Premium Hotel Inventory May Rise 3.5-4% This Financial Year, Says Report

Premium hotel inventory is likely to increase 3.5-4 per cent in the current fiscal with an addition of around 15,500 rooms amid recovery in demand, according to a report.

In its report on Wednesday, rating agency Icra said the demand recovery has been better than expected in the last few months, aided by domestic leisure travel, pent-up demand from meetings, incentives, conference and events, including weddings, and gradual recovery in business travel and foreign tourist arrivals.

"The healthy demand uptick has resulted in a pick-up in new supply announcements over the last 4-5 months. Further, construction activity in projects stalled post Covid has also commenced recently.

"However, the hotel supply pipeline is expected to grow only at a 5-year CAGR of 3.5-4 per cent, adding approximately 15,500 rooms to the pan-India premium inventory of 94,800 rooms across 12 key cities in India," Icra Vice President and Sector Head - Corporate Ratings, Vinutaa S said.

She also said the current inventory growth is significantly lower than the growth of approximately 18 per cent witnessed during FY 2009-2013 period after the global financial crisis.

As per the report, pan-India premium hotel occupancy is expected to be 68-70 per cent while the average room rate is projected to hover around Rs 5,600-5,800 this fiscal.

Till October 2022, occupancy stood at 62-64 per cent while the average room rate for the first seven months of FY23 was only at an 8-10 per cent discount to pre-Covid levels and stood at Rs 5,000-5,200.

The improved operating leverage along with the sustenance of cost-optimisation measures will support margins and cash flows for hotel companies, the report said.

According to the report, the incremental premium supply is concentrated in select markets, with Mumbai and Bangalore accounting for a bulk of the upcoming inventory. There are also sizeable supply announcements in tier-II leisure and religious destinations, it added.

Rebranding has also been prevalent and that a significant part of the pipeline is also expected to be through management contracts and operating leases, the report said.

Icra has a stable outlook for the Indian hotel industry.

"There is an improvement in the credit ratio in YTD FY23, with upgrades trumping downgrades in the current year. We expect the industry credit metrics to return to pre-Covid levels in this fiscal, although Return on Capital Employed (RoCE) will continue to remain suboptimal for the next few years," Vinutaa said.

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)