According to a report by JM Financial Institutional Securities, the latter part of FY24 is anticipated to mark one of the most robust periods for hotel companies in the past decade. This positive outlook is attributed to significant events such as the Cricket World Cup, the grand finale of Miss World 2023, and a thriving wedding season.
Looking ahead, JM Financial Institutional Securities continues to maintain the belief that both occupancies and Average Room Rates (ARR) have potential for further growth. It is important to note that this growth may not follow a consistently upward and linear trajectory. Various factors could introduce short-term disruptions to an otherwise positive trend. These factors include a high FY24E baseline, the General Elections scheduled for May 2024, the potential risk of the Indian Premier League (IPL) relocating, and an unfavorable mix due to a higher proportion of corporate travel. Despite these challenges, JM Financial Institutional Securities anticipates getting closer to pre-COVID levels.
In the latter half of FY25E, as the previously underperforming demand segments, such as corporate travel and inbound tourism, take the spotlight, there is an expectation that occupancies will gradually rise to a range of 70-72 percent. This, in turn, is projected to result in low double-digit growth in Average Room Rates (ARR) during this period, with adjustments made for the exceptionally high rates seen during the ODI matches in their respective venues, as mentioned in the report.
Within their coverage universe, they anticipate a more moderate growth rate of 6-8 percent for Average Room Rates (ARRs) in FY25E, as compared to the 10 percent growth seen in FY24E. Simultaneously, they assume an expansion in EBITDA margins by 100-150 basis points, driven by favorable operating leverage.
During the third and fourth quarters of FY24, the domestic hotel industry is poised to achieve its highest numbers in a decade, driven by robust domestic tourist demand and significant global events. It is anticipated that Average Room Rates (ARR) will experience a year-on-year growth of 15-20 percent in FY24E. However, the report suggests that the elevated baseline established in FY24E is likely to lead to a slowdown in growth in FY25E.
Moreover, during the first quarter of FY20, coinciding with the previous general elections, there was a 0.4 percent year-on-year decrease in both occupancy and Revenue per Available Room (RevPAR), with a decline of 2.9 percent, respectively.
A comparable scenario is expected to unfold at the beginning of FY25E, leading to a temporary disruption in growth. The return of corporate sector demand, particularly rates negotiated through RFPs (Request for Proposals), is anticipated to exert downward pressure on room rates, as outlined in the report.