Branded hotels to log 13-14% growth in FY25 on demand surge: CRISIL report

Branded hotels in the country are likely to see double-digit revenue growth of 13-14 per cent in 2024-25, and 11-12 per cent in the next financial year on demand surge, a report said on Thursday.

While domestic leisure and business travel will continue to be the primary demand drivers, growing traction in the MICE (meetings, incentives, conventions and exhibitions) segment and pickup in foreign tourist arrivals will provide additional fillip, Crisil Ratings said in a report.

The branded hotels segment registered a strong 17 per cent growth last fiscal, it added.

To meet the increasing demand, the pace of room additions, which has increased since last fiscal, is expected to pick up further and majorly through the asset-light management contract route, it said.

 

As a result, supply will increase by 20 per cent over this fiscal and the next, it added.

Operating margin is expected to improve by 100-150 basis points (bps) this fiscal and sustain at similar levels in the next, it stated.

Crisil Ratings further said strong cash flows, asset-light expansion and sizeable equity raising will keep debt levels under check, hence, strengthening credit profiles.

"The domestic leisure segment will continue to drive growth on the back of rising travel aspirations and better regional connectivity. Further, a positive economic outlook and the government's 'Meet in India' initiative to promote corporate events will support the business and MICE segments. Foreign tourist arrivals are also expected to surpass the pre-pandemic levels this fiscal," Crisil Ratings Senior Director Mohit Makhija said.

These factors, he said, will drive up the average room rates (ARRs) of branded hotels by 6-7 per cent this fiscal.

"That said, growth in ARRs is expected to moderate to 3-4 per cent next fiscal as significant room capacities come up. These factors will boost the revenue growth by 13-14 per cent this fiscal and 11-12 per cent in the next," he added.

The report said, the number of branded-hotel rooms is slated to rise 8-9 per cent this fiscal and 11-12 per cent in the next, with leisure and non-metro destinations accounting for 65 per cent of additions.

The top seven metros, which offer scope for both leisure and business activities, will account for 25 per cent of these additions, it said, adding that the balance are expected in the up-and-coming spiritual tourism destinations.

"The hotel industry is expanding more into non-metros and emerging leisure destinations as travellers seek more choices and infrastructure in these regions improve. Further, as 60-65 per cent of room additions, over this fiscal and the next, are being done through an asset light route, it eliminates the need for large upfront investment and helps navigate business cyclicality better," Crisil Ratings Associate Director Pallavi Singh said.

Despite these significant room additions, occupancy levels are expected to remain strong at 74-75 per cent next fiscal, declining a modest 50 bps after increasing 100-150 bps this fiscal.

This will allow hotels to benefit from operating leverage which coupled with effective cost management - including higher adoption of technology and manpower rationalisation to move to a leaner fixed cost structure - will lead to earnings before interest, tax, depreciation and amortisation (Ebitda) margin expand by 100-150 bps to 33-34 per cent this fiscal and the next, the report added.

However, a decline in business travel due to an economic downturn and in leisure travel owing to a surge in airfares will need to be watched out.