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Hotel revenues to remain muted in short term: India Ratings

Last Updated: Sunday, November 4, 2012 - 11:16

New Delhi: Revenue growth of Indian hotel companies are likely to remain muted in the short term as corporates resort to cost cutting measures and foreign tourist numbers decline amid sagging economic scenario, a report says.

According to India Ratings, a Fitch group company, "the overall revenue for major hotel companies will not improve significantly in next 12 months and remain muted in the short term due to cost control measures at corporates".

Moreover, foreign travellers (business or leisure) in India may be less, with the major countries accounting for these travellers likely to show muted growth. Accordingly, the premium hotel chains which are more dependent on foreign inflows are unlikely to see much improvement in demand.

The EBITDA (earnings before interest, taxes, depreciation, and amortisation) margins of premium hotels in India are "unlikely" to return to pre-FY09 levels, and is expected to remain in the range of 20-25 percent as these type of hotels are facing rising input costs and conditions of oversupply in certain markets, the report said.

Metro cities are likely to face supply side pressures in the coming years which might result in subdued growth in occupancy and average room rent (ARR) in the short-to-medium term, India Ratings said.

As per industry reports, Delhi-NCR has a pipeline of 20,000 classified hotel rooms with about 60 percent of rooms in the up-scale/premium category. Similarly, both Bangalore and Chennai have a pipeline of projects which are likely to double the room capacity in the next five years.

Meanwhile, the non-premium and budget hotels are likely to face relatively less cyclical stress on their financial performance as domestic travellers (both business and leisure) being more price sensitive generally prefer to stay in non-premium and budget segment hotels.

"Domestic leisure travel and tourism, in particular, has exhibited more resilience to factors such as global economic slowdown and terrorist strikes", it said.

As per FHRAI 2010-11 survey, for lower segment hotels, occupation by domestic leisure travels were almost three times foreign leisure travels.

"Thus, smaller or budget hotels are likely to face lesser pressure on revenue and profit margin relative to premium hotels in case of continued global economic slowdown," the report added.


First Published: Sunday, November 4, 2012 - 11:16
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