After a slowdown in the first half of the year, the hotel industry is gearing up for booking surge ahead of festive holidays with pan India average room rate (ARR) reporting a growth of 8-10 per cent YoY in July 2024 and occupancy also improving to 62-64 per cent (up 3-5pps YoY, up 1-2pps sequentially), stated an analysis report by JM Financial. Per HVS Anarock, the rise in ARRs and also occupancy had resulted in RevPAR for July 2024 going up 16 per cent YoY and 4 per cent on a sequential basis, at Rs 4,278- Rs 4,544.
“We expect room demand to improve from Q2FY25E, as our channel checks have indicated robust business growth in August 2024 as well. With various industry estimates estimating industry supply CAGR of 5-6 per cent over FY24-28E vs demand CAGR of 9 per cent, we expect high single digit ARR growth and 200-250 bps improvement in occupancies over FY25E-27E,” said JM Financial, while maintaining that any further moderation in ARR growth and unexpected sharp slowdown in the broader economy remain key risks.
In terms of regions, per the report, ARR growth was led by Mumbai which stood at 21-23 per cent on a YoY basis, while occupancies grew the highest in the cities of Kolkata, New Delhi and Chandigarh. Meanwhile, domestic air passenger traffic also grew 7 per cent YoY to 12.9 million (2 per cent decline MoM), as domestic travel activity continues to be robust.
What had led to subdued performance in Q1?
JM Financial said that hotel companies under its coverage universe had posted a revenue growth of 11 per cent on higher room inventory and steady occupancy, with EBITDA up by 18 per cent and profit increase of 32 per cent YoY. ARR (same-store) growth was 4 per cent, which was much lower than the growth recorded in the preceding quarters. EBITDA margin performance was lower than expectations, as profitability was impacted by one-offs (Lemon Tree), higher than expected increase in employee costs and negative operating leverage. “With the industry having recovered strongly in the last 2 years, the industry is probably facing cost pressures due to higher wages and commissions/incentives paid to the employees/partners,” it stated.
In terms of new openings and signings this year, according to HVC Anarock, the sector has recorded new openings of a total 5,739 keys (83 hotels) and new deal signings of 22,866 keys (227 hotels) on a YTD basis. In CY23, the industry had posted the highest number of openings till date totalling 12,647 keys, of which 82 per cent were concentrated in the Tier 2 and Tier 3 cities. Out of this, 65 per cent of the total rooms were new rooms, which is in-line with the estimated new supply of 8,000-9,000 rooms per annum. Similarly, new signings recorded a new high at 25,176 keys in CY23, of which 80 per cent of these upcoming rooms are located in the Tier 2 and Tier 3 cities, data from JM Financial stated.
Though there has been some increased activity in the development space, the planned supply, JM Financial said, should take anywhere between 3-4 years to be commissioned. “We expect the upcoming supply to be absorbed with minimal impact on occupancies. Also, a large part of the pipeline (73 per cent) is being developed in the Tier 2 and Tier 3 cities. The room supply in Tier 1 cities is expected to grow at the lowest 5-year CAGR of 1.1 per cent in Delhi-NCR and the highest of 5.7 per cent in MMR. We expect hotel room rates to grow in high single digits in FY25E and FY26E with a 250-300 bps improvement in occupancy levels,” it said.
From: financialexpress
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