For more information, or additional copies of this document, please contact:

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2 For more information, or additional copies of this document, please contact: Secretary General Federation of Hotel & Restaurant Associations of India (FHRAI) B-2, th Floor, Himalaya House, 23 Kasturba Gandhi Marg New Delhi India Tel: Fax: Website: +1 (11) (11) 0 0 fhrai@vsnl.com Price: FHRAI Members: FHRAI Non-Members: International: `00 (per additional copy) `00 US$0 Federation of Hotel & Restaurant Associations of India, 2013 Reproduction of data from within this publication is permitted provided that acknowledgement is accredited to the FHRAI and HVS India.

3 Table of Contents Foreword from the President, FHRAI About HVS Synopsis and Key Highlights... 1 Country Trends... 3 City Trends Indian Hotel Industry Star Category Indian Hotel Industry Inventory and Chain Affiliation Indian Hotel Industry Seven Major Cities Indian Hotel Industry Thirteen Other Cities...

4 Foreword The Federation of Hotel & Restaurant Associations of India is pleased to present the sixteenth annual edition of the Indian Hotel Industry Survey, in cooperation with HVS India. This survey includes in-depth information about the performance of hotels across various cities and positioning and provides several benchmarks for comparing hotel performance in India. We would like to thank the participating hotels for all the detailed information they have provided, thereby helping to improve the quality of this research. The Indian Hotel Industry Survey analyses the performance of the Indian hospitality industry across parameters such as facilities, manpower, operational performance, and marketing trends. The information is based on data received from FHRAI hotel members and the authenticity of this data helps us in providing a clear picture of the operating statistics of India's hospitality sector. Data collected from our member hotels, our extensive historic database and the credibility of our research have helped make this report a preferred tool for hotel professionals, consultants, investors, bankers, researchers, government officials in the tourism department, media persons, and all those interested in studying the Indian hotel industry. The current edition includes an analysis of seven major cities for which we have received detailed information and thirteen other cities where information was available with us for some hotels, though not in sufficient numbers for all the star categories. We earnestly request all our members to be more forthcoming with sharing the required information as this helps to take up various issues confronting the industry, both at the centre and state level. It is only when armed with accurate data that we can convince the policy makers to give us the importance and priority that our industry deserves to fulfil its potential in India's economic growth. Therefore, while we have basic data for 1,0 members (an increase from the 1,320 responses received last year), the financial data is not available for all of them. Though the major apprehension of each one of those members for not sharing the required information for this report might be the confidentiality of their data, members should rest assured that there is complete security of data by HVS. We encourage feedback on the presentation and content of this report to enable us to improve it each year. We are thankful to HVS India for their continued support for this project as well as HVS Sustainability for having sponsored the current edition. S M Shervani President, FHRAI

5 About HVS HVS is the world's leading consulting and services organisation focused on the hotel, mixed-use, shared ownership, gaming, and leisure industries. Established in, the company performs,00+ assignments each year for hotel and real estate owners, operators, and developers worldwide. HVS principals are regarded as the leading experts in their respective regions of the globe. Through a network of more than 30 offices and 0 professionals, HVS provides an unparalleled range of complementary services for the hospitality industry. HVS New Delhi was established in 1 and has risen to be the only dedicated hospitality-consulting firm in this region. It currently offers its Consulting and Valuation services to clients with interests in the South Asian region covering India, Sri Lanka, Bangladesh, Pakistan, Nepal, Bhutan, and the Maldives. The different verticals based on the services offered by the HVS India are summarised below: CONSULTING AND VALUATION The Consulting and Valuation team comprises highly experienced industry professionals offering the utmost level of expertise and credibility. Our consultants understand the hotel business and have received qualifications from leading hospitality schools across the world, while also possessing actual hotel operating experience. As a part of our Consulting and Valuation services, we offer the following: Market Studies Feasibility Studies and Return-on-Investment Analyses Development Strategy Recommendations Valuations (Single Asset and Portfolio) Market Entry Strategy Studies Land Bid Evaluations and Residual Land Valuations Investment and Transaction Advisory Services (Buy and Sell Side) Operator Search and Management Contract Negotiations Operational Audit & Advisory Services EXECUTIVE SEARCH Executive Search, another vertical to the base of services offered, entered the Indian subcontinent in 2001 and currently manages diverse portfolios across varied sectors. In India, HVS Executive Search has offices in New Delhi and Mumbai, and is among South Asia's first retained Executive Search practices. It provides advisory services to leaders of the hotel, restaurant, real-estate, manufacturing, retail, telecom, energy, and education industries. Practice areas include senior-level executive search, mid-management recruitment, and compensation consulting.

