The hotel industry is witnessing a strong upcycle, with robust demand-supply dynamics propelling its healthy performance. The trend is expected to persist in the foreseeable future, driven by strong demand for branded rooms, particularly in major cities and leisure markets.

According to Horwath HTL, demand for branded rooms in India is projected to grow at a compound annual growth rate (CAGR) of 10.6 per cent from FY24 to FY27, outpacing the supply growth, which is expected to clock in at an 8 per cent CAGR. This gap is even more pronounced in top cities and luxury segments, where demand growth is substantially higher than supply growth, leading to better pricing power for premium players.

The major players in the hotel industry are strategically positioned to capitalise on this uptrend. Brand owners such as Indian Hotels, Lemon Tree, EIH, and The Park are focusing on management hotels and revenue diversification. Meanwhile, asset owners like Chalet, Samhi, and Juniper are expanding their owned hotel portfolios to leverage the growth, brokerage firm Motilal Oswal said.

Indian Hotels (IH) plans to introduce a reimagined brand, 'Gateway,' targeting Tier II and III cities. IH's diversified revenue base, including ventures like TajSATS, Ginger, Ama’s, Qmin, and Chambers, saw a 35 per cent year-on-year growth in FY24. Lemon Tree is concentrating on adding hotels under management contracts, with a significant portion of its inventory outside major cities, and is also investing in renovations to boost Average Room Rates (ARR), the Mumbai-based brokerage said.

Expansion and Diversification Strategies

EIH is expanding its footprint with new owned and leased hotels and is also enhancing its air catering and lounge businesses. The Park is increasing its presence in the leisure market through management contracts and expanding its Flurys confectionary brand. Chalet is focusing on adding owned keys in key metros and diversifying its commercial asset portfolio to create additional revenue streams, Motilal Oswal added.

Juniper is enhancing its MICE (Meetings, Incentives, Conferences, and Exhibitions) and F&B offerings, while Samhi is targeting micro markets with high growth potential, such as Hyderabad and Bangalore, and expanding its room inventory through acquisitions and new developments.

Performance Highlights and Outlook

In 4QFY24, the hospitality industry's Revenue Per Available Room (RevPAR) grew by 11 per cent year-on-year, driven by an 8 per cent increase in ARR and a 170 basis point rise in occupancy. The aggregate revenue and EBITDA for key hotel companies rose by 19 per cent and 26 per cent, respectively. EIH led the pack with the highest EBITDA growth, followed by ITC and Chalet.

Despite a relatively muted demand in April and May 2024 due to elections and heatwaves in North India, the medium- to long-term outlook remains optimistic. The industry is set for continued growth, supported by increasing ARR and occupancy rates, along with strong demand drivers such as economic activities, new convention centres, improved connectivity, and rising tourism trends, Motilal Oswal added.

Hotel industry set for long-term growth amid favourable demand-supply dynamics

According to Horwath HTL, demand for branded rooms in India is projected to grow at a compound annual growth rate (CAGR) of 10.6 per cent from FY24 to FY27

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