Indian budget hotel chains court private equity

Samhi Hotels is set to close its first round of fundraising of about $120 million, most of which will be deployed in the economy hotel segment. Keys Hotels, a mid-market brand owned by Berggruen Hotels, needs $65 million for 8-10 properties, while Peppermint Hotels is in talks with several private equity firms over plans to build 10 more hotels in the next few months.

According to Achin Khanna, associate director of HVS Hospitality Services, a consultancy, about 35,000 of the 89,000 hotel rooms under construction in India fall into the mid-segment category. Venture Intelligence said that private equity firms invested $226 million in five hospitality industry deals in India in the first half of this year, compared to $146 million in 2010 as a whole.

Lemon Tree Hotels, which was among the first budget hotel chains to receive private equity backing when Warburg Pincus bought a 27% stake for $63 million in 2006, hopes to reach 4,000 rooms by 2013. The company, which owns the Lemon Tree and Red Fox brands, would then consider an IPO. In April, Warburg formed a real estate joint venture with Lemon Tree worth $315.4 million.

Niten Malhan, managing director of Warburg Pincus India, said that the country's budget and mid-market hospitality segment represents a large and under-explored opportunity. However, analysts expect competition in the sector to intensify, putting pressure on companies to offer value propositions in the right locations.

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• Topics
• South Asia
• Consumer
• Expansion
• Warburg Pincus Asia