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Hospitality with Responsibility - The Explosive Growth of India’s Mid Market - Eco Hotels

Hospitality with Responsibility: The Explosive Growth of India’s Mid Market

By | INDIA, News | No Comments

Jawaharlal Nehru famously championed “hospitality with responsibility” and riding high as it is on the crest of an unprecedented surge in tourism, India is holding hard to the father of the nation’s message. Not least because public awareness of environmental imperatives has never been higher on the subcontinent, leading Prime Minister Modi’s Government to respond (characteristically) with a programme of market driven “green hospitality” initiatives that embrace everything from streamlined Visa procedures through to water sustainability programmes and everything in between. The result is a striking pattern of explosive growth in India’s important mid market sector where the bulk of those initiatives are currently taking root.

And it’s not all about the environment either, with most analysts also pointing to the importance green hospitality is having on financial performance as well, and not just on the bottom line either where reduced energy costs and leaner waste targets have an obvious potential to cut operating costs. Environmentally friendly policies also have an almost unique potential to attract the new generation of business and social travellers who are placing sustainability at the top of their checklists, with even the hardest nosed business travellers supporting the trend: Deloitte’s, scion of the pinstriped traveller, has published polling results taken from 1,000 businessmen and women, no less than 95% of whom wanted more green initiatives with 38% admitting to checking whether their chosen hotel was sufficiently green before deciding to book.

Put it another way, in less desiccated language not favoured by Deloitte, Eco Hospitality has now become an essential part of Mid Market’s success story on the subcontinent… and there’s no sign of it losing any of that importance any time soon.

Just look at Lemon Tree Hotels and Eco Hotels both of which are blazing a trail in making the most of the opportunities India’s mid market hospitality sector has to offer, each of them pursuing ambitious expansion programmes and delivering above market rate returns for investors.

Red Ribbon Asset Management is the founder of Eco Hotels, the world’s first carbon neutral mid market hotel brand, which has “green hospitality” built into its genetic structure. The company has embarked on an ambitious programme to roll out a chain of new facilities across the subcontinent, designed to take full advantage of market opportunities currently available in India’s mid market segment. The brand offers sustainable living without compromising on quality and will cater for commercial and recreational travellers alike.

Red Ribbon CEO, Suchit Punnose said:

India has become something of a crucible to test out trends in the hospitality sector. As most of us will have observed over recent years “green tourism” and “green hospitality” have become increasingly dominant in determining the choice of hotel for business and recreational travellers alike: part of a global environmental trend that seems, ironically, to have picked up pace even more following Donald Trump’s withdrawal of the United States from the Paris Climate accords.

But what makes India different from other bellwether economies worldwide is the sheer pace of the change that is currently taking place on the subcontinent. Number of travellers choosing to travel to and across India has reached an all time high, carriers are reporting exceptional volumes and occupancy rates and the mid sector is picking up a larger percentage of these travellers than ever before. I’m sure that will all in lead to an acceleration of the rate at which the trend for “green tourism” evolves in India as opposed to other markets across the world, meaning we can expect to see green tourism’s importance on the subcontinent before anywhere else.

As the article also points out, Eco Hospitality is an essential part of this trend so I’m very much looking forward to seeing how things develop, especially with Red Ribbon’s Eco Hotel project playing such an important part in the market.

India - The case of Investment - Red Ribbon Asset Management Plc

India: The case for Investment

By | INDIA, News, UNITED KINGDOM | No Comments

United Kingdom is the gateway to many investment opportunities, of which India is one to take notice of. India’s economy and business landscape are changing, ushering in a period of growth, prosperity and investment opportunities.

Let’s look a little more closely at just a few of the more compelling reasons why investing in India is an opportunity you can’t afford to miss:

The Indian economy is the fastest growing major economy in the world. It surpassed China in 2015 and is forecast to expand by 7.7% in 2018, before accelerating to 8.3% in 2019. India’s population is also expected to increase from 1.34 billion and exceed that of China, within the next five years.

As 10 million countryside inhabitants move into India cities, per annum, urban society across the country is increasing. Those new and growing societies are increasingly wealthy, sophisticated and technologically literate, providing a platform for growth, fuelled by demand.