6 MARKETING AND COMMUNICATIONS HVS Marketing Communications (HVS MC) offers comprehensive strategic marketing and creative implementation support to upcoming and existing hotels in India and across the globe. Uniquely positioned as a strategic marketing consultancy powered by an innovative design/creative team, HVS MC specialises in proactive conceptualisation and consistent implementation of brand positioning, marketing strategies and creative communications, all with a focus on return on investment. Founded on HVS's renowned understanding of hospitality industry and its operations, HVS MC has the unique ability to create and implement successful marketing solutions for its clients and ensures brand maximisation through a consistent marketing approach. HVS Marketing & Communications services include conceptualisation and implementation of: Strategic Launch/Promotional Marketing and Media Plans Brand Architecture, Identities and Manuals Advertising and Creative Development Support Proactive and Seamless Implementation SUSTAINABILITY HVS Sustainability provides a range of business-driven consulting services helping hotel owners and operators reduce their operating expenses through diligent facility management and informed strategic investment into building equipment. We adapt our approach on an asset-by-asset basis and focus on the provision of financially-viable recommendations that can be immediately incorporated into both operational and capital plans for a particular property. Our unique approach leverages the resources and technical expertise of the world's leading engineers, facility management professionals, and equipment vendors. We further promote accessibility to conventional and non-conventional financing mechanisms for utility efficiency projects. Additionally, ECOTEL is a prestigious We specialise in the following: environmental certification managed by HVS Sustainability specifically for the hospitality Benchmarking sector. This certification enables hotels to become sustainable by Auditing primarily reducing the environmental impact of their business and Project Implementation Support becoming financially more viable and socially responsible. Strategic Advisory HVS FOOD & BEVERAGE SERVICES HVS Food & Beverage Services specialises in consulting and project execution of all aspects of the F&B business - restaurants, banquet/catering facilities, hotels, conference centres and private clubs. Specific services offered by us include: Restaurant, Bar and Events' Facility Appraisal Market Overview for F&B Projects F&B Feasibility Studies F&B Consulting Conceptualisation of F&B Solutions Complete Project Execution Management Contracts - Restaurants and Bars The FHRAI Indian Hotel Industry Survey , which will be referred as FHRAI Survey from here on, brings together the industry's key statistics and serves as an easy reference volume. We are grateful to all those who have contributed towards the same and look forward to increased participation in the years to come. Kaushik Vardharajan Managing Director Bhoomija Vadehra Analyst Tulika Das Research Associate

7 Synopsis and Key Highlights Introduction The Indian hospitality industry has emerged as one of the key industries driving the growth of the services sector. The FHRAI Indian Hotel Survey aims to provide the most comprehensive guide to all India performance trends for this industry. Results of the Survey will empower industry stakeholders such as owners, investors, operators, business analysts, and researchers with information on the operational aspects of the industry. It will also help owners benchmark the performance of their operations against industry standards and seek professional help if corrective measures are required. Data Collection The data for the FHRAI Indian Hotel Survey has been contributed by the member hotels of FHRAI. The FHRAI sends out a questionnaire to each of its members (numbering 2,0 hotels as of December 2013), of which 1,0 responded. The data received is then analysed and presented in this report. Methodology The data received from hotels participating in the Survey is sorted and filtered according to the objectives of the Survey. The data is then processed and analysed to extract important information pertaining to the performance of the Indian hospitality sector across crucial parameters. These parameters such as guest segmentation, hotel finances, marketing, sources of reservations, and seasonality, amongst others are then presented under the following categories: Star: Five, Four, Three, Two, and One Star, hotels, and Other hotels (which are not classified under any star rating). Inventory: Number of rooms in hotels are categorised as Less than 0, 0-, and More than. Affiliation: The two types of affiliations used to categorise hotels are Affiliated to Chain and Independent. Primary Markets: The seven major cities covered in this report are Bengaluru, Chennai, Goa, Kolkata, Mumbai, Delhi-NCR, and Pune. Secondary Markets: The thirteen secondary cities presented in this report are Agra, Ahmedabad, Bhopal, Coimbatore, Gurgaon, Hyderabad, Indore, Jaipur, Kochi, Nagpur, Shimla, Thiruvananthapuram, and Vadodara. Page 1

8 Qualifying Conditions While it is our endeavour to represent all the cities in India, we are limited by the data received from the participating hotels. In order to make the study relevant, we present data for only those categories for which we have a minimum of four participating hotels. Hotels across different categories showing similar characteristics have been combined under the same category when sufficient responses are not available for each category. To facilitate better evaluation of data across comparable groups, the financial statements are presented through Net Income before any deduction of depreciation and interest, which are hotel/owner specific. Limiting Condition In some cases, there are large fluctuations in the data and this noise in the data may be attributed to the changing participation in the Survey and this may not be an accurate representation of market performance. Presentation of Financial Data Percentage of Revenue is an assessment of costs as a percentage of revenue. Departmental expenses are portions of individual revenue heads while Operating and Fixed Expenses are deducted from Gross Hotel Revenue following the international accounting guidelines. Amount per Available Room (PAR) is the financial performance of a single room and is based on the total inventory. Amount per Occupied Room (POR) is the financial performance of a single occupied room. All amounts presented in this report have been rounded to the nearest whole number and are in Indian rupees (`) for the fiscal year (April-March). In the financial statements, amounts are provided as amounts per available room (PAR) and per occupied room (POR) in order to eliminate differences in the size of hotels surveyed. Page 2

