Hyderabad Woos

AP Capital Is Becoming Investors’ Mecca

Hyderabad is second only to Bangalore when it comes to occupancies. And it is still ‘virgin’ territory for investors with not many star hotels around. Charmaine Fernz traces the metamorphosis of the city, what it has to offer and the glitches to be overcome...

Till 1998, Hyderabad, despite being the capital of Andhra Pradesh, had just one good standalone Chinese restaurant called 'Palace Highs'. Good up-market hotels were few and the hospitality industry was pitiable, to say the least. Times have changed since. As per FHRAI's Indian Hotel Industry Survey of 2002-2003, Hyderabad, with 71 per cent, was second highest in terms of occupancy, coming just after Bangalore which was 1.4 per cent better. Also, contrast the past with the number of rooms that the city offers. A 2003 Techno-Economic Guideline Report on the Hotel Industry by the Industrial and Technical Consultancy Organisation of TamilNadu Limited (iTCOT), Chennai, showed that there are 2,594 rooms (across all segments) in Hyderabad, a steady growth from the 500 odd rooms in 1980. The long and short of it is that Hyderabad has undergone a fantastic metamorphosis in the last four years. As Krishna Akundi, AGM, Aalankrita, an ‘ethnic business getaway’ resort in Hyderabad, says, "The past few years have seen a phenomenal growth of all categories of restaurants and hotels in Hyderabad, and now the patrons of such places not only have enough to choose from, but can also afford to be demanding and specific about quality." So today, there are new star-category hotels (few at the moment but with many in the pipeline), budget.

hotels, restaurants and eating outlets galore.

What was responsible for this transformation? A number of factors are attributed but one key factor stands out - the state government's thrust on information technology, led by a chief minister with a vision. Though this is what fuelled the spurt, the government is now keeping the momentum going by focusing on tourism, which is becoming the next cash cow for the state. As tourism and hospitality complement each other, development in either industry is profitable to the other. As Dhunji Kavrana, general manager, ITC Hotel Kakatiya Sheraton & Towers, says, "The city has geared itself to accommodate more tourists and provide them with better infrastructural facilities. The state owes much of this to the good relations between the Centre and state government. Good roads, communications, housing and entertainment as well as the distinct geographical advantage of being located in the center of India, plays up to Hyderabad's advantage. Emphasis on law and order ensures a safe and secure environment for both domestic and international tourists."

Advantage Hyderabad

A lot of factors, including year-round occupancy figures touching new highs, make Hyderabad an ideal investing ground. Though Hyderabad started off establishing itself as an IT hub, it is focusing on becoming a medical and tourism centre in the country. More and more entrepreneurs, industrialists and corporate heads are eyeing Hyderabad as a potential business destination.

Reiterating this fact, Amar Ohri, managing director, Ohri's, says, "Hyderabad is among the fastest growing cities in the country and the government is actively promoting tourism and developing infrastructure. The results are evident from the fact that at present most hotels have an average occupancy of 80 per cent or more."

Hyderabad's progress is also evident from the sheer number of shopping malls, restaurants, hotels, entertainment options, etc. Kavarana says, "The government has been proactive in recognising the need to create better infrastructure facilities to draw tourists in the city. The city has a lot of vacant capacity for new age businesses. Subsequently, the business process outsourcing (BPO) segment is already finding a base in Hyderabad. The other businesses which Hyderabad is catering to include hospitality, hospitals, malls and shopping centers, stand-alone restaurants and pubs, software companies, conferences and conventions, trade exhibitions and much more."

Ravi Krishnan, GM, Viceroy Hotel & Convention Centre says that Hyderabad is the only city in the south after Bangalore which is witnessing a boom in its economy. "Real estate is still cheap compared to any other metro. It has also become a much favoured MICE (Meetings, Incentives, Conventions, Exhibitions) destination," says Krishnan.

Speed breakers

But the picture's not all rosy. Quite a few factors, which if not addressed, could be blocks to Hyderabad's progress. According to a cross of hoteliers in the city, there are three main glitches for the future when it comes to hospitality. These are - more supply than demand; airports and connectivity; entertainment options:

Supply over demand: The city as of date has just six five-star category hotels but there are many more in the pipeline and supply could exceed demand in future. Explains G Yoganand, managing director, Manjeera Estates who owns the three-star hotel, Aditya Park Inn, "Presently hospitality business is good, as there is less competition and sufficient supply. But after about three years, the scenario does not look very encouraging as I think we will be dealing with surplus rooms. If the present government is back in power then probably, we can be assured that business will continue to flourish."

