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Big hospitality players' revenue may decline 65% in FY21: Report

The pandemic put a brake on discretionary travel and occupancy, according to a report.

Coronavirus | Hospitality industry | Economic recovery

Press Trust of India  |  Mumbai 

hotel, hotels, hospitality
Representational image

Large hospitality companies' revenue may decline 65 per cent in 2020-21, as the pandemic put a brake on discretionary travel and occupancy, according to a report.

Despite several measures taken by the players to drastically cut costs, the industry is likely to report massive operating and net losses in wiping out the cumulative profits of over the past four years, it added.

Revenue of large hotel companies is expected to decline by about 65 per cent year-on-year in FY21, Icra said in the report.

The agency expects sentiments to improve in the seasonal peak of the second half of FY22, however, the situation is still evolving, with numerous headwinds as seen with the restart of crowd control and lockdowns with an increase in COVID cases in India and globally.

While widespread vaccination rollout could ease things to an extent, the situation is evolving and remains monitorable, the report said, adding that pan-India ARRs (average room rates) would still be at a discount to the FY19 levels in FY22.

It further said the recovery to pre-COVID levels will take about 2-3 years.

The severe impact of the pandemic has resulted in a sharp increase in downgrades as hotels closures and low occupancies led to deep losses, the report noted.

About 70 per cent of the entities are on a negative credit outlook, compared to 92 per cent of the entities with a stable outlook in January 2020, it added.

The report further noted that demand pickup was visible in the recent months from staycations, drive-to-leisure and social MICE, and occupancy inched closer to 50 per cent in the fourth quarter of FY21 providing a dose of optimism to the industry.

Nevertheless, discretionary travel remained significantly lower than pre-COVID levels in H2 FY21 as well and Icra estimates the full-year FY21 occupancy at 26-28 per cent, compared to 65-67 per cent in FY20.

Goa was the best performing market H2 FY2021, and Pune, Bangalore and Hyderabad largely dependent on business traffic, especially the IT sector and FTAs were the worst-performing markets.

Wedding markets such as Jaipur and Udaipur and driveable leisure destinations such as Coorg and Ooty in the south witnessed traction in demand in H2 FY21.

Discounting in the market was inevitable with such a drastic fall in demand, with ARRs (average room rate) dropping by 35-40 per cent on a year-on-year basis in FY21.

"Debt coverage metrics are expected to sharply deteriorate in FY21 owing to massive operating losses and high-interest cost. With many companies availing the moratorium, and others borrowed incrementally for longer-term liquidity, debt levels in the industry are expected to increase sharply in FY21 and early FY22, before starting to reduce.

"Even in FY22, the total debt for our sample of large hotel companies is expected to be at a multi-year high before gradually returning to the pre-COVID levels in FY24," Icra Ratings Assistant Vice President and Sector Head Vinutaa S said.

This is despite moderation in industry Capex for the next two years, she said.

"Return on capital employed (RoCE), which even pre-COVID was sub cost of capital, was earlier expected to improve from FY21 onwards, however, with recovery currently a few years away, RoCE is expected to remain sub cost of capital until FY2025," she added.

Diversion of outbound leisure travel to domestic tourism is positive for hotels, and properties with affiliated strong brands and in the luxury segment will benefit compared to lesser-known brands.

On the other hand, hotels and cities dependent on business travel and FTAs will face the brunt.

Corporate MICE and group bookings will take the longest time to recover and wedding MICE, which was showing strong signs of recovery, will witness headwinds with the second wave.

In the immediate term, the smaller, independent hotels with limited financial resources could face closure, but on the other hand, rebranding and upscaling in the mid-scale and upscale segments will add to organized supply in the sub-5-star category.

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

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First Published: Fri, April 16 2021. 20:10 IST