Warburg Pincus buys Indian hotel chain

Private equity firm looks to tap into India's fast growing hospitality sector.
Warburg Pincus's latest India transaction will see the private equity firm invest Rs2.8 billion ($60.9 million) in the hospitality sector. Warburg Pincus will invest Rs2.1 billion in Lemon Tree Hotels and Rs700 million in Red Fox Hotels a new company promoted by the Lemon Tree chairman and managing director.

Lemon Tree Hotels operates in the full service, moderate price category. Its rooms are priced in the Rs3000-5000/night range and are targeted to price sensitive business and leisure travellers. Since it was promoted in 2002 it has opened two hotels in DelhiÆs fast growing suburb and IndiaÆs business process outsourcing (BPO) hub, Gurgaon. Lemon Tree was one of the first hotels to open in Gurgaon and has benefited tremendously from the traffic into the town. Lemon Tree will also shortly be launching new hotels in Pune and Goa and has seven further properties under development. By 2008 Lemon Tree proposes to have a hotel in 10 major Indian cities. The money invested by Warburg Pincus will be deployed towards expansion of he Lemon Tree network and enhancing its footprint.

Lemon Tree is promoted by Patu Keswani who has 15 years experience working with one of IndiaÆs leading hotel chains, the Taj Group. Red Fox Hotels is a proposed new chain of hotels in the limited service budget category, promoted also by Keswani. Pricing will be Rs800-2000 per room night. The first three Red Fox properties are expected to open in Mumbai, Jaipur and Hyderabad by late 2008.

Lemon Tree was an early convert to the idea of sharing wealth with employees through an employee stock option program. Part of Warburg Pincus investment has been utilised towards acquiring employees shares thus unlocking wealth for staff who in many instances have been with Lemon Tree for less then 3 years.

Julie Johnson Staples, head of communications, Warburg Pincus comments: ôWe believe that the budget and moderately priced hotel segments in India presents a large and untapped opportunity and we are very excited about partnering with Patu Keswani to target this segment.öá

Keswani welcomed the investment by Warburg Pincus saying the investment ôprovides an impetus to our long-term objective of establishing Lemon Tree Hotels as one of IndiaÆs leading hotel chains in the upscale, full-service, moderately priced categoryö.

With business and leisure travel in India, both from residents and foreigners, on an increase the country faces a perennial shortage of hotel rooms. Especially, in the mid-market and budget category there is an acute paucity of quality accommodation.

The Warburg Pincus name has now become synonymous with private equity in India. It was the firmÆs investment in Bharti which is widely acknowledged as the harbinger of the current influx of private equity money into the country. For Warburg Pincus, which sold its last tranche of Bharti in 2005 to Vodafone, the Bharti investment is one of the most successful in its history of private equity investing.

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