Hotel Industry To See 7%-9% Growth in Revenues for FY18-19: Report
Riding on the back of economic growth due to recovery in the global conditions, resulting in higher movement in the meetings, incentives, conferences and exhibitions (MICE) segment, and the consistently growing middle class having increasingly disposable incomes and a fondness for travel, the hotel industry is expected to post a robust growth of 7%-9% in FY18-19, according to a report by CARE Ratings. Another factor named by the report as a driving force for growth is India’s attractiveness as a medical tourism destination.
 
“The Indian hospitality industry has emerged as one of the key industries driving the growth of the services sector and, thereby, the Indian economy,” says the report.
 
At the close of 2018, the country saw macroeconomic stability owing to a decline in inflation, and current account deficit (CAD). The Union budget had identified some major pillars that will support economic growth for the country that includes tax reforms, fiscal discipline, investment in infrastructure, ease of doing business, agriculture and farmer welfare, rural sector, social sector, education and job creation. This is said to have translated into an overall pick up in economic activities, thereby having a positive impact on the demand for hotels in the country.   
 
According to India Brand Equity Foundation (IBEF), the tourism and hospitality sector’s direct contribution to GDP surged by 23.6% in 2017, raising the share of the industry (direct & indirect) to Rs5.9 trillion ($91.3 billion). “Also, tourism in India accounts for 9.4% of the GDP and is the 3rd largest foreign exchange earner for the country and ranked 7th in terms of tourism total contribution to GDP in 2017,” says the CARE report.
 
“The expected future inventory in 11 major markets across categories (only branded) is low at around 49,380 rooms for the next five years (FY18-23).Therefore, with increasing demand on the back of improvement in economic activities and lower room additions, we expect the major markets in the industry to sustain the average room rates (ARRs), going forward, and grow at an average of 3.5-4.5% per annum. Also, we expect the occupancy to inch up to an average of about 68-70% by the end of FY23 compared with 66.6% in FY18,” says the report.
 
The existing room supply for the country grew by 7.5% in FY17-18 totalling to 128,163 rooms (as of 31 March 2018) according to the report. This considers the 8,944 new rooms that entered various markets during the year, as well an expansion of the existing properties.
 
Kolkata saw the highest increase in supply (20.7%) in FY17-18, adding to the relatively small base of hotels, followed by Chennai (10.5%) and Ahmedabad (8.9%). 
 
 
Among the 11 selected cities, Mumbai's hotel market achieved the highest occupancy recorded over the past few years amongst all major markets across the country and also recorded the second highest average room rate (Rs7,740), further consolidating its position as the best performing hotel market in terms of RevPAR too. 
 
Accordingly, the hotels industry is expected to see an increase in room revenue at the rate of about 10%-12% CAGR over the next five years.
 
The report names complex regulatory environment and inadequate tourism infrastructure among the challenges facing the industry.
 
Goods and services tax (GST) has been implemented from 1 July 2017, with the aim of replacing the indirect taxes on all goods and services. Initially, room tariff above Rs5,000 was to attract the higher tax rate of 28%, which has been revised now and only tariff above Rs7,500 would fall in the highest tax slab under the GST regime. 
 
“Accordingly, we at CARE Ratings believe that the effective tax rate would not have any major impact on the average room rates (ARRs) and occupancy rates (ORs) of the hotels, given that GST players would be able to avail the input tax credit for both goods and services,” the report says.
 
Alternatives to the premium hotel segment have been listed by the report to include time-sharing as a form of vacation ownership of property, wherein units may be on a partial ownership, lease or a ‘right to use’ basis where the sharer has no claim to the ownership of the property. The other option mentioned is the service apartments, which are fully furnished apartments available for short-term or long-term stay, providing all the luxuries of a premium hotel such as room service, laundry service, fitness centre, etc, and have larger rooms and more space at a far more competitive rate.
 
Customers of the hotel industry are classified by the report under the heads of business traveller, leisure traveller and airlines cabin crew, each displaying varied demand dynamics. The report also highlights the cyclical nature of the industry, pointing out that during positive cycles the industry witnesses periods of sustained growth and sees healthy average room rates (ARRs) and occupancy rates (ORs) which fall in the lean seasons.   
 
