India's hotel sector anticipates a varied performance in FY25, starting with a challenging June quarter due to factors like general elections and seasonal impacts. Preliminary data shows a slowdown in revenue per available room (RevPAR) and average room rate (ARR) growth compared to earlier periods. However, optimism prevails for the latter half, buoyed by strong growth foundations from previous years. Analysts foresee increased corporate travel, MICE segment growth, and resurgence in domestic and international tourism driving recovery. Major hotel chains like IHCL and Chalet Hotels plan substantial expansions, signaling confidence in long-term sectoral resilience amidst short-term market fluctuations.
India's hotel industry is expected to experience a mixed performance in the coming financial year (FY25) starting April 2024. While a slow start is anticipated, analysts predict a strong rebound in the latter half.
The June quarter (QI FY25) might be a challenge for hotels. General elections scheduled for May 2025 and the harsh summer season could lead to subdued demand, impacting revenue per available room (RevPAR). Data from hotel analytics firm STR suggests a slowdown in RevPAR and average room rate (ARR) growth compared to earlier quarters. In May 2024, the industry saw RevPAR and ARR growth of only 3% year-on-year (y-o-y) compared to 5-6% growth earlier in the quarter and a significant 12% growth in the previous quarter (Q4 FY24).
The industry is expected to pick up pace by the second quarter (July-September 2024) and maintain momentum throughout the second half of FY25. This optimism stems from a strong base established by recent years' growth. For instance, The Indian Hotels Company Ltd (IHCL) is confident of achieving double-digit growth in consolidated revenue during FY25 after clocking a healthy 16.5% growth in FY24.
Analysts anticipate favorable conditions in the hospitality sector over the next few years, driven by a projected rise in demand surpassing supply. Factors contributing to this optimistic outlook include the anticipated increase in corporate travel, growth in the meetings, incentives, conferences, and exhibitions (MICE) segment, and a rising trend in spiritual tourism and domestic travel. Additionally, there is expected to be a rebound in foreign tourist arrivals as pent-up demand post-pandemic drives international travel. The growing popularity of destination weddings is also set to contribute positively to hospitality sector growth, highlighting a diverse range of factors boosting demand across various segments.
Hotel companies are expanding their footprints to capitalize on these prospects. IHCL plans to open 25 new hotels in FY25, adding to their existing portfolio of 218 operational hotels and a 92-hotel pipeline as of March 2024. Chalet Hotels Ltd is planning significant capital expenditure of INR 1,500 crore to INR 2,000 crore (USD 187.5 million to USD 250 million) over the next three years to fuel their expansion. Lemon Tree Hotels Ltd's inventory stood at 9,863 rooms at March-end and it has an additional 4,000 rooms in the pipeline.
While the long-term prospects for the hospitality sector appear promising, investors are urged to consider several short-term factors. Hotel company stocks such as IHCL, EIH Ltd, Chalet Hotels, and Lemon Tree have shown substantial gains over the past year, ranging between 60% to 115%. However, these elevated valuations could potentially constrain near-term upside potential. Looking ahead to FY26, investors should carefully evaluate whether the current growth momentum will sustain or plateau. Key considerations include monitoring cost pressures, particularly related to employee wages, which will be critical in determining future profit margins.
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