Indian Hospitality Industry To Grow By 7-9% YoY In FY25: Report

Driven by the sustenance of domestic leisure travel, demand from meetings, incentives, conferences and exhibitions (Mice), including weddings and business travel, the Indian hospitality industry is expected to grow by 7 to 9 per cent in the current financial year (FY25), according to a report by Icra. Spiritual tourism and tier-2 cities are set to contribute significantly in FY25.

As per the report, the Sustenance of a large part of the cost rationalisation measures taken during the covid-19 period and operating leverage benefits led to a sharp expansion in margins over pre-covid levels. Icra has expected the pan-India premium hotel occupancy to be at around 70 to 72 per cent in FY25, while the pan-India premium hotel average room rates (ARRs) may rise to Rs 7,800 to Rs 8,000 in FY25, up by 8 per cent YoY.

Despite the improvement in ARRs, the revenue per available room (RevPAR) is expected to have been at an 8 to 12 per cent discount compared to the FY2008 peak in FY24. The spike in ARRs in some hotels and specific pockets has been higher than the average, with a few outliers crossing the FY2008 peak in FY2024.

Going forward, debt coverage metrics are likely to improve further. As per Icra, the credit ratio has been improving since H2 FY22, with significantly more upgrades than downgrades during FY23 to year-to-date (YTD) FY25. Icra expects demand to remain stable in FY2025. Along with robust margins, this would result in an improvement in accruals. Icra has a ‘positive’ outlook on the Indian Hospitality Industry.

The demand uptick led to a pick-up in supply notifications and the commencement of deferred projects in the last 24-30 months. However, supply, which is expected to increase at a compound annual growth rates (CAGR) of 4.5-5 per cent over the medium term would lag demand.