9 Key Trends This section is divided into two parts: Country Trends and City Trends. In the first subsection, an overview is provided of the broad trends along with Survey findings related to key operating statistics that have been observed in the country in the past year. This is followed by the City Trends, which reflect HVS s perception of each city, as well as our expectations with regard to its future performance. An interesting trend to note is the correlation between the supply and demand growth, with the supply growing at 1.% compounded annual growth rate (CAGR) and demand at % from to The fact that occupancy levels remained generally stable during this period despite strong increases in supply, is indicative of the healthy growth in demand. However, the occupancy performance is only part of the story; there appears to be a trend where hotels are dropping average rates to attract customers in the face of increased supply. As a result, HVS is of the opinion that a new customer mindset is emerging that is sensitive to the price instead of the traditional one, which was more loyal to a hotel/brand. As operators battle increasing departmental costs and owners struggle with debt service payments, hotel companies need to reconsider their rate strategies. Country Trends Hotel Industry Performance Growth in Demand and Supply: In , the country experienced a slowdown in growth across sectors, as reflected in GDP growth of %2. Despite this slowdown, the year saw hotels maintain occupancy levels at a steady 0.% (0.% in ). HVS estimated that major cities across the country witnessed a growth of 11% in hotel room supply in , while demand exhibited a strong increase of.2% during the same period1. The nationwide results of this year's Survey, however, reveal that the average rates declined by 3.% when compared to those in (Exhibit 1). EXHIBIT 1: Occupancy and Rate to ,000 % % % 0.% 3,000.% 0.% 2,000 % 1,000 0% Rate 1 2 0% Occupancy (%) Rate (`),000 0% Occupancy Increasing Contribution from Food & Beverage and Banquets & Conferences to the Revenue Mix: India continues to receive a greater contribution from both the Food & Beverage (F&B) and the Banquets & Conferences department. The Banquets & Conferences segment also recorded a year-on-year increase of 1.% in PAR revenue in (`2,2,3) over that in , while Food & Beverage recorded an increase of.2% in the PAR revenue (`,1,) for the same period. HVS 2013 Hotels in India Trends and Opportunities Report Economic Survey , Ministry of Finance, Government of India Page 3

10 Exhibit 2 illustrates that the revenue contribution (in percentage of total revenue) from has seen a steady decline over the last five years, recording a negative CAGR of % between and Going forward, as the competition further increases in the market with the entry of new supply, we expect F&B revenues to continue to contribute a large portion of gross revenues as they are not solely driven by occupancies. Additionally, the burgeoning middle class and its propensity to spend will continue to augment demand for F&B across cities in India. With hotels focusing on the Banquets & Conferences segment in off-season months to beat seasonality, this department is also anticipated to increase its contribution to the total revenue pie. EXHIBIT 2: Sources of Revenue to %.0%.%.%.2%.%.%.%.%.% 1% % % 2.0% 2.% %.%.2%.2% % % 2.0% 0% 0% CAGR-% 20% 0% Food & Beverage Banquets & Conferences Other Declining Net Income (as a percentage of total revenue): The FHRAI Survey results in the last five years have shown that Net Income as a percentage of the total revenue has consistently declined year-on-year, as witnessed by a CAGR of -.%. The year has seen a decline of.% in Net Income as a percentage of revenue over the previous year. This phenomenon is mainly attributable to rising departmental costs, which are a result of rising inflation coupled with an increase in Energy costs. The last year also experienced an increase in departmental expenses as a percentage of total revenues, resulting in declining profits. Exhibit 3 illustrates the FHRAI Survey trends in Revenue and Net Incomes over the past five years. Page

11 EXHIBIT 3: Revenue and Net Income to ,000 0% 3.% 1,00 3% 32.% 1,00 31.% 3% 2% 1,200 1,000 20% 00 1% 00 % 00 % % Revenue (PAR) 30% 1,00 Net Income (%) PAR Revenue and Net Income (`000s) 33.% Net Income (PAR) Net Income % Increasing Utility Costs: Energy costs continue to rise and pose a challenge to the hotel industry. The Survey, this year, has revealed a rise of 13% in PAR energy costs (`1,2,0) over that in the previous year (`1,1,). Additionally, the Survey results show that only 2% of the hotels surveyed have an energy management system in place across India (Table 1-). The rise in Energy costs coupled with the limited conservation measures employed highlight the dire need for sustainable practices to be used in the industry. HVS is currently tracking a proposed supply of,0 branded rooms2, of which 0% is actively under development and is expected to enter the Indian hotel market over the next five years. Given the anticipated increase in hotel room supply, together with a high inflationary environment, HVS reemphasises the need for operational efficiency and sustainable practices in order to curtail further decline of profitability. Going forward, companies like HVS Sustainability can assist hotels in improving their financial performance along with the environmental and social one. Continuing High Manpower to Room ratios: Employee-to-room ratios in India continue to be on the higher side when compared with global benchmarks, almost twice as much. The all India average of employee-to-room ratio stands at. This can be attributed to the large chunk of four star and three-star hotel respondents, which have an average employee-to-room ratio of 1.. Typically, hotels in India provide services and facilities beyond their positioning; hence, they require more manpower. With rising manpower costs, the higher ratios are posing a problem to hotel companies. Hence, companies are now seeking ways to rationalise employee-to-room ratios and cut down on payroll costs, which will improve operational efficiency. Effective manpower management is the need of the hour along with effective training programmes. The training programmes include cross exposure to other 2 HVS 2013 Hotels in India Trends and Opportunities Page

