According to data from HVS Anarock, the industry’s RevPAR (Revenue per Available Room) remained flat YoY in 1QFY25. This was due to a modest 2% YoY increase in ARR (Average Room Rates), which was negated by a 170 basis points drop in occupancy.
The decline in occupancy was further influenced by reduced air traffic growth—domestic air passengers grew only 4% YoY to 40.3 million—and diminished MICE (Meetings, Incentives, Conferences, and Exhibitions) activities.
Despite these challenges, the industry is set for robust growth in the coming quarters. RevPAR is expected to increase by 9-11% YoY in 2QFY25, driven by a 7-9% YoY rise in ARR.
Several factors underpin this positive outlook. Firstly, there is considerable pent-up demand from the softer first quarter, which is anticipated to lead to higher occupancy rates.Secondly, convention centers, particularly larger ones like Bharat Mandapam, have seen high bookings, indicating strong demand for such venues.The upcoming wedding season is also expected to be stronger, with 44 muhurats scheduled between July 2024 and March 2025, compared to 38 in the same period last year.Moreover, the sector is benefiting from favorable demand-supply dynamics. The demand for branded rooms is expected to grow at a CAGR of 10.6% over FY24-27, while supply is projected to increase at a CAGR of 8% over the same period.
This imbalance is likely to push both occupancy and ARR higher, leading to improved financial performance across the industry.
Additionally the recovery in Foreign Tourist Arrivals (FTA) is expected to accelerate, contributing to the sector’s growth. The FTA figures grew by 6% YoY in 1QFY25, with particularly strong growth in April and June. Though still below pre-COVID levels, this trend is likely to strengthen in the upcoming quarters.
The outlook for the hospitality industry is further reinforced by ongoing expansion efforts by major players. Companies are rapidly increasing their room inventories—both owned and managed—while also focusing on renovating existing assets. This dual approach is expected to drive higher RevPAR and enhance profitability.
Economic activity is buoyant, new convention centers are opening, connectivity is improving, and emerging tourism trends like spiritual and wildlife tourism are gaining traction.
All these factors contribute to a highly favorable environment for the hospitality sector, with expectations of sustained growth in earnings.
Indian Hotels: Buy| LTP Rs 654| Target Rs 715| Upside 9%| Time 1 year
Indian Hotels (IH) is strategically positioned to capitalize on the positive industry trends. The company plans to add 6,636 rooms by FY26, with a significant portion under management contracts, allowing it to expand across multiple geographies and segments.
IH is confident of achieving double-digit revenue growth in FY25 (over 10%), excluding consolidation of Taj SATS. New businesses (Ginger, Ama, Qmin) are expected to grow by ~30-35% YoY, while the reimagined businesses (Taj SATS, Chambers) are expected to grow ~15-20% YoY.
Lemon Tree Hotels: Buy| LTP Rs 129| Target Rs 170| Upside 31%| Time 1 year
Lemon Tree Hotels is set to benefit significantly from the favorable market dynamics, with plans to double its managed inventory to over 8,300 rooms by FY27.
The company is focusing on Tier II and leisure locations, which are expected to see strong demand growth.
Lemon Tree’s aggressive renovation strategy—aimed at upgrading 75% of its owned rooms by FY26—is expected to boost RevPAR and operational efficiency.
(The author is Head – Retail Research, Motilal Oswal Financial Services Limited)
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
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