Louvre’s Sarovar buy marks rare Chinese-Indian deal
 
Louvre’s Sarovar buy marks rare Chinese-Indian deal
13 JANUARY 2017 9:31 AM

Owned by Jin Jiang, Louvre Hotels Group has announced a majority buy into Sarovar Hotels, which is being portrayed as the first direct Chinese investment in the Indian hotel industry, in a deal rumored to be an approximately $50-million buy for a 74% stake.

GLOBAL REPORT—French hotel company Louvre Hotels Group’s majority buy of India’s Sarovar Hotels both expands Louvre’s presence in India and, according to sources, represents the first direct investment of Chinese hotel capital into India.

While the majority stake in Sarovar is in Louvre’s name, Louvre has been owned fully by Chinese firm Shanghai Jin Jiang International Hotels Group since late 2014.

No monetary value or ownership percentage was officially announced.

Rushabh Shah, director in the Mumbai office of business consultancy Horwath HTL, told Hotel News Now, “We have heard unofficially that Louvre bought 74% of Sarovar for a stake of $340 million crore Indian, about $50 million.”

Shah stressed that, as there is little public information at the moment, he could come to no firm conclusion as to how good, or not, the deal is.

But he added that this deal marks a milestone in Chinese investment in India. Despite there being a lot of investment interest into India from China across all industries, he said, most of that is indirect investment.

Shah said historically the two countries have been a little wary of one another.

“There is, from Indians, a trust deficit. The relationship is not too open, so investment mostly has been indirect. We’ve seen much Chinese investment worldwide. For instance, a Chinese group now owns the Carlson group, but this (Louvre-Sarovar) deal is the first direct Chinese investment into Indian hotels,” he said.

Saurabh Chawla, head of group development at Louvre Hotels Group, said the company’s first contact with Sarovar had been when Louvre was owned by Starwood Capital, not by Jin Jiang.

Sarovar and Louvre executives were delighted by the announcement of the deal.

Ajay K. Bakaya, executive director of Sarovar, noted Louvre acquired the majority stake in Sarovar and that Sarovar continues to go forward as it has planned.

The current Sarovar management will remain in place, he said.

“Sarovar will continue development and now develop Louvre’s brands in India. It is a happy coming together,” Bakaya said.

Louvre’s 22 Golden Tulip hotels in India will not be merged into Sarovar brands, Chawla said. According to Louvre, those 22 properties contain 1,420 keys.

Golden Tulip and Sarovar both have sufficient strength to continue to be successful in the Indian market, Chawla said.

He added that the deal was strategic on two levels.

“On the group level, (Louvre is) number two in Europe, now one in China and now one of the largest in India. For us, to gain market share (in India) is important. It is an emerging, fantastic country with great business fundamentals,” Chawla said.

“On the country level, again, Sarovar is a fantastic domestic brand, India’s largest platform, with the deepest penetration in the country and a great reputation,” he added.

Chawla said that while India is known for its domestic, high-end and international brand presence, the Louvre-Sarovar deal creates a niche in the Indian market that comes with all the bells and whistles of a strong domestic brand.

Last August, Louvre CEO Pierre-Frédéric Roulot, now CEO of Jin Jiang Europe, told HNN that expanding and repositioning Golden Tulip was key to Louvre’s overall future and its future with Jin Jiang.

“Louvre is much bigger globally. In India, though, Sarovar has much higher brand recall,” Shah added.

Jin Jiang’s influence
As for Jin Jiang’s new influence on Sarovar, Bakaya said he foresees no changes there either.

“The Jin Jiang and Louvre philosophy is to have strong presence in local markets. There will obviously be integration in terms of distribution, loyalty, et cetera, but they are both clear that they understand India is a complex country to operate in,” he said.

Sarovar Hotels has three brands: the upper midscale Sarovar Premiere, midscale Sarovar Portico and economy Hometel. According to Sarovar’s website, it has 75 hotels open—all in India with the exception of two in Kenya and one each in South Sudan and Tanzania.

The company was already working to expand outside of India, though. Sarovar’s Bakaya said the Sarovar brands plan to open a property in Nairobi on 15 February. In its Africa pipeline, it also has assets in Addis Ababa, Ethiopia; and Lusaka, Zambia.

The property in the world’s youngest nation, South Sudan, has been the firm’s biggest eye-opener.

“You need patience and perhaps a little foolhardiness. We’ve been there eight or nine months now, and it works. It is profitable,” Bakaya said.

Louvre Hotels has a larger presence in Africa, with 32 hotels currently in operation, according to its website.

Patience was needed for the Sarovar deal, too, according to Chawla.

“The last three months have been very intensive in terms of closing the transaction. There were some ups and downs, but now we can sit down and see where we can harness each brand and platform,” he said.

Horwath’s Shah said he thinks the company’s total room count is between 2,500 and 3,000, although the press release announcing the deal said that number was 6,000 keys in 50 cities.

“Sarovar only owns partially two hotels. Most are management contacts under different owners and average 65 rooms per hotel, some as small as 50, others up to 200,” Shah said.

He also attempted to quantify Sarovar’s fee structure.

“Sarovar only receives management fees. If their average is an average daily rate of $50 or $60, then the annual management fee for a typical hotel of this size in a stable market is not more than $1 million. … Assuming an average turnover of $15 million per year, with a 10% fee, that would calculate as an aggregate value of $65 million to $75 million,” he said.

Shah said Sarovar once held the master franchise in India for Carlson Hotels Worldwide, but that agreement has ended. Sarovar, however, still manages 11 properties in India for Carlson.

According to data from STR, parent company of HNN, ADR and revenue per available room in India in both the Upper Midscale and Midscale segments mostly have been positive in year-to-date November 2016 data.

In Mumbai, where Sarovar has four properties, ADR in the upper midscale segment grew 5.9% to 5,582.62 Indian rupees ($81.94), while RevPAR increased 3.2% to 4,364.68 Indian rupees ($64.06). Occupancy fell 2.6% to 78.2%. The midscale segment in the same city saw similar performance, with ADR rising 5.4% to 3,992.75 Indian rupees ($58.61), RevPAR growing 2.4% to 3,129.57 Indian rupees ($45.94) and occupancy dropping 2.8% to 78.4%.

In technology hub city, Bengaluru, where Sarovar has four properties, performance showed higher percentage gains in the midscale segment, with ADR rising 8.7% to 2,806.72 Indian rupees ($41.20), RevPAR growing 13% to 2,025.83 Indian rupees ($29.73) and occupancy increasing 4% to 72.2%.

The upper midscale segment in Bengaluru saw a RevPAR increase of 1.2% to 2,453.87 Indian rupees ($36.02), an occupancy hike of 1.6% to 62.5%, but an ADR drop of 0.4% to 3,927.11 Indian rupees ($57.64).

No Comments

Comments that include blatant advertisements or links to products or company websites will be removed to avoid instances of spam. Also, comments that include profanity, lewdness, personal attacks, solicitations or advertising, or other similarly inappropriate or offensive comments or material will be removed from the site. You are fully responsible for the content you post. The opinions expressed in comments do not necessarily reflect the opinions of Hotel News Now or its parent company, STR and its affiliated companies. Please report any violations to our editorial staff.