'Gloomy outlook clouds hospitality sector'

For all the talk of an economic upswing after the elections, the hotel sector still shows a gloomy outlook. And, projected revenue growth for the sector in 2014-15 is only five to 10 per cent.

An India Ratings and Research study shows no sign of revival for the hospitality sector, facing a downturn for the past two to three years, with lower demand and increasing supply of hotel rooms.

"Companies facing highly leveraged balance sheets are cutting back on expansion plans and selling existing assets to pare debt. The industry is unlikely to witness fresh large-scale investor and developer interest in the near term," the study said.

Nine hotel companies got approval for debt restructuring in 2012-2013, an aggregate Rs 4,600 crore.

"The number of companies undergoing debt restructuring outside of the Corporate Debt Restructuring mechanism might be even higher," the India Ratings Research study says. Amid asset sale, debt restructuring and fall in incremental borrowing by hotel companies, the sector is expected to continue its struggle in financial year 2015.

"Average rates are low as the inventory has gone up. Business travel is getting substituted by video conferencing and Skype calls are denting the hotel business. We are not expecting more than marginal growth this year, though it is early to say," said

S M Shervani, president, Federation of Hotels and Restaurants Association of India (FHRAI).

The premium segment is likely to feel more stress than budget hotels, due to high dependence on business travellers. An FHRAI survey showed business travellers comprised 58.2 per cent of all hotel guests over 2012-2013.

Currently, there are around 100,000 rooms in the organised hospitality sector and an additional 85,000-90,000 are in the pipeline. "Many hotel companies are delaying new projects and even shelving proposed plans (40-50 per cent) due to the prevailing economic downturn and increased stress levels. Eighty per cent of the new projects announced (by value) have been stalled over FY12-14," the study said.