Hospitality industry expects 11-13% revenue growth in FY25: report

Mumbai: The hospitality industry is expected to clock 11-13 per cent revenue growth in 2024-25 on steady domestic demand and a rise in foreign travellers, a report said on Monday.

This revenue growth will follow a likely 15-17 per cent growth in the current financial year, backed by steady domestic demand and ramp-up in foreign travellers, Crisil Ratings said in a report.

The strong demand dynamics along with modest new supply will keep the operating performance of the industry healthy over the near term, the report added.

According to the report, the healthy operating performance will augur well for the industry profitability where the EBITDA, or earnings before interest, taxes, depreciation, and amortization will continue the strong momentum over the current and the next fiscal.

This, along with limited capital expenditure, will keep the credit profiles strong, the report noted.

"The domestic travel demand, which remained a key driver this fiscal, will sustain next year as well. This momentum will be supported by healthy economic activity which drives business demand and continuing leisure travel demand, which reinvigorated post the pandemic. While the demand will remain strong, the growth rate is expected to taper off next fiscal due to high base," Crisil Ratings Director Anand Kulkarni said.

Consequently, the average room rates (ARRs) are expected to grow 5-7 per cent next fiscal as against 10-12 per cent this fiscal and the occupancy is expected to remain healthy at current levels of 73-74 per cent, he added.

On the other hand, the report said that the foreign tourist arrivals in India, despite a growth this fiscal, are estimated to remain 10 per cent below the pre-pandemic level and pick-up in the same will provide a fillip to the hotel demand next year.

Besides, demand in the MICE (meetings, incentives, conventions and events) segment is also expected to remain healthy as corporates have resumed their activities post the pandemic-induced hiatus, it said.

In addition to demand, a favourable supply situation is one of the critical drivers of the strong performance of the hospitality industry.

"Greenfield capex is expected to remain muted with the new room addition remaining at 4-5 per cent per fiscal over the next couple of years. While the demand rebound has boosted the industry sentiments, the cost dynamics still remain a constraining factor for new capex.

"High land costs, sizable rise in construction costs, long gestation period coupled with cyclicality in the sector are resulting in cautious new capex in the sector. Therefore, brands may keep adding rooms through management contracts, which will limit their upfront capital costs," Crisil Ratings Director Nitin Kansal said.

The effect of conducive demand-supply dynamics is also visible in the operating profitability of the industry, the report stated.

The ARR-driven revenue growth typically translates into better profitability, given that operating costs do not increase proportionately, it said.

Further, the report found that hotels had taken several cost-efficiency measures, such as better manpower planning and optimisation in food and beverage expenses, in the past two fiscal years.

While costs are expected to inch up gradually, operating leverage will help maintain strong operating profitability, at 32-33 per cent over the current and the next fiscal, similar to the last year, it said.