bangalore have seen softening of demand for hotel rooms. International budget hotel chains are moving into India to stake their turf.

16. Conclusion Although most of the Hotels are trading at a lower PE, we expect muted growth for the sector in the short run due to various reasons such as oversupply issues, global as well as national slowdown, inflationary pressures We advice that all the investors who have come in at higher levels to wait for a period of 3-5 years before divesting their stake In order to survive in these turbulent times, all these luxury hotel chains have to rework on there business model. We recommend BUY for Indian Hotels & Hotel Leela venture

17. Indian Hotels-BUY Enjoys strong brand Equity “TAJ” Has a PAN India Presence About 80-85% of the Consolidated revenues comes from International operations It has strengthened its US presence (3 Hotels) where demand has been strong & the upturn is expected to continue for another few years Have an Asset light strategy Operates Budget Hotels called “Ginger”

18. Hotel Leelaventure ltd-BUY Planning to have a PAN India presence (Chennai,Gurgaon,Udaipur,Pune) Room revenue in Bangalore went up by 18%, which is pretty satisfying given the expected slowdown Casino Income & refurbishments will help them to drive growth in FY09 In FY09, company expects to have 10-15% growth over last year