With pan-India premium hotel occupancy set to be around 70 to 72 per cent in the financial year 2024-25, the Indian hotel industry is expected to grow by 7 to 9 per cent on a year-on-year (YoY) basis in FY 2025, according to Icra. Spiritual tourism and tier-II cities are expected to be the drivers of growth in this sector, as per the report by Icra.
Sustenance of domestic leisure travel, demand from meetings, initiatives, conferences and exhibitions (MICE), along with weddings and business travels are likely to contribute meaningfully in driving the demand in FY2025, Icra noted.
After a healthy FY 2024, the pan-India premium hotel occupancy is expected to be in a range of 70 to 72 per cent for the year and the average room rates (ARRs) are likely to increase to Rs 7,800 to 8,000 in FY25. The spike in ARRs in specific pockets and hotels has been higher than average, with some even crossing the FY2008 levels in FY24. In the previous fiscal year, the revenue per available room (RevPAR) was at an 8 to 12 per cent discount to the FY 2008 peak. As per Icra estimates, the RevPAR in FY 2025 is likely to move towards the FY 2008 levels.
Along with robust margins, Icra expects an improvement in accruals. The coverage metrics are also in line to improve further in FY25. The credit ratio has registered more upgrades than downgrades from FY23 to Q1FY25. However, the supply which is likely to increase at a compound annual growth rate (CAGR) of 4.5 to 5 per cent over the medium term, would lag demand.
Icra noted that the hotels which adopted the asset-light mode for expansion over the last few years have witnessed improvements in return on capital employed (RoCE), aided by strong accruals. On the other hand, the asset-heavy expansion cases have led to constraints in RoCE due to the high capital cost of new properties.
