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PEs queue up to check into hospitality sector

After infrastructure and real estate, private equity (PE) funds are stepping up investments in the booming hospitality sector. Biggies such as Lehman Brothers and Kotak Mahindra Realty Fund have kicked off negotiations with several players in the hospitality industry. Besides the metros, investments could pour into tier II cities — Hyderabad, Ahmedabad and Pune — as well.

US-based Sun Apollo Ventures LLC is set to follow suit while Blackstone is open to funding this segment in due course. Kotak Mahindra Realty Fund has already made a couple of investments in hospitality projects. “We are bullish on the business and budget hotel segment in India. Our company has invested in two projects and are considering many more in the sector”, said Kotak Realty Fund CEO Mr Sriniwasan.

Kotak Mahindra Realty Fund invested Rs 32 crore in Lemon Tree, a budget hotel chain. This was followed by a Rs 45 crore investment in the Pride groups, adds Sriniwasan. The company is also keen on investing in tier II cities. “The return on investment could be quite high in these cities, thanks to the large professional and student population”, he said. NYSE-listed Lehman Brothers had invested around $ 100 million in the Kishore Biyani-promoted Future Capital Holdings to fund hotel projects in India.

“The hospitality industry is witnessing a boom and promises good growth prospects. Our areas of interest would be budget hotels and tourist resorts”, said a senior official from Lehman Brothers. US-based Sun Apollo Ventures LLC is not far behind.

“We have already invested in a couple of hotels and more are in the pipeline. We would typically look at metros and tier II metros as the returns are assured,” said Sun Apollo Ventures LLC CEO Chetan Dave.

The fund infusion has triggered companies in the hospitality sector to draw up big-ticket expansion plans. Gurgaon-based Vatika Group, which recently got funds from various private equity players of around $150-200 million, is planning to run its own hotel chains soon. Delhi-based IHHR Hospitality found it easy to go ahead with their hotel expansion plans soon after Morgan Stanley invested $ 56 million and picked up a 21% stake in the company.

PE investments in the country are estimated to top $ 48 billion by 2010 and these funds are looking at sectors other than infrastructure and real estate.

Source: Economic Times

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