12 departments, hotels and brands, consequently incentivising staff and simultaneously training them to multitask. This training focusing on multitasking would save on manpower and reduce payroll costs, leading to overall increase in efficiency. Additionally, given the increasing supply of new hotels entering the country, effective training should be accompanied by growth opportunities for existing employees and sound retention policies, to keep good talent from moving to the competition. This will also help stabilise costs over time, as companies need not incur fresh costs in hiring replacements. Changing Source Markets: The United Kingdom and the United States of America are the largest international source markets for the Indian hospitality sector, contributing 23% of the overall demand in However, it has been observed that their share continues to decline as witnessed by the.3% drop this year as compared to last year s arrivals. This may be attributed to the fact that Indian hotels have seen a greater contribution from the Middle East, Russia, and the SAARC nations. The rise in visitation from Asia and the Middle East may be attributed to the improved connectivity, easier visa norms and infrastructure development. Market Mix and Declining Seasonality: The Indian hotel industry continues to cater to the Business traveller, who contributes the largest share to the market mix at 3%(Exhibit ); this is primarily due to the fact that most hotels are situated in business cities. The Survey also reveals an increase in the growth of Meeting Participants segments (fewer than 0 and more than 0 attendees). As mentioned earlier, it has been noticed across the country that hotels are targeting Banquets & Conferences in off-season months with attractive packages and rates in order to off-set the low occupancies experienced during the traditionally slow season. Additionally, both the Domestic Business and the Domestic Leisure traveller have continued to show resilience and maintain their share of the pie and overall length of stay, when compared to the nationwide average from last year's survey. While the real growth in came from the Domestic travellers, it is interesting to note that India also experienced an increase of.% in foreign tourist arrivals (FTA)3. EXHIBIT : Market Mix % Airline Crew % Business Traveller - Domestic.1% Business Traveller - Foreign.% Complimentary 30.% Domestic - Tourists/Leisure FIT Foreign - Tourists/Leisure FIT Meeting Participants (Less than 0 Attendees) Meeting Participants (Over 0 Attendees).13%.%.3%.0% Tour Groups - Domestic Tour Groups - Foreign 20.% Other 2% Table 1 illustrates the nationwide key operating statistics of the respondents of the Survey. 3 Annual Report Ministry of Tourism Page

13 Page 2 1, %, % OPERATING EXPENSES Administrative & General Management Fee Marketing Franchise Fees Property Operations & Maintenance Energy HOUSE PROFIT FIXED EXPENSES Property Taxes Insurance Other Fixed Expenses Rent NET INCOME** % % % , 0.%, % % ,0 0.%, All All India India 1 2,031,22 1,3 21,,02 1, 11,121,133,3,,0 13,,1 1,3 1,12 3,1,21 2, 3,3 2, 1,13,1,3 1,2 1,0,1 3,30 3,3 1,2,0 2 1,1.%, , %, ,1,3 21,3 1,32,00 23,,0 0,23 3,20,,0 13,0,1, 1,3 32,3, 2, 3,2 1,02 1,032,,1 3,3 13,33,1 3, 3, 1,,3 1,3,2,22 2,0 3,33,33 1,,00,3,31,0 1, 0,2, 10,0 33,0, 32,2,12,12 1,1,0,1 1,013 1,23,00,2,2 1,,00 Amount Per Available Room (`) 1,13 %, * Minor Operated departments include laundry, gift shop, business centre, news stand, sports, health club, garage, parking and so forth ** Net Income is before depreciation, interest payments and taxes % % 2.0. Percentage of Revenue 2 1,1.%,1.% Per Hotel: Occupied Per Hotel: Occupancy Per Hotel: Rate Per Hotel ( ` ): % 2.. 1,13 %, Number of responses: REVENUE Food & Beverage Banquets & Conferences Telephone & Other Minor Operated* Rental & Other Income DEPARTMENTAL EXPENSES Food & Beverage Telephone & Other Minor Operated* Rental & Other Income DEPARTMENTAL INCOME TABLE 1: Trends in Key Operating Statistics 13,,2 2, 20,03,3,3 1,33 0,,23,01 3,2 11, 3,3 1,0 1,231 0,00, 32,2,1 3,033 1,22,0 1,02, 1,3 13,211,1,221, 1,0,20 1, 0.%, 1,1,231 2,3 23, 2,33,00 1,11 3,3,0,20, 12,0 2,302 31,32 1,22 2,3, 3,20,3 0, 1,203,0 3,0 1, 22,3,3,1 0,00 1,,330 1,0 0.%, ,1.%, , ,11 3,0 1, ,2,1, 1, , , ,11 2,3 0 1, ,3,,1 2, , , ,0 3, , ,0,0, 2, ,00 2 1, %, Amount Per Occupied Room(`) 1,13 %, , ,1 2, 1, ,2,3, 2, , 1, 0.%, , , 2,22 1 1, ,0,1,0 2,0 1, ,2 1,0 0.%,

