The Indian hotel industry, once grappling with the aftermath of a two-and-a-half-year-long pandemic-induced slump, is now experiencing a renaissance as it rides a wave of increased tourism, major events, and growing demand from both corporate and leisure travellers.

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The G20 summit, the ongoing ICC Cricket World Cup 2023, the upcoming festive season, and the arrival of Christmas and New Year's holidays are set to keep the positive momentum alive.

According to estimates by ICRA (Investment Information and Credit Rating Agency), premium hotel occupancy across India is projected to reach 70-72% in the fiscal year 2024, after recovering to 68-70% in FY2023.

This resurgence has also led to an increase in average room rates (ARRs), expected to hover ₹6,000-6,200 in FY24. Despite this surge in demand, the revenue per available room (RevPAR) is projected to remain 20-25% below the peak levels of FY08.

The promising outlook for the medium term is supported by several factors, including improved infrastructure and air connectivity, favourable demographics, and the growth of large-scale MICE (Meetings, Incentives, Conferences, and Exhibitions) events, with the opening of new convention centres in recent years.

"Demand is expected to remain strong across markets in FY24 as consumer sentiments continue to be healthy, and corporate performance is stable. Domestic tourism will play a vital role, with foreign tourist arrivals expected to pick up in the second half of FY24. Gateway cities like Mumbai and Delhi are projected to report occupancies exceeding 75% in FY2024, driven by transient passengers, business travellers, and MICE events," said Vinutaa S, Vice President and Sector Head – Corporate Ratings at ICRA Limited.

Pune and Bengaluru, although lagging compared to other markets, are expected to see significant improvements in FY24 compared to FY23. While ARRs may remain below the FY08 peak, they will witness a healthy year-over-year increase.

The spike in ARRs for premium hotels has also resulted in a spillover of demand to mid-scale hotels, expanding opportunities in various segments of the hotel industry, added the report.

The continuity of cost-rationalization measures adopted during the pandemic, coupled with operational efficiencies, has led to improved margins compared to pre-COVID levels. The staff-to-room ratio remains 15-20% lower than before the pandemic. Hotels have also increased their usage of renewable power, and they are controlling fixed costs to maintain margins.

Larger hotel chains are benefiting from asset-light expansion strategies, and although there might be some moderation in margins due to renovations and maintenance activities, ICRA's sample of 12 large hotel companies is expected to report an operating margin of 25-28% for FY24.

ICRA anticipates that the upswing in earnings and cash flows will support the capital structure of hoteliers. The extent of improvement in return on capital employed (RoCE) will depend on the expansion strategy.

Deleveraging of balance sheets has led to lower interest costs, strengthening net margins. Debt metrics for hoteliers are expected to be better than pre-COVID levels in FY24, and credit profiles have improved, resulting in upgrades exceeding downgrades in FY23 and YTD FY24.

Currently, 94% of ICRA's ratings are on a stable outlook.

The growing demand has led to a resurgence in supply announcements and the commencement of previously deferred projects in the past year. However, supply, expected to grow at a CAGR of 3.5-4% over the medium term, is anticipated to lag behind demand, partly due to land availability issues in premium micro-markets in major cities.

Supply additions in these areas are primarily attributed to property rebranding or upgrades, with greenfield projects located mostly in the suburbs.

(Edited by : Amrita)