ICRA revises outlook on Indian hospitality industry at stableTravel And Tour World

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Published on: Thursday April 14th, 2022

The ICRA revised its outlook on the Indian hotel industry from stable to negative in March 2022, following the rapid recovery in demand.

About 49% of CIFAR ratings currently have a stable outlook.

The rating agency currently expects FY2022 revenue to be 60% of pre-COVID-19 levels, despite nearly four months of impact due to COVID-19 2.0 and COVID -19 3.0.

Industry revenue is expected to return to pre-COVID-19 levels in fiscal year 2023, compared to the previous fiscal year 2024.

ICRA estimates that the occupancy rate for high-end hotels across India will be 40-42% in FY2022, compared to 26-28% in FY2021.

While demand was impacted in January 2022 and the first two weeks of February 2022 due to the Omicron wave, the industry experienced a healthy recovery which was helped by leisure, transient demand, MICE/weddings and the gradual resumption of business travel.

Strong recovery observed after COVID-19

The recovery has been sharper than that seen after COVID-19 2.0.

Pan-India premium hotel ARRs stood at Rs. 4,200-4,400 in FY2022 and were at a 25-30% discount from pre-COVID-19 levels.

However, for some upscale hotels and leisure destinations, ARRs have been higher than pre-COVID-19 levels in recent months.

With significant improvement in demand, RevPAR is expected to improve to pre-COVID-19 levels in FY23, contrary to previous expectations of pre-COVID-19 levels only by FY2024 .

A fourth wave of COVID-19 cannot be ruled out

Although the possibility of a fourth wave of COVID-19 cannot be ruled out, the increased vaccination coverage and reduced disruption with each wave of COVID-19 is reassuring.

ICRA expects that a full month of lockdown could have an impact of 5 percentage points on pan-India occupancy in FY 2023.

Vinutaa S, Assistant Vice President and Head of Sector, ICRA Limited, said the easing of restrictions, the high pace of vaccination and pent-up demand led to a resumption of leisure travel to the country during the second and third quarters of fiscal year 2022.

Domestic business travel also started to pick up, mostly to specific industry project/manufacturing sites, in the third quarter of FY2022.

CIFAR’s sample of 11 large publicly traded entities saw revenue growth of 50% on a quarterly basis in the third quarter of fiscal 2022, which is higher than CIFAR’s estimates.

Due to improved operating leverage and the continuation of some of the cost reduction initiatives, operating margins have also moved closer to pre-COVID-19 levels.

Despite the impact of Omicron, they expect Q4 FY2022 revenue and margins to be better than Q2 FY2022.

The staff-to-room ratio remains significantly below pre-COVID-19 levels, thanks to the redeployment of staff, the reskilling of employees and the centralization of commercial functions.

With improving operational performance, hedging metrics are expected to be the best in H2 FY2022 since the onset of COVID-19.

While interest coverage in the fourth quarter of fiscal 2022 is expected to see some sequential moderation due to the Omicron wave, it should still be better on a year-over-year basis, Vintuaa added.

Leisure markets record high occupancy

Leisure markets continued to show strong occupancy in the second half of FY2022. Goa occupancy has been better than pre-COVID-19 levels since September 2021.

While gateway cities like Mumbai and the NCR region also saw good improvement in occupancy rate, Bengaluru and Pune lagged due to the moderation in business travel and the IT sector.

However, they expect sequential occupancy improvement in these markets over the coming months.

The recovery was largely driven by occupancy, with ARRs lagging in most markets, she said.

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Tags: COVID-19 pandemic, Hotel News, India

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