14 City Trends Table 2 illustrates average occupancy and rate for 33 cities/regions across the country over the last five years culled from the FHRAI Survey results. This is followed by HVS's viewpoint on the demand-supply scenario and performance of the 20 identified hotel markets, based on in-house research and data from HVS 2013 Hotels in India Trends & Opportunities. TABLE 2: Occupancy and Room Rate: 33 Cities/Regions in India City Agra Ahmedabad Aurangabad Bengaluru Bhopal Chandigarh Chennai Coimbatore Darjeeling Delhi - NCR* Goa Hyderabad Indore Jaipur Jodhpur Kochi Kolkata Kullu-Manali Lucknow Mount Abu Mumbai Mussoorie Mysore Nagpur Pune Raipur Shimla Thiruvananthapuram Ootacamund Udaipur Vadodara Visakhapatnam Gurgaon Occupancy %.% 3.%.%.% %.%.% %.% 1.%.3%.% 1.% %.%.% 0.% %.% %.0%.%.%.3% 2.%.%.1% %.%.0%.%.0%.%.% %.1%.1%.%.%.2%.% %.%.2%.% 3.2%.%.%.%.%.2%.%.% % 3.2% %.0%.3%.0%.% % % 3.2%.%.% 3.% 0.%.% 2.%.0%.% %.%.0%.2%.2%.%.% %.0% 2.% 1.%.% % 2.% 1.%.2%.%.3% %.3%.1%.%.0%.1%.% 1.%.%.%.%.%.% %.1% % 3.% 3.% 2.% 3.2%.% 0.% % 1.%.% 0.% % %.0%.% 2.%.%.% %.1%.%.% 1.%.%.3% %.1%.0% %.%.1%.%.%.1%.%.0% % % 200-0,,211,03 2,2, 2,3 3,1, 3,2,0,3,30 1,33,2 3, 2,02,32 3,1 2,1 1,23,22,0 2,30,1 1,0 1, 1,0 1,,31 2, 3, : Insufficient Data *New Delhi - NCR data including Faridabad, Ghaziabad, Gurgaon and NOA (Shaded Portion), rest excluding Gurgaon data Page Room Rate( ` ) ,1 2,2 3,3 2,0, 3,1,0,03 3,23 3,13,,,13 1,1,0,2 2,0,0, 2,1,33,0 2,3 3,132 3,21 1,21 1,0 1,22 3,3,30 2,0, 3, 3,23 2,12,3,,0 3,,3,0,12 1, 3,01,1 1,2, 2,33 2,21,0,1,3 2,31 3, 2,2 1,30,0 3,03,31, 3, 3,0, 3,2,3,0,31,,020 2,0 3,,00 1,3,302 2,,03,0 1,3 3,23 1,0 2,330 2,01 3,01, ,0,31 3,02 3,203,33,300 3,3,3 3, 2,23,, 3, 2,31 3,0,31 2,2,1 3,0,1 3,3 3,01 2,2 2,3 1,, 3, 3,3,

15 Seven Major Cities Bengaluru Given the travel time, distances and new hotel supply in different parts of the city, Bengaluru has witnessed the formation of micromarkets. The city remains heavily dependent on Commercial demand with peak occupancy being recorded from Monday to Thursday. Bengaluru's hotel market relies heavily on the IT/ITeS sector with a high foreign-to-domestic-guests ratio, making it more vulnerable to global economic changes than most other cities in the country. The city experienced an increase in supply of.%, while demand grew by % resulting in only a marginal drop in occupancy. The year saw the entry of mid market and budget hotels; consequently, the marketwide average rate declined by.%. The Central Business District (CBD), with the highest concentration of luxury and upscale hotels, witnessed a marginal drop in average rate while still maintaining near similar occupancies as last year. Whitefield, with budget, mid market, and upscale hotels saw an increase in occupancy and a decrease in average rate. Electronic City, with mostly budget and mid market hotels recorded declining occupancy owing to new supply but no marked increase in average rate. The newly formed micromarkets of ORR South and Yeshwantpur saw a rise in branded supply and increase in occupancies and rates, with new hotels ramping up operations. Going forward, Bengaluru is anticipating,00 hotel rooms to enter the market in the next five years; this, coupled with approximately 0% increase in office supply and overall vacancy rates below 1% makes us bullish about the future outlook for the hotel market here. Chennai Chennai is the southern financial capital of the country and its diversified economy consists of the finance sector along with the growing auto and auto-ancillary sector, manufacturing, and IT/ITeS sectors. The city has witnessed a significant increase in hotel supply over the last 1 months mainly in the luxury and upper upscale segments. As a result, occupancy and average rates have declined; however, demand for hotels has witnessed steady growth across all areas in the city. Going forward, Chennai is expected to witness a substantial increase in supply over the next two to three years especially along Old Mahabalipuram Road (OMR), and consequently, further pressure on occupancy and average rate is anticipated. However, with considerable investment in infrastructure projects, we anticipate steady growth in the office, retail and residential sectors, which will in turn drive growth in demand across different segments for hotels. The Commercial segment continues to be the largest for the city with demand generated from the finance sector in the CBD, manufacturing and automobile companies in the industrial pockets of Sriperumbudur, Irungattukottai and Oragadam located along the periphery of Chennai, and from OMR, widely known as the IT Corridor of Chennai. The growth of commercial activities in these areas along with the development of Omega Township, a 1,00-acre industrial and residential zone about 0 km south of Chennai, is expected to support continued growth in demand in the Commercial and Extended Stay segments. Additionally, with the opening of hotels with large meeting and conference facilities, we expect the city to start witnessing large-scale conventions and events. Moreover, the opening of the new international and domestic airport terminals is anticipated to increase air traffic and consequently, Airline demand for hotels in the city. Goa Goa continues to show year-on-year growth, both in marketwide occupancy and average rates. Much of the growth over the past four years has been domestically driven, with improved visitation during the summer and monsoon periods (June to October). As a result, it has reduced the sharp seasonality that was inherent in the market and helped mitigate the large occupancy gap between seasonal peaks and troughs. room rates, though, continue to vary significantly between the strong foreign-tourist dominated winter months Page

