Indian hotel industry to register healthy overall growth in revenue: Report

Credit rating agency Care is expecting the Indian hotel industry to register an overall healthy growth in revenue on back of economic growth and consistently growing middle class along with increasing disposable income. “There are various other key factors that drive the market, including India’s attractiveness as a medical tourism destination; steadily growing MICE segment; and, an increasing fondness among millennial to travel. Also, the expected future inventory in 11 major markets (across categories – only branded) is lower at around 57,000 rooms for the next five years (FY16 to FY21). Therefore, with increasing demand on back of improvement in economic activities and lower room additions, we expect the major markets in the industry to sustain the average room rates (ARRs) going forward and grow at an average of 3.5 per cent per annum,” Care said in its latest report.

It is also expecting the occupancy to inch up to an average of about 66 per cent by the end of FY21 compared with 63.4 per cent in FY16. Accordingly, the hotel industry is expected to see an increase in room revenue at the rate of about 11-13 per cent CAGR over the five year period FY17-FY21.

According to the report, the existing room supply for the country grew by 5.5 per cent y-o-y in FY16 totaling to 113,622 rooms (as of March 31, 2016). The total number of rooms in the top 11 key cities covered by Care Ratings is estimated at 84,396 as at the end of FY16. A larger part of the room inventory is concentrated in Mumbai, NCR and Bengaluru.

Adding further, Care said domestic travellers continue to be the main contributors of room night demand in India. The FTAs are expected to reach a level of 12-13 million by CY20, the key growth drivers for growth in FTAs flowing into India include increasing international trade, multinational companies setting up their operations in India, number of airports, connectivity etc.

“We expect the momentum to pick up and the industry to register a growth of about seven to nine per cent in revenues for FY18. However, the rupee appreciation as compared to currencies of other countries, liquor ban in some states, etc would restrict the growth to some extent,” the report said.

Room tariff above INR 5,000 was to attract the higher tax rate of 28%, however, this has been revised and only tariff above INr 7,500 would fall in the highest tax slab under the GST regime. “Accordingly, we at Care Ratings believe that the effective tax rate would not have any major impact on the average room rates (ARRs) and occupancy rates (ORs) of the hotels given GST players would be able to avail the input tax credit for both goods and services,” it added.