Rising interest in the Hospitality sector

Suffering from low margins, Indian developers are entering new businesses such as retail and hotel to diversify revenue stream and offset slowing demand for real estate projects due to 6 yr high lending rates and stringent financing norm. Below are a few recent investments in the hospitality sector

Yatra Capital, a Jersey-based private equity firm, will invest 4.4 million euros in an upcoming Taj hotel in Calcutta. Yatra Capital will acquire a 40 per cent stake in Jalan Intercontinental Hotels Private Limited, the company which is building the 200-room property. The hotel will be managed by Indian Hotels Limited under the Taj Gateway brand.

Warburg Pincus-Casino Group: The Kochi-based Casino Group of Hotels (CGH) is in the market to raise capital. According to The Economic Times, private equity fund Warburg Pincus is in talks with the company to invest upto Rs 325 crore. CGH is a leading hospitality group in Kerala, and is wholly owned by the the Dominic family. The report adds that they may divest upto 20 per cent, which would value the enterprise at around Rs 1600 crore. The company needs funds for their domestic as well as overseas expansion.

Rakindo Developers has raised Rs 4,000 crore ($1 billion) from Lotus Investment fund to develop hotel properties across India under the brand name Millennium and Copthorne Hotels. It has begun construction in Hyderabad and Bangalore, and plans to set up hotels in Vizag, Kochi and other south Indian cities.

Rakindo, which is looking for multiple options in this sector, has also formed a JV with with the UK-headquartered Lotus hotel investment fund, a private equity fund, to form Lotus Rakindo Hospitality. This JV will invest in three- and four-star hotel properties in the country and Asia.

Delhi's DLF and Parsvnath have also planned 75 and 100 hotels, respectively. DLF is collaborating with Hilton Hotels and Parsvanth with Royal Orchid Hotel.

Sahil Group, Pune-based property developer has tied up Carlson Hotels Worldwide-Asia Pacific for a project under the Radisson Resort and Spa brand at Alibaug and Pune

Nirmal Lifestyle has formed a JV with Accor Hotel for development in Mumbai and Goa.

But even as builders set aside huge funds for hospitality projects, they are aware of the risks that come long with them. With residential and commercial projects, once you have sold the properties, you wash your hands off them. In case of a hotel project, there is a long gestation (breakeven) period. The hospitality industry is also cyclical.