16 and the domestically driven summers and monsoons. Growth in FTA has been driven by a year-on-year increase in charter business to Goa. While Russia, United Kingdom, and Scandinavia remain the major feeder markets for the Foreign Leisure segment, Goa has lately seen a strong growth in demand emerging from the CIS (Commonwealth of Independent States) countries. Another segment that has seen recent growth is Meetings and Conferences especially since the opening of the Grand Hyatt that offers extensive meeting facilities. Goa is India's preferred destination for company off-sites, conferences, incentive programmes, and social events. However, lack of quality infrastructure continues to be a major hurdle in the overall progress of the state. Although, the new integrated terminal at Dabolim Airport is ready and scheduled to begin operations in January 201, there is high uncertainty associated with the development of the new international airport at Mopa. Historically, supply growth in Goa has been moderate; however, the current government's promptness in rewarding necessary licenses and permits has resulted in a strong pipeline of hotel projects that are under active development. We view this as a positive sign and a welcome development for a state that displays strong demand growth every year. Goa continued to witness a marginal increase in occupancy in over that in the previous fiscal. During the same period, average rates exhibited a healthy increase. Due to a robust charter season coupled with strong growth in domestic demand, we expect this trend to continue in the current fiscal. Kolkata Kolkata is the regional headquarters for a number of domestic and international companies, banks and financial institutions, such as ITC Limited, Britannia Industries, Coal India Limited, Allahabad Bank, and United Bank of India. Despite being a major metro, Kolkata has seen limited hotel supply in the last five years; consequently, the city boasts of high and stable occupancy and steady growth in average rates. Demand in the city continues to be driven by PSUs and domestic companies, insulating the city from global economic changes. Kolkata is also a preferred location for conferences and seminars in the eastern part of the country. This is due to facilities such as the Science City and Milan Mela, located along Eastern Metropolitan Bypass, which are favoured destinations for large conferences, seminars, and exhibitions. The past three to four years have also seen rapid development along the city's eastern periphery into areas of New Town (Rajarhat) and Salt Lake. Prominent IT/ITeS companies have set up operations in these areas with some companies also moving from the CBD to New Town. Kolkata has recently seen some modernisation with the opening of the Netaji Subhash Chandra Bose International Airport, which has triple the airport capacity than before. HVS is currently tracking 3,11 rooms that are proposed to enter the market with % of them under active development. Like most other cities, the proposed supply is primarily in the upscale and mid market segments; consequently, we anticipate occupancy to be subdued while average rates are expected to experience moderate growth. Mumbai Mumbai, the state capital of Maharashtra, is also India's financial capital and its largest trading port. This metropolitan city makes an important contribution to the economy of Maharashtra as well as to India on the whole. The main industries in and around Mumbai are pharmaceuticals, textiles, gems and jewellery, film equipment, automotive parts, food processing, electronics, manufacturing, IT/ITeS related businesses, financial services, and petrochemicals. The city is also home to Bollywood, India's largest film industry and also one of the largest film industries in the world. With several offices shifting base to business districts across North Mumbai, hotels here were positively impacted while those in South and Central Mumbai continued to witness drop in demand. Additionally, various micromarkets in North Mumbai such as Bandra Kurla Complex (BKC), Andheri, Malad, Goregaon Page

17 and Vikhroli amongst others are witnessing continuous additions to office stock, which is expected to fuel demand for hotels located in these micromarkets. Going forward, these areas are anticipated to witness new hotel supply. With supply increase in the branded space over the next year expected to be almost negligible, we estimate marketwide occupancy to continue improving. We anticipate a majority of hotels to give precedence to growth in occupancy to capture a larger market share, thereby we believe average rate to witness a decline and thereafter to grow marginally. However, as new hotels enter the market in the medium-to-long term, we expect the city to witness some occupancy and average rate pressure before stabilising in the long term. The robust nature of the hotel market along with infrastructure development such as the metro and monorail, upgradation of the existing airport, and the opening of the Bombay Port Trust Road amongst others, leads us to be bullish in our long term outlook for Mumbai. Delhi-National Capital Region (NCR) In the Delhi-NCR region are included hotels located in Delhi, NOA, and Greater NOA. Delhi, the administrative capital of India, houses several government bodies and embassies of various countries. Additionally, the city is regarded as one of the largest commercial hubs across the country. Over the last decade, the central administration has worked towards improving the infrastructure of the city, which is evident in the development of several flyovers, arterial roads, and expansion of the Delhi Metro. The city also acts as the aviation hub for the country as Indira Gandhi International Airport provides connectivity to various cities within the country and around the world. In the past few years, Delhi has witnessed the addition of several new hotels, primarily in the western and eastern parts of the city that have displaced demand from South and Central Delhi hotels. This has led to a decline in the overall performance of hotels situated in and around the CBD area. We anticipate this trend to continue in the short term. As per the Trends and Opportunities Report 2013, also published by HVS, around,200 rooms are expected to be developed in the various submarkets in Delhi, with a majority of them located within Aerocity. We expect the development of these hotels to put pressure on the marketwide occupancy and rates in the short-to-medium term. However, owing to the collective meeting facilities and inventory these hotels offer and their proximity to the airport, we expect them to induce demand in the Meetings & Conference segment. Therefore, our outlook for the market remains positive in the long term. For little over a decade, NOA and Greater NOA have developed into hubs of industrial activity and have, therefore, received focus from hotel developers in recent times. However, with lack of demand for branded hotel rooms coupled with a substantial increase in hotel room supply, performance of hotels within these micromarkets has been declining. HVS is tracking a proposed supply of,1 rooms in NOA and Greater NOA, of which 2% are actively under development and are expected to open over the next five years an increase of % over the existing base. Given such significant supply increase, we anticipate considerable occupancy and average rate pressure over the next few years. Pune Pune is the second-largest city in the state of Maharashtra, and is also known as the cultural and educational centre of the state. The economy of the city is centred on manufacturing and forging industries and more recently on the automobile manufacturing and IT/ITeS sectors. Unlike other major cities, Pune lacks a conventional CBD and demand for hotels is predominantly generated from the industrial pockets of Pimpri, Chinchwad, Talegaon, Chakan, and Rajangaon, along with the IT hubs of Hinjewadi, Magarpatta and Kharadi. In , the city witnessed a growth in occupancy as growth in demand outpaced change in supply. Demand growth was fuelled by new projects being set up in Talegaon, Chakan, and Hinjewadi. Additionally, the city witnessed tremendous increase in Meetings, Incentives, Conferences & Events (MICE) demand as it played host to several large-scale conferences and weddings. As hotels continued to focus on building occupancy levels, average rates declined moderately in when compared with those in Page 11

