Investors in hotel companies in India should brace for a soft start to the financial year 2025. These firms are expected to bear the brunt of subdued demand in the ongoing June quarter (Q1 FY25), led by the general elections and the harsh summer. This could weigh on the revenue per available room (RevPAR) in the seasonally weak quarter.
Citing data from hotel analytics firm STR, analysts from Jefferies said the Indian hotel industry's RevPAR and average room rate (ARR) growth moderated sharply to 3% each year-on-year in May. This compares with RevPAR growth of 5-6% year-on-year so far in Q1, and 12% growth in Q4 FY24. However, momentum is expected to pick up in Q2 and continue into the second half of FY25.
Prospects for FY25 aren’t too bad, especially in light of the high base following strong growth in recent years. It’s encouraging that The Indian Hotels Co Ltd (IHCL) is confident of achieving double-digit growth in consolidated revenue during FY25 after clocking 16.5% growth in FY24. Motilal Oswal Financial Services Ltd’s analysis of the hospitality business of 11 companies showed that aggregate revenue and Ebitda increased 20% and 25%, respectively, during FY24.
The analysis included pure-play hotel companies and the hospitality segments of companies such as Brigade Enterprises Ltd and ITC Ltd. As such, business conditions are expected to be favourable over the next couple of years, with demand growth projected to beat supply growth. Additionally, corporate travel and the meetings, incentives, conferences and exhibitions (MICE) business is expected to trend upwards.
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