India also has an incredibly supportive government that’s working hard to facilitate economic growth and a fundamental change in the way the population lives and interacts. PM Narendra Modi has introduced a single tax base across India’s 29 states, while the regulatory environment has also radically transformed.

United Kingdom – gateway to India

United Kingdom is an economy that has a proven track record at identifying areas and regions that have a lot to offer. That’s why India is already among the countries where investments and partnerships can be easily accessed via United Kingdom.

As a UK-based business, Red Ribbon Asset Management Plc is an obvious partner to access those Indian investment opportunities.

Not only do we understand what is driving India’s economy and investment boom, at Red Ribbon we know how different areas of investment are performing. Our well-connected Indian-based team, provides hands-on support to our UK-based investment specialists. It’s a successful partnership, that ensures we identify the right investment for each and every investor we work with.

Red Ribbon has been involved in numerous major projects in India and the UK, that have proven successful in both execution and from an investment perspective.

But, that’s not all. At Red Ribbon we believe investments should offer benefits to everyone involved. Aligned with our philosophy and core values, all our investments are morally acceptable, provide measurable social and environment impacts and deliver strong financial returns.

As you can see, Red Ribbon Asset Management Plc has been quick to recognise the potential in India and through us you can access an array of investment opportunities.

Red Ribbon brings you a gateway into investing in India, offering bespoke services in wealth management, private equity and real estate. Our strong network of contacts means we know India from the inside and outside. That’s just one reason why we’re ideally placed to identify the best opportunities as they arise.

Red Ribbon CEO, Suchit Punnose said:

India is more than just an exciting investment opportunity, it’s also a driver to global economic growth and that’s why Red Ribbon has long held the view that no investment portfolio can be considered properly balanced unless at least 10% of its holdings are deployed in Growth Markets and, of course, for us that has always meant India in particular.

And of course this vindicates Red Ribbon’s decision in 2008 to place India and its fast growing markets at the heart of our investment strategies from the very start. Our expert advisers now have an insight into what makes the subcontinent’s markets tick, what makes them so profitable and where the best opportunities for above market rate returns are likely to be found.

The Phenomenon of Eco Hospitality - Red Ribbon Asset Management - Eco Hotels

The Phenomenon of Eco Hospitality

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This year’s Sustainable Travel Report has reinforced the continuing momentum of Eco Hospitality in India: 84% of business and recreational travellers now confirm a preference for sustainable destinations, and as the saying goes, “sustainability starts where you stay”. Two thirds of travellers are willing to spend 5% more on accommodation if it meets sustainable criteria, meaning everything from water and energy consumption through to macro environmental management systems. But to get a real feel for the importance of those findings, you have to place them side by side with tourist and business statistics on the subcontinent and, in particular, for the first half of this year. It helps explain why India is currently experiencing an Eco Phenomenon.

The subcontinent will be the fourth biggest tourist economy in the world within the next four years, bigger than Italy, the United Kingdom and Australia put together and a major factor in this explosive growth is internal demand. In May alone airlines in India reported a 16.6% growth in passenger numbers, carrying 11.9 million customers with 80% occupancy (Spicejet reported an astonishing 94.8% occupancy rate). And with tourist numbers on the subcontinent riding at such an all time high with 84% of tourists preferring sustainable destinations (they have to stay somewhere when they arrive), even the most rudimentary of economists could spot an emerging trend.

Certainly Lemon Tree Hotels and Eco Hotels haven’t been slow to pick it up: both companies are currently spearheading key innovations in India’s hugely significant mid market hotel segment, with eco hospitality at the heart of each of their business models.

No surprise then that JP Morgan reported Lemon Tree in June to be delivering better than average cost control and execution ratings as well as higher return rates on room occupancy. Better Eco credentials aren’t just a honey pot for prospective travellers, they make sound business sense too with reduced commodity use (and costs) delivering straight to the bottom line. JP Morgan have also pinpointed enhanced operating leverage as a driver for future growth for at least the next three years, which is likely to deliver improved capacity for better pricing and capacity structures.

