Branded Hotels Sector To End FY25 With 13–14% Revenue Growth, Says Crisil Ratings

The branded hotels sector will end fiscal 2025 with a double-digit revenue growth of 13–14%, according to a Crisil Ratings report.

And, in the next financial year, the sector will witness 11–12% growth, it added. The study also stated that in the previous fiscal, the segment had registered 17% growth.

The ratings agency pointed to domestic leisure and business travel as the primary drivers. According to the report, increased activity in the MICE—meetings, incentives, conventions and exhibitions—segment, coupled with a pickup in foreign tourist arrivals, will add some boost.

“The domestic leisure segment will continue to drive growth on the back of rising travel aspirations and better regional connectivity. Further, a positive economic outlook and the government's ‘Meet in India’ initiative to promote corporate events will support the business and MICE segments. Foreign tourist arrivals are also expected to surpass the pre-pandemic levels this fiscal,” Crisil Ratings’ Senior Director Mohit Makhija said.

These factors, he said, will drive up the average room rates of branded hotels by 6-7% this fiscal. However Makhija added, that “growth in ARRs is expected to moderate to 3–4% next fiscal as significant room capacities come up. These factors will boost the revenue growth by 13–14% this fiscal and 11–12% in the next”.

According to the report, the adoption of asset-light management contract route will help pick up the pace of room additions further from last fiscal. As a result, supply will increase by 20% over this fiscal and the next.

"As 60-65% of room additions, over this fiscal and the next, are being done through an asset light route, it eliminates the need for large upfront investment and helps navigate business cyclicality better," the ratings agency’s Associate Director Pallavi Singh said.

While Crisil expects the hotel industry’s operating margin to improve by 100–150 basis points this fiscal, it added that they should sustain at similar levels in the next year too.

Crisil further said strong cash flows, asset-light expansion and sizeable equity raising will keep debt levels under check, hence, strengthening credit profiles.

The report expects the number of branded hotel rooms to rise 8–9% this fiscal and 11–12% in the next. And, leisure and non-metro destinations will account for 65% additions.

Of these additions, 25% will be in the top seven metros that offer scope for leisure and business activities. The upcoming spiritual tourism destinations will contribute towards the balance.

“The hotel industry is expanding more into non-metros and emerging leisure destinations as travellers seek more choices, and infrastructure in these regions improve,” Singh added.

Despite these significant room additions, occupancy levels are expected to remain strong at 74–75% next fiscal, declining by a modest 50 basis points after increasing 100–150 bps this fiscal.

The report noted that hotels will benefit from operating leverage, which in addition to effective cost management, could result in earnings before interest, tax, depreciation and amortisation margin expansiong of 100–150 bps to 33–34% this fiscal and the next. Cost management initiatives could include higher adoption of technology and manpower rationalisation to move to a leaner fixed cost structure.

However, it warned that a surge in airfares could affect leisure travel, while an economic downturn could result in a decline in business travel.

With PTI inputs