BUSINESS ASIA by Bloomberg
Subramaniam Sharma

ITC, which absorbed its hotel units in 2004 to create India's second-largest chain, plans to add at least nine properties to take a bigger share of one of the world's fastest-growing tourism markets. ITC will build hotels in Madras, Bangalore, Gurgaon, Hyderabad and Chandigarh, and it may build one in Goa and some state capitals as demand exceeds supply, Nakul Anand, chief executive of ITC's hotel division, said recently. ITC may also consider hotels in London and Singapore, he said. India's luxury hotels have seen a surge in occupancy, with demand expected to grow 9 percent on average for the next five years and room tariffs to gain 14 percent on average in the next two years, according to Cris Infac, the research arm of the credit rating company Crisil.

''Demand is far exceeding supply in the hospitality industry,'' said Rajat Jain, chief investment officer at Principal Asset Management in Mumbai. ''A wider menu of hotels gives economies of scale and preference is for companies with more diversified mixes of hotels because volatility is lower.'' ITC added a second hotel in Mumbai, the country's financial hub, early last year. The company has 60 hotels in 55 locations across India with a total of 3,278 rooms. Of those, it owns 2,615 rooms. The rest are managed on behalf of other companies.

Indian Hotels, which runs the Taj hotel chain and is the nation's biggest operator, owns 56 hotels in 39 locations in the country and 17 overseas. ITC, 32 percent owned by British American Tobacco, is India's top tobacco company, with cigarettes making up about 56 percent of net sales. In the past few years, ITC has expanded businesses like paper, foods and apparel. ''They are trying to diversify and mitigate their risks. It is a good strategy,'' said Binaifer Jehani, an analyst at Cris Infac. ''The company can market its properties across the country and derive various benefits.''

Revenue from ITC's hotel business, which accounts for about 6 percent of net sales, rose 31 percent to 3.01 billion rupees, or $67.9 million, in the six months to Sept. 30. Profit before interest and tax more than doubled to 836.6 million rupees. Occupancy at luxury hotels located in the country's 10 biggest cities expanded to 74 percent in the 11 months to Nov. 30, from 71 percent in the year-earlier period, according to Cris Infac. Average room rates gained 24 percent to 5,637 rupees in the same period, it said. This growth is being driven by the second-fastest pace of economic expansion after China among the world's 20 biggest economies, a decline in air fares as more domestic airlines compete, and a surge in visitors from abroad.

Overseas tourist arrivals in India rose 13 percent to 3.91 million in 2005. The World Travel & Tourism Council says India will emerge as having the second-fastest-growing tourism business globally, after Montenegro. ''We certainly want to have a formidable presence in India,'' Anand said. ''The hotel business is derived demand and the Indian economy is bound to continue to grow. There's no reason why this business won't grow.''ITC will start building its second hotel in the southern city of Bangalore this month, Anand said. The company has purchased land in the southern city of Madras, he said.

ITC is building a resort at its golf course near Gurgaon, on the outskirts of New Delhi, and is ''scouting'' for land for a hotel in Gurgaon, Anand said. The company plans to build a hotel in Chandigarh under its Fortune brand, which caters to the midlevel traveler, Anand said. ''Three to four more hotels in state capitals and metros is very much on the radar,'' he said.

ITC is waiting for the ''auction of land for the 2010 Commonwealth Games'' in New Delhi to build another hotel in the capital, Anand said.