Increase in demand for rooms coupled with muted supply addition will continue to support the hotel industry's recovery trend till 2021-22, according to a report.
"Hotel occupancies have increased across most markets in the country, supported by slow supply addition and improving demand-supply dynamics. However, this has not supported strong traction in accounting rate of return (ARR) growth as was expected. The ARR growth across markets, during FY18 has been modest," Icra sector head and vice president, corporate sector ratings, Pavethra Ponniah said.
Going by the trends in foreign tourist arrivals (FTA), forex earnings growth and improving economy, Icra expects 5-6 per cent growth in Revenue Per Available Rooms (RevPARs), driven by accounting rate of return (ARR) improvement during FY19, she said.
"The muted supply pipeline will also continue to support increase in occupancies until they peak in FY22 at 69-70 per cent," Ponniah added.
According to an Icra research report, the pan-India demand growth was around 6-6.5 per cent for FY18, slower than the previous year and below expectations.
However, it was higher and continues to out pace the supply growth across markets in FY18.
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Demand is expected to remain healthy with domestic tourist visits (DTV) during CY2017 estimated to have grown by 11-13 per cent, in line with the trends during CY2015 and CY2016.
Domestic Revenue Passenger Kilometre (RPKM), a proxy for domestic travel, continues to exhibit robust growth, annually growing by 22.9 per cent during the first quarter of CY2018.
FTA growth picked up strongly by 15.6 per cent during CY2017, compared to the 9.7 per cent growth during CY2016 and Icra expects it to grow by 10 per cent for CY2018.
Meanwhile, on the supply front the pipeline continued to be muted and is the key reason for the current up cycle.
Icra's expects 5 per cent growth in inventory in FY19 and 3-4 per cent in the subsequent years.
"The expected growth is lower than the 10 per cent annual supply addition witnessed over the last 7-8 years (FY2010-18). Further, there have been no major new project announcements over the last one year. Supply additions are primarily from projects which were announced during the early part of this decade and delayed over a period due to various issues," the report added.