CAPEX PLANS:
 The capital expenditure (capex) incurred by various hotels for different projects has a diverse nature. For instance, IHCL raised Rs 1,450 crore through a rights issue of shares and non-convertible debentures (NCDs), with warrants convertible at Rs 150 per share by September '09.

Hotel Leela, on the other hand, partially funded its capex plans through a $100-million foreign currency convertible bond (FCCB) issue in April '07, maturing in April '12, and convertible into equity at Rs 90 per share.

GROWTH DRIVERS:
 The large-scale expansion being undertaken by hotels enables them to cater to the sporadic demand emerging on account of economic growth in India. Hyderabad and Pune are the key growth markets, where substantial hotel activity is likely to take place in the next five years.

While the luxury segment is driven by foreign travellers and corporate houses, increasing affordability is creating an opportunity for hotels to tap into domestic travel and tourism through budget hotels. This allows hotel chains to widen their network, as well as reduce their dependence on a few properties.

On the macro level, however, Delhi, Mumbai and Bangalore account for bulk of the industry's revenues. Hotel Leela , for instance, depends on its Bangalore and Mumbai properties for 80% of its revenue, while EIH depends on Delhi, Mumbai and Bangalore to meet 82% of its total revenue.

PRIVATE EQUITY INTEREST:
 Private equity firms have shown interest in the hotel sector, mainly on the basis of asset valuations -- an approach used in developed markets. This can boost the valuations of existing hotel companies, which currently ignore asset valuations on account of lack of information with regard to land holdings and acquisition costs.

Lehman Brothers and Och-Ziff Capital Management have invested $200 million in Future Group's hotel business to benefit from the chain of four- and five-star hotels that the group plans to build across the country. Meanwhile , Credit Suisse has invested $55 million for a 10-15 % stake in the Park Hotels chain. Kotak Realty Fund, Yatra Capital and Shinsei Bank have also invested in the hotels sector.

RISKS:
 Given the current macro-economic situation, slowdown in the growth of business air travellers to 11-12 % in Q1 FY08 (compared to 31% in FY07), as well as increased supply, the average room rates (ARRs) and occupancy of hotels may decline. Business centres such as Bangalore, NCR, Chennai, Hyderabad and Pune are expected to have the largest room supply in the near term. NCR, in particular, plans to add a large number of hotels for the October '10 Commonwealth Games, and can face a supply glut after that.