Hotel industry expected to witness revenue growth of 7-9% in FY2025: ICRA - Hindustan Times
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Hotel industry expected to witness revenue growth of 7-9% in FY2025; spiritual tourism to drive demand

Feb 20, 2024 04:13 PM IST

Mumbai and NCR, being gateway cities, likely to report occupancy north of 75% in FY2024 and FY2025, benefitting from transient passengers, business travelers

The Indian hotel industry is expected to witness a 7-9% revenue growth in FY2025, over the 14-16% growth expected in FY2024. 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, a report by ratings agency ICRA has said.

The Indian hotel industry is expected to witness a 7-9% revenue growth in FY2025, over the 14-16% growth expected in FY2024, a report by ICRA has said.
The Indian hotel industry is expected to witness a 7-9% revenue growth in FY2025, over the 14-16% growth expected in FY2024, a report by ICRA has said.

Spiritual tourism and tier-II cities are also expected to contribute meaningfully in FY2025, it said.

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Also Read: Hotel industry homes in on Ayodhya with over 4200 crore projects

Domestic tourism has been the prime demand driver in FY2024 and is likely to remain so in the near term. Foreign Tourist Arrivals (FTA) are yet to recover to pre-Covid levels and the improvement would depend on the global macroeconomic environment, it said.

On the supply side, a large part of the new supply is through management contracts and operating leases. Land availability issues currently constrain supply addition in the premium micro-markets in metros and larger cities. The addition to premium hotel supply in these areas is largely on account of rebranding or property upgradation, and the greenfield projects are largely in the suburbs, it noted.

Sizeable supply announcements are seen in tier-II leisure, business, and religious destinations. There is also an increase in per-room construction cost by 20-25%, with cost inflation, compared to pre-Covid levels, it said.

Also Read: Are gods smiling for real estate investors in Varanasi, Ayodhya, other temple towns?

ICRA estimates pan-India premium hotel occupancy at decadal highs of around 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 around Rs. 7,200-7,400 in FY2024 and rise further to Rs. 7,800-8,000 in FY2025.

The RevPAR (Revenue per available room (RevPAR) is used to measure hotel performance. It is calculated by multiplying a hotel’s average daily room rate (ADR) by its occupancy rate) is expected to be at an 8-12% discount to the FY2008 peak in FY2024 and subsequently converge towards the FY2008 peak in FY2025. However, the spike in ARR in some hotels and specific pockets has been higher than the average levels, with a few outliers even crossing the FY2008 peak in FY2024.

Also Read: Ayodhya to get mega tourism push, 5-star hotel near Ram temple

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. The healthy demand amid relatively lower supply would lead to higher (average room rates) ARRs, the report said.

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 showed.

“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,” said Vinutaa S, Vice President and Sector Head – Corporate Ratings, ICRA Limited.

“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.

The healthy demand uptick has resulted in a pick-up in supply announcements and commencement of deferred projects in the last 18-24 months. The premium supply pipeline for FY2024-FY2026 has increased by 25-30% compared to that anticipated for the same period a year ago because of fresh signings and announcements, the report said.

Several global hotel brands have made their entry into India

Several global brands have made their entry into India. However, supply, which is expected to grow at a CAGR of 4.5-5% over the medium term, would lag demand. Compared to the downcycle in FY2009, which saw untimely supply increases of over 15% of the inventory at the bottom of the cycle during FY2009-2013, the current low inventory growth is expected to support the upcycle as demand improves over the medium term, she said.

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