Domestic travel upswing drives India investment

The Fairfield by Marriott Bengaluru Rajajinagar. Photo credit: Marriott International (The Fairfield by Marriott Bengaluru Rajajinagar)

In a vote of confidence for India’s hotel sector, Piramal Capital & Housing Finance, a unit of India-based conglomerate Piramal Enterprises, is set to invest Rs 6.5 billion (about $95 million) in Samhi Group, a hotel operator based outside of New Delhi in northern India. 

In a statement, Piramal said the structured debt funding would help Samhi Group with its growth plans and refinance existing lenders across three assets: The Courtyard and Fairfield by Marriott in Bengaluru, Sheraton in Hyderabad and Hyatt Regency in Pune.

“The refinancing will free up a lot of cash for us for 2018, 2019 and 2020,” Samhi Hotels managing director and CEO Ashish Jakhanwala told the Economic Times. “We have interesting opportunities emerging for acquisition in the hospitality space and we feel this will improve our internal accruals which will help us pursue those growth opportunities.” 

The Samhi Group owns 29 hotels and is looking to grow. As Jakhanwala said earlier this year, the Indian market is “extremely cost-sensitive with a great affinity for midscale brands.” As such, the company sees strong growth potential in the coming years, particularly in this sector. 

Piramal's Hospitality Plan

This is the third major investment made by Piramal in the hospitality sector over the past six months. Earlier this year, the company invested Rs 6 billion with Vatika Group and Rs 6 billion with Advantage Raheja Group. In February, Samhi signed a deal with Marriott International to open five new Fairfield by Marriott properties in Chennai, Pune, Goa, Delhi and Bengaluru. In November, IHG and Samhi partnered to bring a portfolio of 14 Indian hotels under the Holiday Inn Express brand.

All told, Piramal has invested Rs 20 billion in hospitality, with a “target book size” of Rs 100 billion in the next three years. The company also recently invested Rs 4.5 billion in five hotel assets operated by global brands like Taj, Hyatt and Radisson across regions like Bengaluru, Hyderabad, Shimla and Goa. Of that total, Rs 1 billion will be used as “last-mile” funding toward the completion of the first Taj Luxury Resort in Himachal Pradesh in Theog, near Shimla. The Taj Theog is a 99-guestroom luxury property that is expected to open within the next six to nine months. 

Booming Tourism

Piramal's strategy makes sense given India's solid tourism scene—especially among domestic travelers. In fewer than 10 years, the World Travel & Tourism Council expects India to become the fourth-largest tourism economy in the world, following China, the U.S. and Germany. And while inbound tourism has hit record levels (up fivefold from the 2.4 million international visitors that arrived in 1998), nearly 90 percent of travelers in the country are domestic.

“This is an opportune time to target the hospitality sector with ‘intelligent’ capital,” said Khushru Jijina, managing director of Piramal Capital & Housing Finance, in a statement, claiming traditional lenders are unable to provide “holistic” solutions for development. “[The] expertise of our group and our presence across the capital enables us to cater to this industry with unique customized solutions and innovative structures.” 

India’s hotel industry, Jijina continued, is “firmly on a path of growth, ably supported [by] both domestic and foreign tourism, has higher disposable income and is witnessing a general change in spending habits of target customers.”

Piramal isn't the only company that sees value in Samhi. Two years ago, Goldman Sachs invested Rs 4.41 billion as equity in the Samhi Group.