Foreign hotel chains that already have a presence in India are planning to tie up with local majors to set up hotels in metros such as Bangalore and Hyderabad and smaller cities to meet a sharply growing demand.

According to sources in the financial industry, this trend is driving global private equity funds to participate in such ventures as the Indian hotels sector is projected to generate revenues of more than $94bn by ’14.

Although the financial details of building hotels in such cities can vary, sources estimate that more than Rs 400 crore would be needed to build a 200-room hotel in second-rung cities such as Indore, Goa, Jaipur, Chandigarh and Ludhiana.

The tie-ups are likely to be through management contract agreements wherein foreign companies would operate and manage hotels for the Indian brand. Merchant bankers said such partnerships with Indian companies are vital as they would enable foreign chains to raise money from local banks and financial institutions.

While foreign hotel chains such as Le Meridien, Marriott and Holiday Inn already have a presence in New Delhi and Mumbai, much of the future growth is expected in second-rung cities which are growing quite rapidly.

Domestic hotel companies such as ITC, Indian Hotels and the Oberoi-controlled EIH have recently announced plans to venture into second rung cities.

“The growth in tourism is a big boost to the hotel sector. There is definitely the prospect of large investments in the sector,” said Indrajit Gupta, MD of SBI Caps. ITC is scheduled to spend Rs 6,000 crore to expand its current chain by adding hotels in key locations. The company plans to build three new super deluxe luxury hotels in Chennai, Bangalore and Hyderabad at a cost of Rs 1,000 crore. The projects are expected to come on stream in the next two to three years.

( http://economictimes.indiatimes.com)