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Gains From Falls

The hotel industry has been suffering, but opportunity knocks...

Nothing seems to be going right for the hotel industry. First it was the global economic crisis, then the terror attacks and now it's swine flu. From a position of strength based on the global economic expansion juggernaut, from profits, to stock prices, hotels are now seeing a downward trend.

In India, right after the 26/11 terror attacks in Mumbai, the hospitality sector was severely impacted to the extent of 64 per cent during January-March 2009, as per the analysis carried out by The Associated Chamber of Commerce and Industry of India (ASSOCHAM).

The industry was still to recover from the global financial crisis induced recession that chalked up empty rooms in their registers, the current recovery by the major global economies, is still not bringing in enough business despite room rates having seen a sharp decline during the quarter, as the effort is on to fill empty rooms.

But as the saying goes, one man's poison is another man's staple, the bad news for the industry might just be an opportune moment for investors as stock prices have fallen heavily due to the scare. And, as mentioned earlier, global economic revival, aside from the upcoming Commonwealth Games in India, may just drum up business in the future, making for a good bargain-hunting opportunity.

The stocks of the top five BSE-500 listed hotels were doing more or less fine until the WHO officially declared that "the world is now at the start of 2009 influenza pandemic" on June 11. While the BSE Sensex started falling, so did the stocks of the top five BSE-500 listed hotels, registering an average fall of 18.67 per cent between June 2, 2009 to August 26, 2009.

The June quarterly results of these hotels too took a hit as the profit of most of them have fallen. The profit of Asian Hotels Limited stood at Rs 11.4 crore in the June quarter, compared to Rs 15.37 crore in the March quarter, the same for EIH Limited has drastically gone down from Rs 67.8 crore in March quarter to Rs 19.05 crore in June.

Similarly profits of Hotel Leela Venture too have taken a hit with profit figures standing at a mere Rs 1.04 crore in June quarter in comparison to Rs 67.01 crore in March. The Indian Hotel Company too has been drastically hit after the swine flu scare with profits coming down to Rs 16.44 crore in June from Rs 38.25 crore in March quarter.

Although, Hotel Leela Venture may not benefit from the proposal of direct Tax Code as it is likely to take its toll on its two proposed hotel projects in NCR. The tax deduction which benefits the companies in this industry might also take a hit in the NCR area.

The only hotel to have actually made it to positive is Country Club (India) which has rise from losses of Rs 10.1 crore in March quarter to a profit of Rs 2.98 crore.

And it is not only the Indian hotel industry which is feeling the heat. Their counterparts across the world too have taken a hard hit due to the recession. Some of the US owners of luxury brands have gone to the extent of sacrificing their star status as it takes an enormous capital investment to maintain them. According to Smith Travel Research Report, occupancy rates of these hotels have fallen 57 per cent in the year through July from 71 per cent in the same period a year earlier.