Elaborating on the pattern of revenue generation, the report notes: “While the macro-economic factors affect the business destinations (RevPARs – revenue per available room, growth is sensitive to the macro-economic indicator such as the nominal GDP), the leisure destinations show a greater sensitivity to non-economic factors such as terror attacks, health related travel warning, etc. (decline in FTA in 2008-09 was largely on account of the Mumbai terror attacks on November 26, 2008 and the swine flu linked travel advisories). Consequently, the average RevPARs of 12 major cities had registered a decline of about 13.9% in 2008-09 and 9.7% in 2009-10. While in 2010-11, with higher growth in nominal GDP and an increase in FTAs post-recession, these 12 major cities recorded an average increase of about 2.6% in RevPARs. Similarly, due to increased domestic and international trade activities and various initiatives taken by the government post 2015-16, the number of foreign travellers in the country has increased. This has been reflecting in the overall RevPARs in India that registered a CAGR growth of about 5% between 2014-15 and 2017-18.”
 
 
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Ericsson Seeks Arrest of Anil Ambani Over Dues of Rs550 crore: Report
Swedish telecom equipment major Ericsson has petitioned the Supreme Court of India to arrest Reliance Communications Ltd (RCom) chief Anil Ambani over recurring delays in payment of its dues worth Rs550 crore, says a report.
 
In the report, the Times of India, says, Ericsson has accused the embattled businessman of engaging in 'gross and wilful contempt' of the apex court. The company has said that insolvency proceedings should be initiated against RCom and its spectrum and tower sale deal with Reliance Jio should be stopped “with immediate effect”. 
 
In its second contempt plea, the Swedish company requested the apex court to bar Mr Ambani from leaving India for defaulting on payments.
 
“The respondents have abused the process of law to the hilt and caused grave damage to the interest of justice… having committed and guilty of contempt of court, be directed to be detained in civil prison unless… (they) purge themselves by making payment of Rs550 crore along with interest,” the report says quoting the petition filed by Vishal Garg, authorised representative of Ericsson India Pvt Ltd. 
 
Earlier in October 2018, Ericsson had filed its first contempt petition in the Supreme Court. At that time, RCom had stated that it sought another 60 days for the repayment of Rs550 to the Swedish company. 
 
"The extension has been sought purely due to the fact that, as approved by 38 secured lenders, and as per RCom's undertaking, Ericsson is to be paid from the sales proceeds of spectrum being traded by RCom, and such sale could not be completed as yet owing to factors beyond the control of RCom," the Anil Ambani group company had said in its regulatory filing.
 
Initially RCom owe Rs1,600 crore to Ericsson. However, after a court monitored settlement, this was brought down to Rs550 crore and was supposed to be paid by 30 September 2018.
 
The report from ToI, says, "Troubles for RCom — which has run up a cumulative debt of nearly Rs45,000 crore — have been compounding despite Anil Ambani striking a deal with elder brother Mukesh’s telecom venture Jio. While the company has received around Rs5,000 crore through the sale of fiber and media convergence node (MCN) set-up, the bigger deal — estimated at Rs15,000 crore through sale of spectrum and towers — still hangs in balance over payment of a bank guarantee."
 
"With the bigger deal looking difficult to pass, and money collected from the previous sale parked in an escrow account controlled by the banks, Anil Ambani has been unable to pay Ericsson despite giving specific assurances for the same," the report adds.
 
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Vendor Association Alleges Violation of FDI norms and FRTP by Big E-commerce Players 
The Indian government has clarified that the foreign direct investment (FDI) policy on e-commerce does not allow foreign investments into multi-brand retail. However, the All India Online Vendors Association (AIOVA), while alleging violation of government FDI norms on by large ecommerce companies, has asked the government tighten its policies and reprimand such erring players. 
 
In a statement, the department of industrial policy and promotion (DIPP) had assured that FDI in allowed only in the business-to-business (B2B) e-commerce segment and not in the business-to-consumer (B2C) segment, which in effect is the multi-brand retail or the inventory-based e-commerce model.
 
"Certain averments suggest that Press Note 3/2016 had covertly allowed multi-brand retail trading. Such a view is completely contrary to the specific provisions of Press Note 3/2016, which unambiguously provided that FDI is not permitted in inventory based model of e-commerce which amounts to multi-brand retail," the statement said.
 
