Deputy vice president and sector head of ratings agency Icra, Vinutaa S, said on Wednesday that near-term demand is expected to come largely from domestic leisure travel, although there is a gradual recovery. business travel and free trade agreements (FTAs).
According to its report, the hospitality industry is expected to record 60% of pre-COVID revenue in FY22, despite nearly four months of impact due to COVID 2.0 and COVID 3.0.
“In addition, the industry is also likely to report operating profits in FY22, aided by improved operating leverage and the continuation of some of the cost optimization measures undertaken in FY22. 21,” Vinutaa said.
Despite the potential demand impact of new waves of COVID, if any, she said ICRA expects the industry to return to pre-COVID levels in FY23, compared to to exercise 24 earlier.
“Hotels are expected to post pre-COVID margins of 85-90% of their revenues going forward. Accordingly, we have revised our outlook on the Indian hospitality industry from negative to stable in March 2022, further to the rapid recovery in demand. About 49 100 percent of Icra’s ratings are currently on a stable outlook,” she said.
Leisure markets continued to report strong occupancy in the second half of FY22, Icra said in the report.
Goa’s occupancy has been better than pre-COVID levels since September 2021, while gateway cities like Mumbai and the NCR region have also seen healthy improvement in occupancy. Bengaluru and Pune were lagging due to muted business travel, he said.
However, Icra expects sequential improvement in occupancy in these markets over the coming months and the recovery has been largely driven by occupancy, with average room rates lagging in most markets.
“The easing of restrictions, the high pace of vaccination and pent-up demand led to a resumption of domestic leisure travel in the second and third quarters of FY22. Business travel Domestic flows also began to pick up, primarily to project sites and industry-specific manufacturing sites, in the third quarter of FY22,” Vinutaa said.
CIFAR’s sample of 11 large publicly traded entities saw revenue growth of 50% on a quarterly basis in the third quarter of FY22, beating its estimates. Due to improved operating leverage and the continuation of some of the cost reduction initiatives, operating margins have also moved closer to pre-COVID levels, he said.
“Despite the impact of Omicron, we expect revenue and margins in the fourth quarter of FY22 to be better than in the second quarter of FY22. The staff-to-room ratio remains significantly lower than the pre-COVID levels, aided by redeployment of staff, reskilling of employees and centralization of business functions,” Vinutaa said.
While the fourth quarter of FY22 interest coverage is expected to see some sequential moderation due to the Omicron wave, it should still be better year over year, she added.
Compared to the previous FY09 bear cycle, which saw untimely supply increases of more than 15% in inventory at the bottom of the FY09 to FY13 cycle, the current pipeline inventory is approximately 3-4% for the period from FY22 to FY25.
This will facilitate an upward cycle, as demand improves in the medium term and supply lags demand.
The financial loss from COVID and the preference for big brands will lead to some consolidation in the industry, the report adds.