Hit by regulatory hurdles, hotel sector revenue to improve 7% in FY18: Icra

Despite flat revenues, fourth quarter of FY17 operating margins improved to cost controls, says Icra

Even as growth prospects of the hotel industry have been scaled down due to regulatory hurdles, the revenue growth is expected to improve to 6-7 per cent this financial year, ICRA said in a report.

"The revenue growth for the Indian hotel industry is expected to improve to 6-7 per cent in FY18, despite growth prospects being scaled down from the earlier 8-10 per cent, constrained by the regulatory hurdles the industry is currently facing," the rating agency said in a report.

"The muted supply pipeline across several markets coupled with robust demand uptick will be the driver for the next up cycle in the industry over the next five years.

"However, near term prospects will be constrained by regulatory hurdles the industry is currently facing, like liquor ban in hotels closer to the highways and temporary hurdles associated with the impending GST roll-out," Icra Senior Group VP and Head - Corporate Ratings - Subrata Ray said.

According to ICRA, revenue growth for the industry during the last quarter of FY17 remained subdued despite the pan India improvement in Revenue per Available Room (RevPAR).

Despite the flat revenues, the fourth quarter of FY17 operating margins improved to cost controls, it said.

In terms of pan-India average occupancy, the same grew by 3 per cent to 64 per cent during FY17 compared to 62 per cent during FY16, while Average Room Rates (ARR) stood at Rs 5,700 during FY17, ICRA said.

Aided by increase in occupancies and ARR traction in several markets, RevPAR for FY17 increased by 5-5.5 per cent. ICRA said, RevPAR has been growing year-on-year for the past 11 quarters, indicating bottoming out of the industry, it said.

Despite the continued occupancy traction and the marginal improvement in ARRs, ICRA opined that a healthier traction in ARR is necessary over the coming quarters to generate adequate returns considering the significant capital investments done by the industry.

Further, the rating agency said, the growth in supply of premium hotel segment has been weak at 5-5.5 per cent due to some delays in under-construction projects.

The supply growth pipeline in the Indian premium hotel segment is likely to be muted at 5 per cent during FY17-20, compared to 17 per cent during the supply peaks of FY10-13 and a softer 7 per cent during FY13-16, ICRA added.