Hotel industry continues to see healthy growth; outlook looks positive going ahead in 2025

The hotel industry continues to look healthy in India with November occupancy rates increasing by 8-10 percentage points year-on-year (YoY) and 10-12 percentage points compared to the previous month. In November, the strong growth in ARR (average room rent), saw a 11-13 per cent rise compared to the previous year, further bolstering RevPAR (revenue per available room), and driving overall performance upward.

As per the latest HVS ANAROCK Hospitality Monitor, Mumbai led the market with an impressive occupancy rate of over 80 per cent, fueled by the MICE segment and high-profile events such as the Dua Lipa’s concert at the end of the month.

As per the monitor, Pune recorded the highest occupancy growth, with an increase of 12-14 percentage points, driven primarily by the India International Travel Mart 2024 hosted in the city. Bengaluru, Jaipur, and Chandigarh also reported double-digit occupancy growth compared to the previous year. All key markets witnessed significant increases in occupancy rates compared to the same period last year.

In November 2024, nearly all major markets, except Ahmedabad and Kolkata, recorded an increase in average rates compared to the previous year. The HVS ANAROCK Monitor also observes that ITC Ltd, which is demerging its hotels business from January 2025, announced that it has acquired shares of rival hospitality chains Oberoi and Leela from its wholly-owned arm, Russell Credit Ltd.

The Adani Group plans to spend $2 billion to build Mumbai's largest international convention centre (ICC) near the international airport that it also operates. This may further boost the sector.

In an earlier report, CRISIL noted that branded hotels are expected to log double-digit growth this fiscal and the next. CRISIL observed that branded hotels will witness double-digit revenue growth of 13-14 per cent this fiscal and 11-12 per cent in the next fiscal. This is fuelled by demand outpacing supply. The CRISIL report further noted that while domestic leisure and business travel will continue to be the primary demand drivers, growing traction in MICE (meetings, incentives, conventions and exhibitions) segment and pickup in foreign tourist arrivals will provide an additional fillip.

The CRISIL report said all this comes on the back of a strong 17 per cent growth recorded last fiscal. In order to meet increasing demand, the pace of room additions, which has increased since last fiscal, is expected to pick up further, majorly through the asset-light management contract route. As a result, supply will increase by a cumulative 20 per cent over this fiscal and the next.

As per the report, operating margin is expected to improve by 100-150 basis points (bps) this fiscal and sustain at similar levels in the next, with benefits of operating leverage kicking in and other cost optimisation measures undertaken. Strong cash flows, asset-light expansion and sizeable equity raising will keep debt levels under check, thereby strengthening credit profiles. A CRISIL Ratings analysis of 52 branded hotel companies, accounting for 43 per cent of total rooms, indicates as much.

“The domestic leisure segment will continue to drive growth on the back of rising travel aspirations and better regional connectivity. Further, 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. These factors will drive up the average room rates (ARRs) of branded hotels by 6-7 per cent this fiscal on an already high base. That said, growth in ARRs is expected to moderate to 3-4 per cent next fiscal as significant room capacities come up,” remarked Mohit Makhija, senior director, CRISIL Ratings.

The number of branded-hotel rooms is slated to rise 8-9 per cent this fiscal and 11-12 per cent in the next, with leisure and non-metro destinations accounting for 65 per cent of additions. The top seven metros, which offer scope for both leisure and business activities, will account for 25 per cent of additions. The balance additions are expected in up-and-coming spiritual tourism destinations.

As per experts from CRISIL, the hotel industry in India is expanding more into non-metros and emerging leisure destinations as travellers seek more choices and infrastructure in these regions improve. Further, as 60-65 per cent 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. Balance expansion will be through asset-heavy route and in destinations with established demand and attractive potential for growth.

As per CRISIL experts, despite these significant room additions, occupancy levels are expected to remain strong at 74-75 per cent next fiscal, declining a modest 50 bps after increasing 100-150 bps this fiscal. This will allow hotels to benefit from operating leverage which coupled with effective cost management, including higher adoption of technology and manpower rationalisation to move to a leaner fixed cost structure, will lead to earnings before interest, tax, depreciation and amortisation (Ebitda) margin expand by 100-150 bps to 33-34 per cent this fiscal and the next.

A decline in business travel due to an economic downturn and in leisure travel owing to a surge in airfares may be challenges for the sector.