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Hotel Industry Growth Continues To Trudge Despite All Right Signals: ICRA

Revenue growth for the industry sample remained subdued with the adjusted (for renovation/ sale of hotels) industry revenue witnessing 2 per cent growth during the quarter

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The domestic hotel industry continues to grow at a slow pace despite the strong demand growth for rooms. According to an ICRA note, pan-India average occupancy and Average Room Rate (ARR) in the industry witnessed a marginal improvement of 1-2 per cent driving Revenue per Available Room (RevPAR) for Q1 FY2018 up by 3 per cent.

The RevPAR has been growing on a year-on-year basis for the past 12 quarters. Despite the continued occupancy traction and the marginal improvement in ARRs, a healthier traction in ARR is necessary over the coming quarters to generate adequate returns, considering the significant capital investments undertaken by the industry.

Revenue growth for the industry sample remained subdued with the adjusted (for renovation/ sale of hotels) industry revenue witnessing 2 per cent growth during the quarter. On an unadjusted basis, industry revenue declined by 2.3 per cent during the quarter (compared to a growth of 2.6 per cent in Q1 FY2017 and decline of 4.3 per cent in Q4 FY2017).

Continuing the trend over the previous three quarters, Q1 FY2018 operating margins improved by 90 basis point aided by cost controls; operating margins for Q1 FY2018 stood at 12.6 per cent (11.7 per cent in Q1 FY2017). As the industry pared some debt during FY2017, using proceeds from sale of assets, interest expenses have declined.

However, at 63 per cent of OPBDITA in Q1 FY2018 (Q1 FY2017: 96 per cent), interest expense continues to eat into bulk of the operating profits and is a major concern.

Says ICRA’s Sr. Group Vice President, Corporate Sector ratings, Subrata Ray, “ICRA’s premium room inventory database across the country indicates 4.4 per cent compounded annual growth in supply during the period FY2017-FY2020; the expected growth is lower than the supply addition witnessed in the last 6-7 years.”

“With no large project announcements over the past year, muted supply pipeline is expected to be the backbone for the current up-cycle, even as demand continues to grow by about 12- per cent plus, led by slow recovery in the domestic economy, increasing foreign tourist arrivals, and higher meeting, incentives, conferences and exhibition activity.


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