Airports and connectivity: With just one small international airport (which is being upgraded to take on bigger aircraft) and a few selective international carriers operating out of the city, the city desperately needs better connectivity. Many in the hospitality industry see a silver lining in the sky with a budget airline like Deccan Air commencing operations and a lot more international carriers like Lufthansa and British Airways looking to start operations. As Ohri puts it, "A new international airport is being built near Shamsabad, which will connect the city globally. It has the potential to become the travel hub between Europe and China. With more connectivity the growth in the hospitality segment will pick up at a rapid pace."

The international airport is expected to make things better. Akundi says, "As of today, air connectivity is not on par with the four major metros of India. But if one compares it with the situation five years back, there is definite improvement. If without proper air connectivity, Hyderabad is such a sought after city, once the international airport comes up a couple years from now, just think what will happen."

Entertainment: Though Hyderabad has a lot of factors working in its favour, night entertainment restrictions is a quite a stumbling block. As per industry sources, all places of night entertainment (pubs, nightclubs etc) have to shut down by midnight. This is plainly not a very pro-tourism regulation, especially when compared to Bangalore which has a roaring nightlife. As Kaiz Patel of Kaiz Hospitality Services says, "The entertainment timings are certainly not conducive, especially for a city that is promoting itself so extensively."

Another spoke in the wheel is the excise on liquor. In Andhra Pradesh one has to pay at least Rs 8.5 to 14 lakh per year depending on the liquor one wants to serve. What the city requires is a comprehensive liquor plan.

Luring growth

Despite the above-mentioned impediments to growth, the city also has much going for it to make it a viable investing platform. As Ohri says, "Favourable regulations like single window clearance system (SWCS) for new businesses have been established and rationalised procedures through e-governance are already finding their way into daily life. Also accurate and comprehensive information systems put in place by the government help new businesses make the right decisions quicker."

As per the Andhra Pradesh government's Vision 2020 document, the incentives, concessions and coordination for the tourism sector are:

• Status of industry - Tourism projects are declared as industry
• Luxury tax - Five years exemption of luxury tax for new hotels. No luxury tax for room tariff up to Rs 300 per day.
• Special incentives - Large projects above Rs 10 crore investment anywhere in the state will be known as special projects. These will be eligible for special incentives, and considered on a case-by-case basis, over and above the other incentives.
• Automatic conversion of land use - Exemption from zoning regulations of the urban development authorities and municipalities for the purpose of local approvals subject to pollution checks. Automatic conversion of land use from industrial, commercial, residential, and public use for tourism projects is available.
• Shift operations - Exemptions from general permission to run in shift operations.
• Partial exemption of stamp duty and registration charges - For registration of the lease deeds and license agreements, 70 per cent exemption in the registration and stamp duty is available.
• Single window clearance system - Tourism department at state and district levels are the nodal agencies under the Single Window Clearance System.
• Government land for tourism projects - Vacant government lands will be leased for setting up of specified tourism related projects. The lease period will not exceed 33 years. The lease rent will be charged equivalent to five per cent of the market value with five per cent annual escalation, depending on the project economics.
• Investment and liaison cell - Extends assistance and guidance to the entrepreneurs.

The future

With such a proactive approach, the future looks pretty bright. However, as Patel says, "A lot remains to be seen what happens after the elections. Given the current scenario, the city has a lot of potential." Rama Krishna Reddy, MD, Hotel Minerva, also believes that the kind of government which takes over after the elections will be a key factor to Hyderabad's future. He says, "If the Telugu Desam Party comes to power again then I think the sky is the limit. The food business is doing really well and I think Hyderabad is next only to Mumbai in this segment. Also, the hospitality industry is picking up and hotels are doing approximately 90 per cent occupancy while in Chennai many hotels are on the verge of closing down."

Aditya Shamsher Malla, sales manager, Taj Krishna asserts that the tremendous change in the hospitality sector seen so far has been not just in quantity (occupancy) but also quality (ARRs). He says, "The demand in the premium segment has also increased steadily. The city has reinforced its position as the country's favoured conference destination. Cost advantage has invited a host of BPO companies to flourish here. Employment and spending power have increased tremendously. This has a bearing on F&B spends by locals. The future is promising. But for sustained growth, at least one major investment in the Core Industry sector is a must. New capacities (hotels) are expected to enter in the next three-four years, and by then the ROI should look healthy. But, on the other hand, there is a danger in comparing Hyderabad to cities like Bangalore since at least five to seven years the development of the two. Hyderabad will be somewhere near the Bangalore of today in about five years, in terms of sustained demand for five-star rooms. Also, there will be above average growth in the three-four star category because of labour intensive businesses here, which warrant cost saving in areas of travel and entertainment."