Lemon Tree and Eco Hotels continue to roll out new hotel units across the subcontinent, with the former last month investing another Rs 850 Crore into its aggressive expansion programme. Interestingly enough, Lemon Tree’s President Vikramlit Singh has also again highlighted a continuing mismatch between demand for hotel rooms and availability as a likely source of future profitability, so there’s no sign of those capital programmes losing their momentum anytime soon.

Red Ribbon Asset Management is the founder of Eco Hotels, the world’s first carbon neutral mid market hotel brand, offering “green hospitality” as part of a progressive roll out across India, designed to take full advantage of market opportunities available on the subcontinent at the moment. The brand offers sustainable living without compromising on quality and will cater for commercial and recreational travellers alike.

Red Ribbon CEO, Suchit Punnose said:

Market changes rarely come about in isolation, with one revolutionary event: the iPhone would have been an expensive mirror without something to plug it into. And the same goes for economic trends generally where we should look for the confluence of a number of key factors before drawing any conclusions. That certainly applies to the Indian Eco Hospitality sector where a huge uptick in business and recreational travel on the subcontinent has coincided with a surge in demand for sustainable destinations. With mid market hotels already roaring ahead, added eco credentials are giving the platform a turbo charger.

And I would add a third factor too. As may not be generally known the whole, vast expanse of the subcontinent currently has less hotel rooms that the island of Manhattan alone. So the point mentioned at the end of the article also has considerable importance to my mind: demand for hotel rooms is in any event seriously outstripping supply and that is bound to make for a more profitable outlook. A turbo charge for the turbo charger perhaps?

Sustainable Tourism - Hospitality - Eco Hotels - Red Ribbon Asset Management

Sustainable Tourism: Balancing the needs of the fastest growing hospitality market in the world

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The World Travel and Tourism Council predicted this month that within the next decade India will be the fourth largest tourism economy worldwide, snapping at the heels of China, the United States and Germany. The Report makes a particularly interesting finding that this trend is not just driven by increasing numbers of international business and tourist travelers: significant growth is being driven from within the subcontinent itself, fueled by India’s rapidly expanding middle class and an increasingly technology literate young population who are quicker than ever to reach for their smartphones to book a holiday. Domestic travel is now the real catalyst for change in a burgeoning hospitality sector with a striking 90% of travelers being Indian Nationals.

No surprise then that In May of this year domestic airlines on the subcontinent reported a 16.53% growth in passenger numbers compared to the same month in 2017, with the Directorate General of Civil Aviation confirming that Indian carriers had transited no less than 11.9 million passengers during that single month. Across the board scheduled carriers flew to an impressive 80% occupancy with Spicejet leading the way at a 94.8% load factor.

These are hugely significant trends for the future of India’s economy, with the hospitality sector having already accounted for more than $230 Billion of the subcontinent’s GDP in 2017 (up from $209 Billion the previous year) and no suggestion that current unprecedented rates of growth in the sector are likely to slow anytime soon.

This pattern of exponential growth shouldn’t come as a surprise to anyone: India has 36 world heritage sites, 103 National Parks (with the Taj Mahal thrown in for good measure) as well as Goa’s beaches, the foothills of the Himalayas and an astonishing breadth of wildlife from tigers and elephants to snow leopards. All of that is bound to attract tourists in large numbers, but such rapid tourist growth can of course bring its own problems, as anyone struggling through St Mark’s Square in mid August can testify. Growth of the wrong kind can threaten the fragile ecostructure of the very locations proving to be so popular with tourists, to such an extent that some of India’s tiger reserves no longer have any tigers to see.

More than 30,000 plastic bottles are left behind each summer by tourists in the high altitude Himalayan Ladakh desert of Jammu and Kashmir and on Mount Everest itself eight to ten tons of waste are left behind on the mountain every year: everything from empty oxygen bottles to rucksacks, tents and discarded climbing equipment.

So there is a balance to be struck: recognising the importance the hospitality sector now has for the subcontinent’s economy, but at the same time striving to support unprecedented growth within the sector in a manner that is sensitive to the needs of India’s precious ecosystem. This is the principal reason for the success of Eco Hospitality as a key driver of India’s mid market hospitality sector: not just because it is the only model striving to get this critical balance right, but because the majority of those travelling on the subcontinent now recognise the risks greater tourist numbers are posing to the natural habitat and are actively seeking out accommodation that supports its preservation.

