Hospitality industry expected to see 45% increase in revenue this fiscal year: Crisil report
The country’s hospitality sector is poised to rebound, as industry revenue is expected to jump 45% in the current fiscal year, after hitting a ten-year low last year. With the expected growth, revenues will be almost at the same level as pre-pandemic levels in fiscal 2020.
Rebounding revenues and lower cost structures can boost operating profitability by 200 to 400 basis points this fiscal year, compared to fiscal 2020, a Crisil Ratings analysis of hotels with a total of 30,000 rooms in the hotel showed. all categories.
Nitesh Jain, Director of Crisil Ratings, said: “After the second wave of Covid-19, the average room rent (ARR) had reached 85-90% and occupancy 80-85% of pre-pandemic levels, before the third wave weakened the last quarter. Admittedly, Covid-19 cases are on the rise again, but in the absence of strict lockdowns and significant – and growing – vaccination coverage, ARR and occupation are expected to pick up from this quarter. But the pace of recovery will vary by hotel category.
For properties in tourist destinations such as Udaipur and Goa, which lean towards leisure travel, ARR and occupancy had surpassed pre-pandemic levels in the third quarter of last fiscal itself , at the request of stays and the wedding season. While international flights have started, the flow of inbound tourists ― a key user segment ― may be slow to pick up. But strong pent-up demand from domestic travelers would provide some compensation, the report said.
Hotels in the mid and economy segment with an ARR of Rs 3,000 to Rs 5,000 have benefited from upgrades by Small and Medium Enterprise (SME) customers due to hygiene concerns amid the pandemic. This segment has seen both ARR and occupancy recover to 80-85% of pre-pandemic levels, and is expected to rebound fully in the first half of this fiscal year.
Luxury business hotels, which have been slower to return due to their heavy reliance on business travel, are also expected to gain momentum now as offices reopen.
Rakshit Kachhal, Associate Director of Crisil Ratings, said: “Hotels have reduced their fixed costs over the past two years by reducing headcount per room, increasing the use of technology in areas such as room service and reducing expenses such as electricity, sales. and promotions, commissions and discounts. While the rebound in occupancy will cause some of these costs to increase, hotels are likely to retain profitability, and the lean cost structure should help them secure a strong recovery in profitability. The ability to maintain service standards with lean cost structures will need to be monitored. »
Improved profitability, together with government support through a low-cost borrowing facility under the Emergency Line of Credit Guarantee Scheme, will allow interest coverage to return almost the pre-pandemic level of 2 to 2.2 times this fiscal year.
However, the debt ratio will remain low at 1.2 times compared to 0.8 times before the pandemic, as companies took on debt and incurred losses during the pandemic.
Crisil said a sustained recovery will translate into a gradual improvement in the sector’s financial leverage over the medium term. While there is an increase in cases of a new variant of Covid-19, the sector remains resilient, as people seem more confident on the outside, especially due to wide vaccination coverage. However, any constraints on economic activity or the movement of people will need to be monitored, the report adds.