Indian Hotel Industry to Witness High Occupancy in FY2025: ICRA | India Business News – Times of India
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“ Sustenance of domestic leisure travel, demand from meetings, incentives, conferences, and exhibitions (MICE), including weddings and business travel (despite a temporary lull during the election period), are likely to drive demand in FY2025,” it said.Spiritual tourism and tier-II cities are also expected to contribute meaningfully in FY2025. Domestic tourism has been the prime demand driver in FY2024 and is likely to remain so in the near term, it added. But Foreign Tourist Arrivals (FTA) are yet to recover to pre-Covid levels and the improvement would depend on the global macroeconomic environment.
ICRA said it estimates pan-India premium hotel occupancy at decadal highs of about 70-72% in FY2024 and FY2025, after recovering to 68-70% in FY2023. Pan-India premium hotel average room rates (ARRs) are expected to go up to about Rs. 7,200-7,400 in FY2024 and rise further to Rs. 7,800-8,000 in FY2025.
“The demand outlook over the medium term remains healthy, supported by a confluence of factors, including improvement in infrastructure and air connectivity, favourable demographics, and anticipated growth in large-scale MICE events with the opening of multiple new convention centres in the last few years, among others,” it said, adding that the healthy demand amid relatively lower supply would lead to higher ARRs.” Several hotels are also undergoing renovation, refurbishment, and upgradation, and these are likely to support the ARRs further going forward. Larger players would also benefit from revenues/share of profits generated from hotel expansions through management contracts and operating leases,” it said.
Vinutaa S, Vice President and Sector Head
– Corporate Ratings
, ICRA Limited,
said: “Demand is expected to remain strong across markets in FY2025 as consumer sentiments continue to be healthy and corporate performance is stable. Hotel-specific demand would, however, depend on location, competition, and other property-related dynamics. Further, domestic tourism would be the prime driver, with FTA improvement depending on the global macroeconomic environment.” She added that Mumbai and NCR, being gateway cities, are likely to report occupancy north of 75% in FY2024 and FY2025, benefitting from transient passengers, business travellers and MICE events. “The ARRs would witness a healthy YoY increase in FY2024 and FY2025 across markets. This sharp rise in ARRs of premium hotels also resulted in the spillover of demand to mid-scale hotels,” she said.
Sustenance of a large part of the cost-rationalisation measures undertaken during the Covid period, along with operating leverage benefits, has resulted in the sharp expansion in margins compared to pre-Covid levels, the ICRA report said. “The staff-to-room ratio remains ~15-20% lower than the pre-Covid levels. Companies have increased their usage of renewable power while pass-through of the cost inflation and strict control on fixed cost increase have also supported margins.
Asset-light expansions have been margin-accretive for larger hotel chains,” it said, adding that its sample comprising 12 large hotel companies is expected to report strong operating margins of 31-33% for FY2024 and FY2025, against 33% for FY2023 and 20-22% pre-Covid. “However, within the sample, it is likely to be a mixed bag, depending to a certain extent on renovations and increase in employee expenses amidst growing demand. De-leveraging of balance sheets has led to lower interest costs and would support net margins,” it said adding it expects the uptick in earnings and cash flows to support the capital structure going forward.
Debt metrics are expected to be better than pre-Covid levels in FY2024 and are likely to improve further in FY2025. The extent of improvement in return on capital employed (RoCE) would, however, depend on the expansion strategy and could be constrained by the high capital cost of new properties owing to increased land and construction costs in case of asset-heavy expansion. The healthy business accruals have led to improvement in credit profiles in several companies, resulting in upgrades significantly exceeding downgrades in FY2023 and 10M FY2024, it said.
