Hotels Sector Check - Set For A Resilient Growth Journey: Motilal Oswal
Occupancy rate and average room rates are expected to continue trending higher in FY25, backed by favorable demand-supply dynamics, says the brokerage.
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Motilal Oswal Report
The Indian hospitality industry is positioned for a strong Q2 FY25, following a relatively soft first quarter affected by several transient headwinds. Going forward, the sector is likely to witness healthy growth. According to our recent channel checks, we believe that the key hospitality players will witness RevPAR growth of ~9-11% YoY in Q2 FY25, which will be primarily driven by rising average room rate (+7-9% YoY).
According to HVS Anarock, the industry RevPAR stood flat YoY in Q1 FY25 as the slight increase in ARR (+2% YoY) was offset by a dip in occupancy (-170bp YoY). Multiple headwinds, such as general elections, heat waves, and a lesser number of auspicious wedding days, hampered demand during the quarter.
Going forward, the sector is anticipated to bounce back driven by:
pent-up demand following a softer first quarter,
improved traction within the convention centers (high bookings),
a stronger wedding season (~44 muhurats over July-24-March-25 versus 38 over July-23-March-24), and
favorable demand-supply dynamics.
To benefit from the anticipated upcycle within the industry, a majority of the players are accelerating their execution plans and rapidly expanding their inventories (owned as well as managed rooms).
Apart from this, the companies are strongly focused on renovating the existing portfolio to generate better yields from their existing assets.
Accordingly, we expect healthy earnings growth within the industry, fueled by increasing ARR and improved occupancy due to the favorable demand-supply dynamics and incremental contribution from inventory additions.
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