Indian hotel industry is expected to report double-digit revenue growth in the financial year 2023-24, supported by the sustenance of domestic leisure travel, demand from meetings, incentives, conferences, and exhibitions (MICE), and business travel, along with an increase in foreign tourist arrivals (FTAs), according to a latest report by ICRA.

As per the report, the hotel industry has also benefitted from the G20 summit and the ongoing ICC World Cup 2023. Adding to it, factors including improvement in infrastructure and air connectivity, favourable demographics, and anticipated growth in large-scale MICE (Meetings, Incentives, Conferences, and Exhibitions) events with the opening of multiple new convention centres in the last few years, augur well for the demand in medium-term.

ICRA estimates pan-India premium hotel occupancy at around 70-72% in FY24, after recovering to 68-70% in FY23. Pan-India premium hotel average room rates (ARRs) are expected to be at around ₹6,000-6,200 in FY224.

While the occupancy is expected to be at decadal highs, the revenue per available room (RevPAR) is expected to remain at a 20-25% discount to the FY08 peak, the report notes.

As per ICRA report, the healthy demand amid relatively lower supply would lead to higher ARRs. Larger players would also benefit from revenues or share of profits generated from hotel expansions through management contracts and operating leases.

Vinutaa S, Vice President and Sector Head – Corporate Ratings, ICRA, said, “Demand is expected to remain strong across markets in FY24 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, although FTAs are likely to pick up in H2 FY24. Mumbai and Delhi, being gateway cities, are likely to report occupancy north of 75% in FY24, benefitting from transient passengers, business travellers, and MICE events. While Pune and Bengaluru could be laggards compared to other markets, they are also expected to witness significant improvement in FY24 compared to FY23,” Vinutaa adds.

The report highlights that sustenance of a large part of the cost-rationalisation measures undertaken during the Covid period, along with operating leverage benefits, has resulted in a sharp expansion in margins compared to pre-Covid levels. The staff-to-room ratio remains around 15-20% lower than pre-Covid levels.

It further states that companies have increased their usage of renewable power while pass-through of the cost inflation and strict control on fixed costs increase have also supported margins. Asset-light expansions have been margin-accretive for larger hotel chains. However, there could be some moderation in margins from the FY23 levels with hotels undertaking renovations and maintenance activities, albeit significantly higher than the pre-Covid levels.

ICRA’s sample comprising 12 large hotel companies is expected to report operating margins of 25-28% for FY24, as against 28-30% for FY23 and 20-22% pre-Covid. De-leveraging of balance sheets has led to lower interest costs and would support net margins, the report notes.

“ICRA expects the uptick in earnings and cashflows to support the capital structure going forward. The asset monetisations, if any, would largely pertain to non-revenue generating assets. Debt metrics for hoteliers are expected to be better than pre-Covid levels in FY24. The extent of improvement in return on capital employed (RoCE) would, however, depend on expansion strategy and could be constrained by the high capital cost of new properties owing to increased land and construction cost, in case of asset-heavy expansion,” says Vinutaa.

The report says that healthy demand uptick has resulted in a pick-up in supply announcements and the commencement of deferred projects in the last 12-15 months. However, supply, which is expected to grow at a CAGR of 3.5-4% over the medium term, would lag demand. Land availability issues currently constrain supply addition in premium micro-markets in metros and larger cities. Addition to premium hotel supply in these areas is largely on account of rebranding or property upgradation and greenfield projects are largely in suburbs. 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 adds. 

Given the positive outlook for hotel industry in the medium term, SAMHI Hotels, the owner of the largest number of Marriott and IHG -operated hotels in India, launched its IPO, which garnered decent response from investors. The company raised ₹1,370 crore from its public offering at a price band of ₹119-126. This was the second largest IPO in the hotels & resorts sector after Chalet Hotels’ ₹1,641 crore offering in February 2019. Before Chalet, Lemon Tree Hotels raised ₹1,039 crore via the IPO route in April 2018.

Apeejay Surrendra Park Hotels, which owns and operates hotels under the "The Park" brand, is also coming with ₹1,050 crore IPO, comprising fresh equity issue of ₹650 crore and an offer for sale (OFS) of ₹400 crore by promoters.

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