Red Ribbon Asset Management is the founder of Eco Hotels, the world’s first carbon neutral mid market hotel brand, offering “green hospitality” as part of a progressive roll out across India which is intended to take full advantage of current market opportunities on the subcontinent. The brand offers sustainable living without compromising on standards of hospitality and is designed to cater to commercial and recreational travelers alike.

Red Ribbon CEO, Suchit Punnose said:

No surprise indeed that tourists are flocking in unprecedented numbers to the natural beauties and historic splendorous of the subcontinent, but it is still striking to learn just how significant a part internal tourism is playing in buoying up India’s resurgent hotel and hospitality sector. It’s certainly an area which can’t be overlooked in seeking out the best investment opportunities over the coming years and that’s why I’m proud Red Ribbon has played such a significant role in the creation and deployment of the Eco Hotels Project across the subcontinent.

As the article points out, tourists and business travelers alike are looking increasingly for hotel accommodation that is compliant with requirements of eco sustainability, and as the world’s first carbon neutral hotel brand, Eco Hotels are spearheading the need to meet that demand. It not only makes good sense for the environment, it makes good business sense too.

Modular Construction India - Red Ribbon Asset Management

Taking It In Stages: Modular Construction and India’s Urban Challenge

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India’s already congested conurbations will have to find homes for 900 Million more people by 2050, and assuming a modest four person occupancy rate that means 856 new homes will have to be built every hour, every day for the next thirty years (fourteen a minute in case you’re wondering), with the subcontinent’s builders working an implausible twenty four hours a day with no time off. The sheer scale of the challenge is unprecedented, and given the pressures it will place on India’s already overstretched urban infrastructure, it will call for a solution of equally unprecedented ingenuity. But more of that in a moment… first let’s look at those trends in a little more detail.

The latest industry source to address the issue is KPMG in its NAREDCO Study, “Bridging the Urban Housing Shortage in India” (the clue’s in the title obviously) and the Report draws an arch reference to commentators having first predicted a critical shortage of urban housing as long ago as 2012, with a then projected deficit of 18 Million units. But things have got worse since then and KPMG now say there are some 1 Million urban households currently living in “non serviceable accommodation” and over half a million without any homes at all. So what’s to be done?

Well, the first point to make is that it would be unduly Eeyorish (with apologies to Philip Hammond) for us to ignore the work Prime Minister Modi’s Government has already done to re-vitalise the subcontinent’s Affordable Housing Programme: introducing a raft of new tax incentives over the course of the last two Union Budgets with more streamlined Planning Procedures thrown in for good measure and a general cutting of Red Tape across the board. Which is, of course, all well and good but cutting Red Tape and going Fiscal Max won’t get any homes built by themselves. Something more is obviously required.

KPMG’s Director of Real Estate on the Subcontinent, Neeraj Bansal, more or less put his finger on the solution when he highlighted that the single most important policy initiative which has so far gone largely unexplored is the use of innovative and low cost technologies which can speed up the construction process: and that means Modular Construction.

Prefabricated units are, indeed, likely to be key to delivering affordable housing on the required scale and within cost structures optimum to the framework of incentives put in place by Prime Minister Modi’s Government. Modular Construction has a real potential to overcome all of the structural barriers to volume delivery at pace which are inherent in India’s traditional building technologies: including a lack of skilled construction workers (or at least skilled in sufficient numbers in the urban areas where they are required); a pressing shortage of non land resources, from precious water supplies to fabrication materials and, most crucially of all, the severe time delays which come hand in hand with conventional construction methods.

Modular Construction ticks all of those boxes.

First of all, it has clear advantages on speed: manufacturing and site work can be carried out simultaneously, reducing overall completion times by as much as 50%. Think about that: for every two hundred traditional units completed, modular construction can build three hundred. And that means reduced labour costs too, with nearly all of the design and engineering overheads being rolled into the bottom line manufacturing process. Roofs, walls and floors can all be constructed as part of the same process when, in stark contrast, ceilings can’t be put in place on a conventional project until the walls are completed, and walls can’t be completed until the floors are laid down: resulting in a lot of workers standing idly by as each small delay in the process dominos into a bigger one. That isn’t the case with modular construction where these same workers can work together at the same time; and they can also be recruited centrally so that local skills shortages (of the kind that have blighted the Mumbai construction sector) also become a lot less significant.

