Hotel sector seeking โindustryโ status and tax rationalization.
The hotel sector has been hard hit by the terrorist attack and the slowdown in the economy. It is expecting the government to announce a โstimulusโ in the form of tax rationalization and award of โindustryโ status.
At present, star hotels fall in the luxury segment and are taxed at multiple levels. They generate vast employment and open up fresh investment opportunities across the country. The luxury tax and VAT differ from state to state. This is then compounded by the additional charges hotels need to pay for the variety of services they offer. In addition to direct taxes, hotels incur regular costs on renewal of licenses for liquor, and other facilities they host.
Impact on the sector
If the government awards the sector โindustryโ status, it would have a spin-off effect on the entire sector. This would attract fresh investment by the existing as well new players. Essentially, this would generate greater employment. New capacity addition would check average room rentals, thereby increasing occupancy.
Companies impacted
Indian Hotels plans to contribute 15 per cent of the new supply over the next three years. In FY'09-10, it would add 12 new properties with 1,500 rooms. It is also planning to reconstruct the โSea-Rockโ property with 550 room capacity acquired in June 2009ย from ELEL Hostels and Investments for Rs 6.8 billion.
ITC has announced that it would invest Rs1 billion to add 25 new properties across the country.
The others East India Hotels, The Leela, Taj GVK Hotels and Royal Orchid Hotels) have also announced expansion plans.
Overall the budge impact on the sector would be neutral as the Revpar and occupancy will take some time to look up.
(The report has been prepared by Shirish Pardeshi of Anand Rathi Securities).