PremiumNew Delhi: The second wave of coronavirus has pushed back the recovery of India’s hospitality industry further, and the sector may see a return to pre-covid levels only by FY2024, credit rating agency Icra has said.
Icra continues to have a negative credit outlook on the Indian hotel industry. Only 31% of the rated portfolio have 'stable' outlook as of June 2021, compared to 92% in the category in January 2020.
The industry was impacted in the first quarter of FY2022 after two quarters of sequential recovery, witnessed till mid-March 2021. The pick-up in demand in first half of FY2021 was largely led by leisure travel, staycations, wedding and higher F&B revenues. Icra stated that some business travel in specific sectors also aided the recovery.
Icra’s sample reported operating profits increasing on a quarter-on-quarter basis for the second consecutive quarter in Q4 FY2021, on the back of improved demand and better operating leverage, before the onset of covid 2.0.
With demand and occupancy declining severely in Q1 FY2022 due to cancellation of several events and travel restrictions etc., revenues are expected to witness a drop of 50-55% on quarter-on-quarter basis, although the decline would be lower than Q1 FY2021, which was marred by the pan-India complete lockdown.
Demand slowdown has significantly impacted Q1 FY2022 occupancy and average room rates (ARRs), although it is better than Q1 FY2021 levels. As against a 10-12% occupancy witnessed in Q1 FY2021, it was higher at 26-28% in Q1 FY2022, with demand in May 2021 largely coming from quarantine business for mild-covid positive patients, wherein the hotels entered into formal contracts with hospitals chains.
Pan-India ARR was at Rs. 3,600-3,700, about 8-10% higher on y-o-y basis, although the demand slowdown has impacted ARRs since the onset of the pandemic. It is likely to remain significantly lower than pre-covid levels through FY2022, in the absence of adequate demand.
Q1 FY2022 revenue per available room (RevPAR) too stood at a 65-70% discount to pre-covid levels. Discounting in the market is inevitable with such a drastic fall in demand, and hence the recovery is expected to be occupancy driven. The ratings agency expects permanent closure of some smaller hotels, leading to consolidation in the near to medium term.
“FY2022 RevPAR is likely to be at a 60-65% discount to pre-covid levels. Although this will be an improvement from the low base of FY2021, the pandemic timelines pose downside risks to the estimates. The situation is still evolving and remains contingent on the pace of vaccination, efficacy of vaccines, high infection rates and possibility of a third covid wave," said Vinutaa S, sector head and assistant vice president, Icra.
Icra’s industry sample is expected to report operating losses in FY2022 as well, although it will be lower at low-single digit, compared to the 23% operating loss witnessed in FY2021.
Hoteliers have cut costs significantly, including redeployment of manpower, outsourcing of non-core activities, centralization of business functions and automation of certain processes. Some of these will be permanent and will aid in the reduction of break-even levels.
The government's announcement of the ECLGS 3.0 (emergency credit line guarantee scheme) in the last week of March 2021 is expected to further bolster the industry in meeting the operational and financial commitments in the medium term.
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