BackIndian hotels set for 13-15% revenue growth in FY24 led by demand, says report
Although operating margins are higher than pre-Covid levels, the return on capital employed (RoCE) remains constrained by high capital costs of new properties due to elevated land and construction expenses
PremiumNew Delhi: The Indian hotel industry will likely register 13-15% revenue growth in FY24, despite potential demand impacts from further Covid waves, according a report by ratings agency Icra Ltd. The recovery in demand has been robust over the past year and is expected to continue in FY24, driven by domestic leisure travel, higher bookings from MICE events, business travel, and a moderate increase in foreign tourist arrivals. The industry may also benefit from events such as the G20 summit and ICC World Cup 2023.
Icra estimates premium hotel occupancy in India to reach 70-72% in FY24, with average room rates at premium hotels expected at ₹6,000 to ₹6,200. Although occupancy is predicted to hit decadal highs, revenue per available room will likely remain 20-25% below the FY08 peak.
Demand in leisure destinations has been strong since Q3 FY22, while markets like Chennai and Hyderabad have benefitted in FY2023 from MICE (including weddings) and pick-up in business travel. However, foreign tourist arrivals are yet to reach pre-pandemic levels.
Mumbai and Delhi reported over 75% occupancy in FY23, while business travel markets Pune and Bengaluru have seen a recent uptick but still lag behind other markets.
Vinutaa S, vice president and sector head of corporate ratings at Icra, noted that cost-rationalization measures during the Covid period and operating leverage benefits have led to a significant margin expansion.
“The sample we took comprises 12 large hotel companies and is expected to report operating margins of 28-30% for FY23, against 20-22% pre-Covid. While there could be some moderation in margins from the current 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," she added.
The increase in demand has spurred new supply announcements and deferred projects in the last six to nine months. However, the hotel supply pipeline is expected to grow at a three-year CAGR of 3.5-4%, adding around 15,500 rooms to the pan-India premium hotel room inventory of 94,800 rooms across 12 major cities.
This will facilitate an upcycle, as demand improves over medium term and supply lags. The current inventory growth is significantly lower than the estimated 18% increase witnessed during FY09-13, after the global financial crisis.
Although operating margins are higher than pre-Covid levels, the return on capital employed (RoCE) remains constrained by high capital costs of new properties due to elevated land and construction expenses. The RoCE for Icra’s sample is expected to remain below the cost of capital for this fiscal, while about 97% of its ratings maintain a stable outlook, comparable to pre-Covid levels. The lending environment has improved in the past three quarters, reflecting the industry’s strong operating metrics.
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