Hotel industry's revenue expected to grow 7-9% in FY25, says ICRA

The Indian hotel industry is expected to report a 7-9 per cent revenue growth in FY2025 with occupancy likely to be at decadal highs, ratings agency ICRA said on Tuesday.

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, ICRA said in a statement.

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

ICRA said 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.

 

"Demand is expected to remain strong across markets in FY2025, as consumer sentiments continue to be healthy and corporate performance is stable," ICRA Ltd Vice President and Sector Head Corporate Ratings Vinutaa S said.

She further said domestic tourism would be the prime driver, with FTA improvement depending on the global macroeconomic environment.

ICRA said it "estimates pan-India premium hotel occupancy at decadal highs of (around) 70-72 per cent in FY2024 and FY2025, after recovering to 68-70 per cent 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, it added.

"The RevPAR (revenue per available room) is expected to be at an 8-12 per cent discount to the FY2008 peak in FY2024 and subsequently converge towards the FY2008 peak in FY2025," the ratings agency said.

It, however, pointed out that 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.

On the demand outlook over the medium term, ICRA said it 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 ARRs.

Several hotels are also undergoing renovation, refurbishment, and upgradation, and these are likely to support the ARRs further going forward, it added.

Vinutaa 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 per cent compared to that anticipated for the same period a year ago because of fresh signings and announcements. Several global brands have made their entry into India, " she said.

However, she added that supply which was expected to grow at a CAGR of 4.5-5 per cent over the medium-term would lag demand.

The ratings agency said 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.