18 Going forward, in the short term, we anticipate strong growth in demand, led by the IT/ITeS sector. Demand from the manufacturing sector, however, is expected to be subdued owing to the slowdown in the automobile industry. Increase in supply is anticipated to be moderate over the next two to three years and will mainly be concentrated in the pockets of Hinjewadi, Chakan and Nagar Road. With steady growth in demand and modest increase in supply, we expect occupancy levels to continually improve. rate growth, however, is expected to remain muted in the short term. Thirteen Other Cities Agra Along with Delhi and Jaipur, Agra is a vital component of the immensely popular Golden Triangle leisure itinerary in the country. Historically, the destination has largely focused on attracting demand from the Individual and Group Leisure segments. With the opening of the Yamuna Expressway linking Greater NOA to Agra in August 2012, which has significantly improved connectivity with Delhi-NCR, the city has witnessed a surge in MICE demand. Also, with travel time reduced by half, growth in demand from the Individual Leisure (Domestic) segment has seen a spurt especially during holidays and extended weekends. This growth in demand, coupled with limited new branded room supply, resulted in an increase in both occupancy and average rate in as compared to that in Going forward, we expect continued growth in demand from the MICE and Individual Leisure (Domestic) segments. Moreover, the city is anticipated to see the opening of over 0 rooms within the budget and mid market space over the next three to four years. HVS believes that the addition in new supply will cause some pressure on occupancy and average rates in the short term; however, we are of the opinion that the development of midscale and budget hotels will fuel the growth in demand from the Domestic Leisure segment. Furthermore, the recent introduction of domestic flights to the existing airport and the proposed construction of a new civilian airport terminal is anticipated to improve connectivity and enhance tourism for Agra. Ahmedabad Ahmedabad continues to grow rapidly as one of the important commercial hubs in the country. Room night demand in Ahmedabad, driven primarily by the Commercial segment, is generated by companies located in the CBD (Ashram and CG Road) with the industrial clusters along the periphery of the city. In the past few years, owing to rapid development in the commercial sector, the Sarkhej Gandhinagar Highway (SG Highway) along with the neighbouring areas of Prahlad Nagar and Satellite Town has gradually developed into an alternate CBD. Furthermore, industrial clusters of Bol-Sanand and Vitthalapur are emerging as the new automobile hubs with the existing Tata Nano plant and Ford and Maruti factories under development. Other multinational corporations like Bosch, Hitachi, Baosteel, and Nestle are also developing units in these upcoming industrial estates. These commercial developments have led to a surge in room night demand in Ahmedabad. Also, seven new hotels with a combined inventory of 00 rooms opened in the city in Thus, while the city has seen a double-digit demand growth, supply has outpaced demand resulting in a decline in occupancy and average rate in This trend is likely to continue in the short term as an additional ten hotels with an aggregate supply of 1,00 rooms are expected to enter the market over the next two years (of which four hotels with an aggregate supply of 00 rooms have opened till November 2013). In the medium to long term, as new developments like Gujarat International Finance Tec-City, Mindspace, Sabarmati Riverfront Project and industrial activity along the western periphery of the city gain momentum and as supply pressure reduces, we anticipate occupancies and average rates to stabilise and improve thereafter. Page 12