Modulex Modular Buildings is the World’s largest and India’s first Steel Modular Building Company, working to meet the Challenge of India’s urban housing shortages in a practical and focussed manner. It was established by Red Ribbon to harness the full potential of India’s dynamic and fast evolving markets, delivering exciting opportunities for investors through the platform of the Red Ribbon Real Estate Fund: because, when it comes to investing on the subcontinent, nobody knows its markets better than Red Ribbon.

Red Ribbon played a key role in setting up Modulex Modular Buildings, recognising the company’s outstanding potential to deliver above market rate returns for investors through its ability to tap into unusually high demand levels in Indian real estate markets. The company provides an exciting opportunity for investors to take advantage of this key trend in the fastest growing large economy on the planet.

Red Ribbon CEO, Suchit Punnose said:

When you come to look at the nuts and bolts of what it will take to deliver on India’s housing targets for its burgeoning urban population, the figures are truly eye watering. Building fourteen new homes every minute for the next thirty years would strain the limits of any conventional construction methods: not to mention the resolve of workers required to put in a twenty four hour a day shift, seven days a week.

But for me the answer is always been obvious and, as the article says, challenges on this scale require groundbreaking and innovative solutions. That solution, I am convinced, is Modular Construction.

No conventional industry methods can beat Modular Construction for its sheer pace of delivery and, of course, the key challenge faced in India and elsewhere is delivery timing: and its low overheads combined with unique operational efficiencies mean it will beat conventional construction methods hands down on overall profitability too.

That in a nutshell is why we have been committed to Modulex Modular Buildings (as a founding partner) since the project’s foundation several years ago. We remain convinced that it will play a vital part in meeting the challenges of India’s housing sector over the years ahead.

India Green Hotel - Eco Hotels - Red Ribbon Asset Management

Going Green: India’s hotel sector is changing its complexion

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On average the phrase “Eco Hotel” is searched at least 4,500 times a day on Google, targeting businesses operating on the subcontinent: stark evidence (if evidence be needed) that travellers of every complexion are increasingly aware of the importance of environmental compliance in their choice of hotel accommodation. But the recent surge in demand for Eco Accommodation is still not wholly matched by supply in India (the subcontinent’s vast expanse currently has less hotel units than the State of New York alone). And it’s not just about the environment either, because Eco Hotels in India are more and more reaping the economic benefits of environmentally friendly operations through reduced room costs and higher occupancy rates.

 

With unprecedented numbers of tourists and business travellers, the Indian hotel mid market is naturally focusing on the need to meet this key demand matrix: making better use of energy, water and building materials whilst at the same time maintaining the highest standards of service and accommodation quality. This is the successful formula that lies behind the recent growth of India’s Lemon Tree Hotels Group (with a very recent and oversubscribed IPO now under its belt) as well as Eco Hotels, the World’s first carbon neutral hotel brand; both of which are now picking up business at the expense of more traditional, chain operations.

 

From the point of view of the hotel operator, eco compliance also reduces costs and potential longer-term liabilities, generating a higher return and lower cost investment platform, so it is safe to say that the current trends towards “greener” delivery are likely to continue into the foreseeable future: if only because they make solid business sense too. It helps, of course, that the eco model is also attracting sustained levels of high demand in a largely unsaturated sub continental market.

 

And the core concept of a truly “green hotel” starts (literally) from the ground up, as part of the original construction process: using renewable building materials and incorporating design features which will eventually make reduced energy and resource allocation part of the building’s DNA, an intrinsic component of its operating structure. Once completed, it comes down to recording current and chronological usage statistics, acting on them and establishing key baselines and targets for future consumption (70% of non compliance variables in the segment involve excess guest consumption, so accurate record keeping is crucial). Inevitably, therefore, most of the day-to-day procedures for “going green” take place behind the scenes of any hotel’s operations.

