Denham, United Kingdom-based InterContinental Hotels Group (IHG) intends to expand its footprint in India by forming a joint venture with Duet India Hotels Group.
InterContinental plans to invest around $30 million in the joint venture, in which it would have a 24% equity stake, to build 19 hotels of its Holiday Inn Express brand in the Indian market in the next five years. The new hotels will add 3,300 rooms to the companies existing pipeline of 10,000 rooms in India. The first hotel under the agreement is expected to come up by 2012.
The company views India as an important emerging market and the new hotels will be located in major cities, thereby providing a great expansion opportunity. By 2020, the world’s largest hotel group in terms of number of rooms expects to open 150 hotels in India and over 75% of the hotels will carry the Holiday Inn brand name.
InterContinental joins the bandwagon of other hoteliers such as Starwood Hotels & Resorts Worldwide Inc. (HOT), Marriott International Inc (MAR) and Hyatt Hotels Corporation (H), planning to expand their Indian businesses.
Starwood announced that it is on track to beef up its Indian portfolio. Currently, the company has 30 hotels in India. It intends to open 50 hotels in India by 2012 and expects to almost double its portfolio by 2015. Hyatt announced management contracts for nine new hotels in India, bringing the total number of properties now under construction or development in India to 38. Marriott also plans to open 100 hotels in India over the next five years.
The demand for hotels is greater in the international market than in the U.S., especially in the Asia-Pacific region, where the pace of economic recovery is particularly fast. Other than the Chinese market, the hoteliers are expecting India to offer significant possibilities for growth.
In the Indian market, the demand for hotels is considerably higher than the supply. Additionally, India is expected to experience a meaningful increase in gross domestic product (GDP) within the next few years.
The burgeoning of the middle income group results in an increase in domestic travel and is also an important driver for this major hotelier to expand its mid-market brand in India.
InterContinental currently retains a Zacks #2 Rank, which translates into a short-term Buy rating. We also reiterate our long-term Outperform rating on the shares.
HYATT HOTELS CP (H): Free Stock Analysis Report
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INTERCONTL HTLS (IHG): Free Stock Analysis Report
MARRIOTT INTL-A (MAR): Free Stock Analysis Report
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