The domestic hotel industry is expected to register a top line growth of 10-11 per cent in 2019 than the earlier expectation of 8.5 per cent, according to the rating agency ICRA.
According to the agency, the demand for room is expected to continue to grow by about 8-9 per cent year-on-year over the medium term, led by increasing domestic travel, buoyant meetings, incentives, conferencing and exhibitions (MICE) activity and higher FTAs, despite immediate headwinds from global geopolitical concerns and increasing local airfare.
This is aided by a low supply pipeline and robust domestic travel, which will result in an estimated financial year (FY) 2019 Revenue Per Available Room (RevPAR) growth of 5-6 per cent.
The RevPAR improvement is likely to be driven by an uptick in both Average Room Rates (ARR) and occupancy. Also, the RevPAR for FY 2019 is likely to be the highest since FY2012.
“The industry’s operating margin is expected to improve by approximatly 150 basis point to 21- 21.5 per cent during FY2019E. Margins are expected to continue the growth trajectory during the next few years to hit a high of approx 26 per cent 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,” said Pavethra Ponniah, Vice President and Sector Head - Corporate Sector Ratings, ICRA.
She added that the 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 approx 14 per cent during FY2022.
Demand across cities
According to the agency, the demand in Mumbai will drive ARRs. Healthy demand and limited supply in Delhi (which has about 75 per cent of the NCR inventory) is expected to drive ARRs in the region, while Gurugram would continue to struggle in the immediate term because of the DIAL Aerocity supply.
Hyderabad and Pune are expected to be strong growth markets over the next two years while healthy demand will support Bengaluru, despite heavy supply addition.
ICRA research is currently tracking a premium pipeline inventory of 1,02,400 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, said the statement.