• ICRA has a positive outlook on the Indian hotel industry
• Industry operating metrics returned to pre-Covid levels in FY2023. The occupancy is expected to be at decadal highs in FY2024, but the RevPAR is expected to remain at a 20-25% discount to the FY2008 peak
• Supply is expected to grow at a 3-year CAGR of 3.5-4%, adding approximately 15,500 premium rooms, and lag demand over the medium term

ICRA expects the Indian hotel industry to report a 13-15% revenue growth in FY2024, notwithstanding the potential impact on demand with further Covid waves, if any. The demand recovery has been strong in the last one year, and ICRA anticipates it to continue in FY2024 as well. Sustenance of domestic leisure travel, higher bookings from meetings, incentives, conferences, and exhibitions (MICE), and business travel, along with an increase in foreign tourist arrivals (FTAs), would support revenues. The industry is also likely to benefit from specific events like the G20 summit and the ICC World Cup 2023. ICRA estimates pan-India premium hotel occupancy at ~70-72% in FY2024, after recovering to 68-70% in FY2023. Pan-India premium hotel average room rates (ARRs) are expected to be at ~Rs. 6,000-6,200 in FY2024. While the occupancy is expected to be at decadal highs, the RevPAR is expected to remain at a 20-25% discount to the FY2008 peak.

Demand in leisure destinations has been strong since Q3 FY2022, while markets like Chennai and Hyderabad have benefitted in FY2023 from MICE (including weddings) and pick-up in business travel. However, FTAs are yet to reach pre-pandemic levels. Gateway cities like Mumbai and Delhi reported occupancy of over 75% in FY2023. Pune and Bengaluru, which are business travel markets with a large part of the demand from the service sectors, have also picked up in the last few months, although they still lag behind other markets. The ARRs have also inched up sharply across markets, consequent to the demand improvement. However, despite this, the ARRs remain lower than the FY2008 peak. The sharp rise in ARRs of premium hotels also resulted in the spillover of demand to mid-scale hotels.

 said,“Sustenance of a large part of the cost-rationalisation measures undertaken during the Covid period, along with operating leverage benefits, resulted in a sharp expansion in margins. ICRA’s sample comprising 12 large hotel companies is expected to report operating margins of 28-30% for FY2023, against 20-22% pre-Covid. While there could be some moderation in margins from the current levels with an increase in some cost-heads including refurbishment/maintenance, the margins are still expected to be higher than the pre-Covid levels over the medium term.”

Ms. Vinutaa S, Vice President and Sector Head – Corporate Ratings, ICRA Limited,

The healthy demand uptick resulted in a pick-up in new supply announcements and the commencement of deferred projects over the last 6-9 months. However, the hotel supply pipeline is expected to grow only at a three-year CAGR of 3.5-4%, adding approximately 15,500 rooms to the pan-India premium inventory of ~94,800 rooms across 12 key cities in India. This will facilitate an upcycle, as demand improves over the medium term while supply will lag demand. The current inventory growth is significantly lower than the growth of approximately 18% witnessed during FY2009-2013, after the global financial crisis.

“ICRA expects the uptick in earnings and cashflows to support the capital structure going forward. However, strengthening of credit metrics is likely to be gradual owing to the high debt levels and ongoing capital expenditure plans for select players. The asset monetisations, if any, would largely pertain to non-revenue generating assets. Further, even as the industry has started registering operating margins higher than pre-Covid-19 levels, the extent of improvement in return on capital employed (RoCE) remains constrained by the high capital cost of new properties owing to high land and construction cost. The RoCE for ICRA’s sample is likely to remain sub cost of capital at least for FY2024. About 97% of ICRA’s ratings have a Stable outlook at present, similar to pre-Covid levels. The lending environment, which was cautious in FY2022, has improved considerably in the last three quarters, with sharp uptick in the industry operating metrics”, 

Ms. Vinutaa S, Vice President and Sector Head – Corporate Ratings, ICRA Limited,

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