India's hotel industry is likely to report double-digit revenue growth of 13-15% in 2023-24, aided by specific events like the G20 summit and the ICC World Cup 2023, according to ICRA.

The demand recovery has been strong over the past year, and the rating agency anticipates it to continue in FY24 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, would support revenues, ICRA says in a report.

The rating agency 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 FY24.

While the occupancy is expected to be at decadal highs, the revenue generated per available room is expected to remain at a 20-25% discount to the 2008 peak, says ICRA.

"Demand in leisure destinations has been strong since Q3 FY2022, while markets like Chennai and Hyderabad have benefitted in FY2023 from MICE (including weddings) and pick-up in business travel. However, FTAs are yet to reach pre-pandemic levels. Gateway cities like Mumbai and Delhi reported occupancy of over 75% in FY2023. Pune and Bengaluru, which are business travel markets with a large part of the demand from the service sectors, have also picked up in the last few months, although they still lag behind other markets," the report says.

ICRA's sample comprising 12 large hotel companies is expected to report operating margins of 28-30% for FY23 as against 20-22% before Covid-19.

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, says Vinutaa S, vice president and sector head – Corporate Ratings, ICRA.

While there could be some moderation in margins from the current levels with an increase in some cost-heads including refurbishment or maintenance, the margins are still expected to be higher than the pre-Covid levels over the medium term, she adds.

The healthy demand uptick resulted in a pick-up in new supply announcements and the commencement of deferred projects over the last 6-9 months, according to ICRA.

However, the hotel supply pipeline is expected to grow only at a three-year Compound Annual Growth Rate (CAGR) of 3.5-4%, adding approximately 15,500 rooms to the pan-India premium inventory of around 94,800 rooms across 12 key cities in India, the rating agency says.

"This will facilitate an upcycle, as demand improves over the medium term while supply will lag demand," it says, adding that the current inventory growth is significantly lower than the growth of approximately 18% witnessed during FY2009-13, after the global financial crisis.

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