After making bets in spaces like manufacturing, financial services and metals, Ajay Relan founded CX Partners is now looking at the hospitality space to ride on India's growth. The private equity firm is forming a joint venture with the Delhi based Imperial Group to co-develop budget hotels. In a platform play, the investment firm will commit upto $30 million in the JV, sources with the direct knowledge of the transaction told VCCircle.
The two parties entered into a definite agreement to this effect in the last quarter. "It is a platform play to essentially leverage the boom in the affordable hotels space", the source added.
Ajay Relan, Founder & Managing Partner, CX Partners, said "there is no truth" in this story.
While private equity investments in the hospitality business have been slow most of this year, the interest has increased on the back of a few deals in last two months. Xander Group reportedly invested $110 million in the hospitality division of Pune-based Panchshil Realty, which is developing seven hotels under the Marriott brand.
Another recent deal was IL&FS Investment Managers' Rs 80-crore infusion in Aria Hotels and Consultancy Services, which is building a luxury hotel under the JW Marriott brand in Delhi. JP Morgan India Property Fund also invested about $16.73 million in Viceroy Bangalore Hotels Pvt. Ltd early this year.
Much of the investment activity in the hospitality space in India has been seen by focusing on the penetration of Asia-Pacific markets from luxury and upscale segments. However, the industry experts argue that the value lies more in exploiting the economy segment and that the economy or budget hotels are going to see a boom in near future.
Among the factors contributing to the rise are: the enthusiasm of a large proportion of the region’s population for travel coupled with a limited disposable income for this interest, and the development of low-cost airlines. Also, added to it is the high cost of land, which acts as a big deterrent to the growth of quality one-to three-star hotels.
There are also talks about a public-private partnership (PPP) model to push the growth of budget hotels, where instead of opting for land auctions, government can give out land on long-term leases to companies operating in the budget sector and recover the price over a specified number of years.
CX Partners has invested $25.71 million investment in NTL Electronics India Ltd (electrical components & equipment), an undisclosed amount in Convexity Solutions Pvt. Ltd. (investment banking & brokerage) and $33.74 million in Monnet Ispat & Energy Ltd. (steel manufacturing).