Building India's leading budget hotel chain
We've made our first investment in the Indian travel sector!!! Bessemer has invested (along with New Vernon Private Equity) Rs. 38 crore ($ 8.5 million) in Sarovar Hotels, to build out a chain of budget hotels in India, under the Hometel brand.
The simplest way to express Bessemer's investment philosophy is "We back strong entrepreneurs addressing large markets". Our investment in Sarovar fits squarely with this philosophy.
Sarovar is India's largest hotel chain in the mid-market segment, managing 35 properties in the 3/4-star category. Sarovar's MD - Anil Madhok - has 40 years of hotel management experience, including the last decade as an entrepreneur, having founded Sarovar in 1994. Anil and his team have the unique combination of extensive hotel management experience in India, expertise in the mid-market (as opposed to premium) segment and a successful entreprenurial track-record with Sarovar. They have scaled up Sarovar into India's leading hotel management company in just over a decade.
You've probably read at least one article on India's hotel room shortage (India has fewer hotel rooms than Manhattan)! If you've travelled in India recently, feel free to share your personal anecdote on paying an arm and two legs for a hotel room. India's hotel room shortage is most acute in the budget hotel segment. If you are looking for a hotel room under Rs. 3000/night ($65), you have very few options where you know what you are getting into. Hotels in this price range are highly variable in quality, cleanliness, safety and service. Except for one Tata IndiOne hotel in Bangalore, there are no brands or hotel chains in this segment. As I've written in an earlier post, the largest opportunities in India are for those offering good quality products/services at prices that are affordable to the mass market. Hometel aims to do precisely this.
So, what does Hometel offer? All the basics - central a/c, hot/cold water, TV, direct-dial phone, mini-fridge, tea/coffee maker, writing desk, electronic locks, WiFi - at an affordable price of Rs. 1500-2500 per night ($35-55). What is doesnt provide are the frills - multiple restaurants, large lobbies with chandeliers, swimming pool.
Similar to low-cost airlines, budget hotels need to be designed and operated very differently from their full-service counterparts. Budget hotels are about consistently good service, value-for-money pricing, low capex per room and reduced opex (fewer staff, no-frills). The first two factors ensure high utilization (revenues) and the next two drive profitability. This is clearly an execution game, where Sarovar's expertise is critical.
We believe that Sarovar's team can execute to plan and become India's leading hotel chain in this segment. Sarovar plans to cover both metros and (more importantly) smaller cities where finding good accommodation is even harder. The first Hometel will open in Bangalore in January 2006. Pune, Mumbai, Jaipur and Hyderabad are in the pipeline. 50 Hometels in 5 years is the target. Personally, I think the opportunity is large enough for a lot more!