 

All of this is also helped (crucially) by a range of key policies and initiatives instituted by the Indian Government over recent years, favouring eco hotel and mid market operation: all of them designed to deliver eco hotels as sustainable business ventures with clear short term deliverables for the environment (and, not unimportantly, profitability too).

 

 

Red Ribbon Asset Management is the founder of Ecolodge, a key brand within the Eco Hotels Group, which has an ambitious programme of developing a £1 Billion premium value hotel network, supporting sustainable living without compromising on standards of service delivery. And given the Eco Hotels brand is also modelled to operate from a low cost and high profit platform, it also delivers above market rate returns for investors. What more could you ask for?

Red Ribbon CEO, Suchit Punnose said:

I am constantly struck by the fact that the Island of Manhattan alone has more hotel accommodation than the entire, seemingly endless expanse of India’s hinterland: but when you bear in mind that there is also now an unprecedented surge in tourist and business travelers on the subcontinent, most of them looking for eco friendly accommodation, it starts to look like a phenomenon with only one outcome…a resurgent Indian mid market for Hotels and Eco Hotels in particular. Not that we didn’t see it coming.  For several years now Red Ribbon has been the driving force behind the Eco Hotels project on the subcontinent, successfully meeting the unique challenges that this congruence of market economics and public demand has generated. But we aren’t just proud of our participation in Eco Hotels; we think it makes great business sense too.

Hospitality in India - Eco Hotels - Red Ribbon Asset Management

Mid Market’s Moment: Trends in India’s Hospitality Sector

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India seems to do everything on a bigger scale these days: the fastest growing large economy on the planet and the highest rate of GDP growth anywhere in the world (currently a shade over 8%). So why settle for just one reason when you can have five? Why settle for one reason to explain the explosive growth in India’s hospitality sector over the past decade, something to tell us whether current growth rates in the sector are sustainable? And in case you’re wondering, the answer to the second part of that question is “yes”, but we’ll come back to that in a moment.

First though the reasons for the sector’s extraordinary growth, and as promised there are five of them: a surge in middle class numbers as India’s population becomes steadily larger and more affluent (in other words, much more consumer led demand); an overall increase in absolute business and leisure travel numbers; rapid urbanisation of the population (meaning that you need more and bigger hotels in densely populated areas); progressive economic growth (the subcontinent’s rising population has more money to spend) and lastly (fifthly, as I’m sure you’re still counting), a doubling in domestic air travel numbers over the last seven years. All these factors have now come together in a perfect storm to booster mid-market hotel brands in India, and that means in particular mid-size business hotels and eco friendly hotels.

In 2002 less than 25% of India’s hotel stock was mid-market in that sense, but this year the equivalent figure was 43% (according to the global advisory firm Horwath HTL). Between 2002 and March 2017 the supply of chain affiliated hotel rooms grew at 11% annually, but this too was outstripped by the mid-market segment, which grew over the same period at an impressive 15%. On any basis that is a striking shift in the market demographic over such a relatively short period, and if it tells us only one thing it is that now is perfect the time for investing in mid market hotel developments on the subcontinent.

And not just because statistics favour the segment so strongly, because development makes more financial sense in absolute terms too.

The average cost of building a mid market hotel room in India is between Rs 3 Million and Rs 7 Million, compared with a major chain development where the equivalent figure is Rs 15 Million which means that a mid market unit will break even faster: within six years rather than twelve for a chain development. The variables are in favour of the mid market too, because these break even projections are based on historic demand and, as we have seen, there has been a recent surge across the sector with current occupancy rates running at higher than 65%. The average room rates have also grown by more than 8% in the last decade, so we can realistically expect break even times to start coming down.

Red Ribbon Asset Management is the founder of Eco Hotels, the world’s first carbon neutral mid market hotel brand, offering “green hospitality” as part of its current roll out programme which is structured to take full advantage of current market opportunities on the subcontinent. The brand offers sustainable living without compromising on standards of hospitality and is designed to cater to commercial and recreational travellers alike.

And the timing couldn’t be better with everything pointing to a mid market surge.

