The Indian hotel industry is expected to report a strong topline growth of 10-11 per cent (as against ICRA’s expectations of 8.5%+) during FY2019e, aided by 5-6 per cent growth in RevPAR and increasing F&B (and MICE) income. This compares favourably with the 2.5 per cent reported growth (and ~4% adjusted growth for renovation/closures) during FY2018.
The demand for room is expected to continue to grow by about 8-9 per cent Y-o-Y over the medium term, led by increasing domestic travel, buoyant MICE activity and higher FTAs, despite immediate term headwinds from global geopolitical concerns and increasing local airfare. This aided by a low supply pipeline and robust domestic travel, will result in an estimated FY2019 RevPAR growth of ~5-6 per cent growth. The RevPAR improvement is likely to be driven by uptick in both ARR and occupancy. Also, the RevPAR for FY2019 is likely to be the highest since FY2012.
ICRA research is currently tracking a premium pipeline inventory of 102,400 rooms across 12 key cities, up from 98,900 rooms in November 2018. The assessed supply growth has increased from 5 per cent and 4,600 rooms to 7 per cent and 5,800 keys in FY2020, with the biggest incremental supply happening in NCR and Goa. However, supply is still expected to lag demand and the demand-supply gap will remain the backbone for the current upcycle.
Commenting further on the financial outlook, Pavethra Ponniah, Vice President and Sector Head - Corporate Sector Ratings, ICRA says, “The industry’s operating margin is expected to improve by ~150 bps to 21-21.5% during FY2019E. Margins are expected to continue the growth trajectory during the next few years to hit a high of ~26% during FY2023P. Debt reduction measures undertaken by certain large industry participants have resulted in sizeable reduction in industry leverage levels over the past two years. However capex for larger players in the industry towards building new hotels will be limited, going forward as the Return on capital employed (RoCE) continues to be at sub-cost (lower than cost of) of capital and is expected to remain so at least until FY2020. This will discourage any major investments from these players. RoCE is expected to improve substantially to ~14% during FY2022.”
As per ICRA, though pan-India average occupancy improved marginally by one percentage point Y-o-Y to ~66 per cent in 9M FY2019, monthly occupancies were at the highest levels since FY2009, during 9M FY2019. The Average Room Rate (ARR) grew by ~2-3 per cent to ~Rs. 5,900 in 9M FY2019. RevPAR also continued to improve in 9M FY2019, driven by uptick in ARR and occupancy. The 9M FY2019 RevPAR stood at ~Rs. 3,900 at a Y-o-Y growth of ~4-4.5 per cent. The third quarter, Q3 FY2019 has been the 18th consecutive quarter of RevPAR growth. Although RevPAR growth has been steady over the past four years, the current RevPAR level is at more than 20% discount to the peak levels witnessed in 9M FY2009. All key markets except Chennai and Goa saw improvement in RevPAR in 9M FY2019.