It further said as FDI is allowed only in B2B e-commerce, an e-commerce entity providing marketplace will not, directly or indirectly, influence the sale price of goods or services, which also renders such business as an inventory based model.
 
However, in a series of tweets, the AIOVA pointed out how big players like BigBasket, Amazon, Grofers and Flipkart, among others violate the FDI policy on e-commerce using the food retail trading policy (FRTP) route. 
 
 
 
For example, the Association says, BigBasket is a subsidiary of Supermarket Grocery Supplies Pvt Ltd (SGS), which in turn is a wholesale company with FDI. "Even though SGS is owner of BigBasket's trademarks, the actual site or marketplace of the e-commerce business, has been licensed to Innovative Retail Concepts Pvt Ltd (IRC), which has two directors and authorised capital of only Rs2 crore," it added.
 
 
AIOVA says, "IRC has a B2C turnover of Rs1300 crore, which is less than the Rs1500 crore of SGS. It seems IRC is not working as a marketplace but as a retailer itself. Here a clear loss can be seen where IRC is making loss on its purchases for SGS. Both companies have declared a combined loss of 500 crores. It seems IRC entire capital is wiped out. Still it is doing business."
 
 
As per food retail permission, SGS can retail food products that are made in India. "They need to keep the inventory and accounting separate from other business. But wait, SGS is nowhere involved in B2C. Then what is the need of food retail license?" the Association asks.
 
"This is a case of a wholesale company being funded through FDI, which controls an Indian marketplace and using its capital to deep discount in food and other household items. Their business model can soon be adopted by other companies and evade DIPP press notes completely," AIOVA says.
 
 
Talking about Grofers, the Vendor Association, says, this e-commerce player was  owned by Locodel Solutions Pvt Ltd, which in FY2016 was transferred to Grofers India Pvt Ltd (GIPL). Grofers India received approval from the DIPP for retailing food products, which allowed the company to sell food made in India. 
 
 
Quoting a report from the Mint, the Vendor Association alleges violation of DIPP norms by Grofers on the same line of Flipkart, by creating four shell companies, one being a B2B company and three shell B2C companies to sell goods on the marketplace.
 
 
According to AIOVA, Grofers India had committed $25 million for engaging in food retail. "Within one year of receiving the license, their Singapore based holding company received funding of about $500 million. The holding company infused Rs100 crore into GIPL at a premium Rs11 lakh per share in October 2017," it added.
 
 
"This raises a question on the food retail license given to GIPL. The license clearly mandates them to keep food retail and other operations separate. And the entity cannot retail anything apart from Made in India Food. Albinder Dhindsa from Grofers claims to have 2000 sellers on marketplace," the Vendor Association says. 
 
AIOVA also points out how after failing to satisfy DIPP norms, Amazon went ahead with FRT in Cloudtail India Pvt Ltd. It says, Amazon Retail India Pvt Ltd, was the third company to receive nod from DIPP for food retail, and had committed an investment of Rs3500 crore. However, Amazon's plan got foiled when DIPP asked to maintain separate resources for website and FRTP, it added.
 
 
The Vendor Association says, "FRTP imposed proper restrictions on these companies so that they don’t abuse the license to dilute the marketplace. However, DIPP failed to check other circumventions. While these companies can still open stores and carry out FRTP, they are unwilling to fulfil backend infrastructure investment or other conditions stated in their proposal to get the FRTP license knowing very well that they can carry out FRTP by creating 'pseudo marketplaces' and shell companies."
 
 
In the statement, the DIPP also noted that despite the regulations not allowing an e-commerce player to influence pricing of products the government continued to receive complaints that certain marketplace platforms violated the policy and indirectly engaged in inventory-based model.
 
"An e-commerce platform operating an inventory based model does not only violate the FDI policy on e-commerce but also circumvents the FDI policy restrictions on multi-brand retail trading," the statement stressed.
 
The Commerce Ministry in December revised the FDI policy for e-commerce players whereby it barred online retail firms like Amazon and Flipkart from selling products of companies in which they have stakes. It also prohibited e-tailers from mandating any company to sell its products exclusively on its platform only.
 
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