Red Ribbon CEO, Suchit Punnose said:

Red Ribbon is the founding force behind Eco Hotels, and continues to support the project’s current roll out across the subcontinent where we are very confident that it will play a key part in the all important mid market sector. Not least because we know that a combination of demographic factors (driven primarily by India’s burgeoning and increasingly urbanised population) as well as the current acute shortage of hotel stock, combine to make the subcontinent’s hotel sector such an extremely attractive sector for investment.

To illustrate that point graphically, it is worth remembering that there are currently more hotel units on the island of Manhattan alone than there are in the entire expanse of the subcontinent. And that supply deficit is bound to create fertile ground for new investment, not least because of the five factors highlighted in the article.

At Red Ribbon we pride ourselves on our in depth knowledge of Indian markets, and the hotel and hospitality sector in particular. With more than a hundred advisers working daily on the ground in the market’s hot spots, we are confident that we can identify the best investment opportunities as they arise, taking full advantage of the trends for growth in this, the most exciting growth market on the world.

India takes the lead: A Global Renewable Hub

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India’s place as the key Global Hub for Renewable Energy Generation is becoming more evident by the month: GE Energy Financial Services (GEEFS) has just announced plans to invest $90 Million towards development of a Major Portfolio of 500 MW in partnership with the RattanIndia Group.

Anjali Rattan, Chief Executive of RattanIndia, explained the background to the deal:

“RattanIndia and GEEFS are partnering to develop 500MW of solar asset technology. GEEFS will be investing $90 million for the 500MW solar portfolio and has already invested in 210MW solar projects with RattanIndia located in Government Solar Parks at Bhadla (Rajasthan), Allahabad (Uttar Pradesh), Pavagada (Karnataka) and in RattanIndia’s  home territory of Katol (Maharashtra)”.

All this comes in the immediate context of Prime Minister Modi’s Government having set India an ambitious target of adding 175 GW of clean energy by 2022; and that commitment was made in the teeth of last month’s withdrawal of the United States from the Paris Climate Accords (surely making GE’s latest substantial investment in the subcontinent’s renewable energy programme all the more striking).

GE obviously recognises the importance of India as the leading Growth Market in the World at the moment and such huge resourcing programmes provide dry powder for companies like RattanIndia to ride the tiger of India’s ambition. But bear in mind too that this is very far from being a one off venture into the subcontinent’s Renewable Energy Sector.

GEEFS has previously invested in Welspun Renewables’ Neemuch Plant in the Anantapur District of Andhra Pradesh, and there is also a parallel project in Betul in Madhya Pradesh as well as Greenko’s wind energy projects in Northern India.

These crucial developments have also, importantly, been aided by a significant reduction in the applicable tariffs for Indian solar energy generation: from Rs10.95 to 12.76 per kilowatt hour (kWh) in 2010-11. The applicable rates hit a new low of Rs2.44 per unit in May of this year where, at the auction of 500MW capacity at the Bhadla solar park in Rajasthan and last year, RattanIndia Solar won a 50MW solar project at a tariff of Rs4.43 per kWh. Through its subsidiary Yarrow Infrastructure Ltd, it also won a 70MW solar project at a tariff of Rs4.36 per kWh in an NTPC Ltd run e-auction.

So it should come as no surprise to learn that India’s installed solar power generation capacity has risen more than fourfold in the last six years. Prime Minister Modi’s Government has been promoting Solar Power as part of that evolutionary process as well as recently deciding to continue its programme of exempting solar power producers from interstate supply charges for an extended period down to December 2019:  “The decision was taken by the Ministry of Power in consultation with the Ministry of New and Renewable Energy and other stakeholders since imposition of charges would have raised the cost of using solar power from another state by Rs1-2.50 per kWh, depending on the distance it is transmitted and voltage at which it is supplied.”

It all points of course towards a brighter future for Renewable Energy on the subcontinent; underpinning Red Ribbon Asset Management’s decision (since it was founded more than a decade ago) to place Renewables at the very heart of it’s Mainstream Impact Investment Strategies. Strategies that generate above market rate returns for its investors whilst at the same time supporting stronger, long-term businesses; creating long term, resilient projects and delivering better impacts on the community, on our wider society and on the environment.

