Indian hotels to witness decadal-high occupancy of 70-72% in FY24

New Delhi: India’s hotel occupancies are likely to see a spurt from the slow introduction of room supply which is likely to grow at a three-year CAGR of 3.5-4%, adding approximately 15,000-16,000 premium branded rooms. Gateway cities like Delhi and Mumbai are likely to top the occupancy chart above 75% this fiscal. Demand is expected to remain healthy across markets, although Bengaluru and Pune are likely to be laggards compared to other key cities.

According to credit ratings agency Icra Ltd, pan-India premium hotel occupancy will hover at an all-time high of 70-72% in FY24, after recovering to 68-70% in the previous fiscal.

Across India, premium hotel average room rates (ARRs) are expected to be at ₹6,000-6,200 in this fiscal and the occupancy is expected to be at decadal highs. The RevPAR is expected to remain at a 20-25% discount to the FY08 peak.

Consistent improvement in consumer sentiments despite the inflationary environment, stable corporate performance, and domestic air passenger traffic inching above pre-covid levels augur well for travel and hotel demand.

The demand recovery has been strong in the last one year, and it anticipates it to continue in this fiscal as well. Sustenance of domestic leisure travel, higher bookings from meetings, incentives, conferences, and exhibitions (MICE), and business travel, along with an increase in foreign tourist arrivals (FTAs), would support demand. The industry is also likely to benefit from specific events like the G20 summit and the ICC World Cup 2023.

While the G20 summit would support occupancy across cities in FY24, improved economic activity and business associations stemming from these meetings are likely to translate into incremental demand for hotels over the medium term. It expects an improving trend in ARRs as well across markets in FY2024, driven by healthy occupancy. Further, mid-scale hotels have also witnessed traction across cities and are likely to continue reporting healthy ARRs and occupancy this year, observed Vinutaa S, vice president and sector head, corporate ratings at the firm said

It estimates a 13-15% revenue growth for the Indian hotel industry in FY24, notwithstanding the potential impact on demand from exogenous shocks, if any.

Sustenance of a large part of the cost-rationalisation measures undertaken during the Covid period, along with operating leverage benefits, resulted in a sharp expansion in margins. In its sample set, comprising 12 large hotel companies, reported operating margins of 32% for FY23, against 20-22% pre-Covid. While there could be some moderation in margins from these levels with an increase in some cost-heads, including refurbishment/maintenance, the margins are still expected to be higher than the pre-Covid levels over the medium term. The staff-to-room ratio remains below pre-Covid levels and is expected to continue to be so going forward as well. Accordingly, it has a positive business outlook on the Indian hotel industry.

The healthy demand uptick resulted in a pick-up in new supply announcements and commencement of deferred projects over the last 12-15 months. The incremental premium supply is concentrated in select markets, with Mumbai and Bengaluru accounting for a bulk of the upcoming inventory. There are sizable supply announcements in tier-II and religious destinations as well. However, the hotel supply pipeline is expected to grow only at a three-year CAGR of 3.5-4%, adding approximately 15,000-16,000 rooms to the pan-India premium inventory of 95,000 rooms across 12 key cities in India.

This will facilitate an upcycle, as demand improves over the medium term and outpaces supply. The current inventory growth is significantly lower than the expansion of approximately 18% witnessed during FY2009-2013, after the global financial crisis. In terms of trends, rebranding has been prevalent, and a significant part of the pipeline is expected to be through management contracts and operating leases. Also, not many mergers and acquisitions are being witnessed, attributable to demand pick-up, even as ECLGS support for the industry has waned,” Vinutaa reiterated.