19 Bhopal Bhopal's economy is driven by electrical goods, cotton, handicrafts, and jewellery. The city is also home to the Govindpura Industrial Estate, which houses the BHEL manufacturing plant. Additionally, areas such as TT Nagar and Maharana Pratap Nagar (MP Nagar) continue to see a growth in financial institutions, banks, service providers such as telecommunications companies, and insurance firms. Bhopal also serves as a rail and road hub, and it is amongst the best connected cities in the country. It provides daily transport to prominent tourist destinations in Madhya Pradesh such as Ujjain, Jabalpur, Gwalior, Khajurao, and the renowned Buddhist Stupas of Sanchi, located km northeast of Bhopal. Currently, the hotel market is largely unorganised, consisting of small boutique and heritage properties. Going forward, we expect the market to grow and attract Commercial, MICE, and Leisure business in the medium to long term. Coimbatore Coimbatore, situated along the western extremity of Tamil Nadu and surrounded by the Western Ghats, is one of the fastest growing Tier II cities in India. The city is a municipal corporation as well as headquarters of the Coimbatore district. Coimbatore is one of the most industrialised cities in Tamil Nadu and is known for textiles, information technology and healthcare. It is increasingly well-known for its high quality yet affordable healthcare. The medical facilities in Coimbatore generate demand from neighbouring towns in Tamil Nadu and Kerala as well as from overseas locations like Sri Lanka, Malaysia, and Singapore. Coimbatore also has more than 2,000 small to large-scale industries, and major SEZs such as Coimbatore Hi-Tech Infrastructure and IT SEZ by Electronics Corporation of Tamilnadu (ELCOT) near Peelamedu. The city continues to see the entry of new IT parks and is next only to Chennai in IT software production in the state. Coimbatore also has a large manufacturing industry producing automotive components, pumps and wet grinders. It is served well by road, rail and an international airport making the city easily accessible. Traditionally, the city has supported a small base of hotel rooms, predominantly in the mid market and budget segments catering to demand emanating from the Commercial and MICE segments. However, in the last few years, the city has seen the entry of international and branded players such as Le Meridien, Aloft, Park Plaza, and Vivanta by Taj. Gurgaon Gurgaon, the second-largest city and the industrial and financial centre of Haryana, is located south of the national capital. Over the past decade, Gurgaon has emerged as the preferred choice for relocation for many of India's, and in particular, Delhi's multinational companies due to its proximity to the Indira Gandhi International Airport and lower rentals as compared to Delhi. Additionally, Gurgaon's connectivity with Delhi has improved over the last few years with the development of the Delhi-Gurgaon Expressway and the Delhi Metro. The Commercial segment has, over the years, established itself as Gurgaon's strongest demand generator. The demand generators for this segment in Gurgaon are widespread and traditionally include IT/ITeS, pharmaceutical, manufacturing, and organisations in the services sector such as banks, telecommunications, and consulting firms. Furthermore, increasing Commercial demand is being generated by infrastructure and construction companies as new projects are continually launched in the city. Over the past few years, Gurgaon has continued to witness strong year-on-year growth in demand for room nights, making it one of the strongest markets in the country. In , Gurgaon witnessed the supply for room nights outpace its demand, which resulted in a decline in occupancy and average rates. However, in the medium-to-long term, with relatively slow paced growth in supply coupled with continuous growth in commercial development in and around the city, our outlook for the Gurgaon market remains buoyant. Page 13

20 Hyderabad Hyderabad, the capital city of Andhra Pradesh, has evolved into a bustling metropolis and IT city with % of its commercial space occupied by IT/ITeS companies. Demand is primarily Commercial in nature followed by MICE. In the recent past, the city has also witnessed the establishment of the first International Convention Bureau, set up with an aim to market Hyderabad globally as an attractive MICE destination and generate demand for the city hotels. Hyderabad's economy benefits from industrial parks and SEZs spread across the western boundaries of the city in Madhapur and Gachibowli. Hyderabad Information Technology and Engineering Consultancy (HITEC) City in Madhapur is spread over 1,00 acres of land and has primarily IT/ITeS developments. As Madhapur is reaching saturation levels, business is expanding to Gachibowli, which now houses the Indian School of Business, Microsoft, Polaris, and the Infosys campus. Together with Gachibowli, HITEC is now the leading demand generator for most of the hotels in Hyderabad. However, in the past few years Hyderabad witnessed wide-spread disturbance due to the demand for Telangana state. This resulted in a loss in investor confidence with business getting affected throughout the city. We believe that the current uncertainty will continue to have a negative impact on new investments and that investor sentiment will remain muted until this situation is resolved. During the past year, Hyderabad has witnessed an increase of 20% in supply and HVS is currently tracking a supply of,33 rooms over the next five years, with an % probability factor of these rooms actually opening for operations. A majority of the supply is expected in the areas of Gachibowli and HITEC City. HVS is of the opinion that although demand will continue to grow, the impending supply pressures are likely to keep the occupancy and average rates fairly muted in the short run. Indore Indore, the largest city of Madhya Pradesh, is also the economic and commercial capital of the state. The city is well connected and served by Devi Ahilyabai Holkar International Airport, which is also a hub for international cargo. The hotel demand in the city is primarily Commercial, originating from the Pithampur and Dewas industrial areas. Textile manufacturing and trading remain key economic activities. Indore is a key centre for major automobile units like Force Motors and Eicher Motors. Other key manufacturing units that are housed in Pithampur Industrial Area, located 22 km from Indore, are Bridgestone, Larsen & Toubro, TATA Steel, Panasonic Energy, Cipla, and Ipca Laboratories. Asia's largest auto testing track is being built in the industrial town of Pithampur to cater to the growing automobile industry of the country. Indore is also the closest major town to the famous Hindu pilgrim destinations situated in Ujjain and Narmada and, hence, the city receives a limited amount of Leisure demand. The city hosts the prestigious Global Investors Summit (GIS) attracting investors from more than 20 countries. The third GIS, held on 1-20 October 2012, attracted considerable interest from companies such as Future Group, TCS, Steel Authority of India Limited, and Bharat Forge. Going forward, Indore can expect to see planned investments, which are anticipated to create jobs and boost the economy of the city and state. The current landscape consists of mid market and budget hotels and we are currently tracking 230 rooms in the branded budget space. The Indore hotel market is expected to benefit from the anticipated investments and expansions in Indore and limited increase in hotel supply. Jaipur Jaipur ranks amongst the top leisure destinations of the country. The city has witnessed a rapid growth in hotel supply over the last two to three years with the opening of several new properties across different positionings in various pockets of the city. Consequently, the city has come under some occupancy and ARR pressure; however, demand for hotels still continues to be robust and has shown steady year-on-year growth. The Leisure segment, though highly seasonal, still continues to be the top draw for the city. With more hotels now being available in the city at a budget to mid market positioning, the Domestic Leisure segment has Page 1