Read about Rattanindia and GE 

Read about Welspun Renewables

 

What are the new investment plans for wind generation in India?

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It should come as no surprise to those keeping a close watch on developments in the renewables sector that India’s largest energy producer, NTPC, has last month announced its decision to move into wind production. The proposed new 50 MW Facility will be built in Gujarat and as the company is also substantially owned by the Government, sources close to management believe there should be little difficulty in securing consent for an early completion of the project.

Indeed, Prime Minister Modi’s Administration is taking an increasingly active role in supporting wind generation projects right across the subcontinent.

Shortly before Christmas, for example, the Government announced its decision to introduce “Viability Funding” for the wind sector; and faced as it was with the threat of losing key subsidies by the end of the financial year, participants in the sector will have welcomed the new measures with open arms. The previous Union Budget had capped accelerated depreciation relief from April 2017 onwards which was seen in many quarters of Government as a retrograde measure, at least undermining existing governmental commitments to the Beijing and Pittsburgh Climate Change Protocols. The new Viability Funding Policy will go a long way to addressing those concerns by further bolstering the position of wind as a key transformative catalyst for renewables growth.

The Policy Initiative (with planned payments pitched at 80% of growth targets) will also undoubtedly be seen as a welcome recognition from Central Government of the key role which is to be played by Gujarat in future renewable energy development, fitting in very appropriately with NTPC’s new investment plans for wind generation in the State.

And although it is correct that the existing Generation Based Incentive of 50% from target will be phased out under the new plans from April 2017 onwards, it remains the case that of 28,279 Mw of wind power generated in India, 70% will still be built on accelerated depreciation budget programmes. Taking the NTPC Gujarat Project as an example of how that will work in practice, no less than 80% of the Project’s expected development costs will ultimately be paid back by Central Government if, as seems likely, the Project is completed on schedule.

Speaking last month when the new Policy was announced, an official from Prime Minister Modi’s Office said: “As the generation based incentive expires, the Government is introducing a new incentive for procurers of wind power. The idea is to pay distribution companies the difference between their procurement cost and the viable tariff”.

There can be no doubting the significance of these developments. As bids for solar powered units have spiralled downwards over recent months to less than Rs 5 per unit of production there has been a marked reluctance from most Indian States to pay more than the depressed base figure; so it is to the Government’s credit that it has recognised the economic necessity of bridging the expectation gap with an effective package of subsidies

Close to 11,000 MW of wind-powered generation, no less than forty percent of the total wind generation capacity on the subcontinent had previously faced delayed payments from participating States, some of which had even cut their generation targets during the summer of last year. The new policy deals timeously and constructively with that threat.

Wind power is not, of course, a sector which is dependant on government support and these are fundamentally realistic measures introduced to meet an external market threat; so we should remind ourselves that for over a year up to 2012, the wind sector received no government support at all and despite this 1,700 additional MW of wind power had been added to overall stock by 2016 against a Central Government target of 2,400 Mw making India the fifth largest renewables energy generator in the world. The new measures are a timely helping hand to what is already a strong and robust sector, but for all that they are still to be welcomed.

Red Ribbon CEO, Suchit Punnose said:

There is obviously a key dynamic operating between the photovoltaic and wind-powered sectors; and in an evolving market they will inevitably complement one another, so I have been paying close attention to the softening of bid prices for solar powered units over recent months and it seems to me that the Government is absolutely right to step in with a package of measures to prevent this impacting adversely on wind markets. It is the right measure at the right time and a clear signal of the Government’s commitment to wind power as a key part of the renewables platform in India.

Added to that, of course, the new Viability Funding Policy will provide a solid basis for growth to the renewables sector as a whole; and with the imminent phasing out of Generation Based Incentives that is certainly to be welcomed.

It is also reassuring to confirm our own long-held conviction that economic forces must inevitably converge to reinforce the business case for projects tackling environmental issues. Policies discriminating in favour of projects delivering a measurable positive impact, is also good news for investors seeking to align their financial portfolios with their values.

 

Red Ribbon

At Red Ribbon we understand that the transition towards a resilient global economy will be led by well-governed businesses in mainstream markets, striving to reduce the environmental impact of their production processes on society at large and on the environment as well.

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