ICRA estimates growth in Average Room Rates (ARR) to be back at 2%-3% – this coupled with 3%-4% growth in occupancies will result in 6%-7% improvement in revenue per available room (RevPAR) during FY2017. ICRA maintains its growth outlook for the industry at 8-10% during FY2017, with domestic demand-led occupancy growth, and some increase in rates in key markets of Mumbai and Goa supporting revenues. Revenue growth is expected to improve in FY2018 to 10-12%, aided by stronger domestic demand, pickup in foreign tourist arrivals (FTA) and the return of pricing power. ICRA anticipates rate increases during FY2017 will only be restricted to select markets with high occupancies; markets like Bangalore (supply of rooms) and Chennai (existing over supply) would continue to struggle.
The overall supply pipeline is expected to moderate across most cities, barring markets like Kolkata, Bengaluru and NCR.
According to Subrata Ray, Sr.VP, Co-head corporate sector ratings, ICRA Ltd, “Kolkata will witness the largest growth in supply over the next four years (FY2016-FY2020) at 86%. In absolute terms, the NCR will witness the highest room additions of 6,700 rooms during this period. However, delay in approvals, and project deferments may defer the supply to an extent”.
FTA growth during the first three months (Jan-Mar) of this calendar year jumped to 10.0%, supported by initiatives by the Government, which has set up public relations agencies in key source markets like the United Kingdom and Japan and also re-launched ‘The Incredible India’ promotional campaign. Overall, ICRA believes foreign tourist arrivals (FTAs) and spends still remain below potential. Domestic travel, going by domestic Revenue Passenger Kilometre (RPKM) trends, which has grown by more than 20% during the first three months of the current calendar year, continued to remain healthy. Positive business sentiments and increase in discretionary spends seem to have boosted domestic travel.
ICRA estimates pan India occupancies to have grown by 6%-7%, while average room rates (ARRs) remained largely flat, both in-line with our earlier estimates. Revenues for the industry grew by 9-10% during Q4 FY2016. Operating margins were marginally higher than Q4FY2015 (18.8%) levels at 19.5-20% supported by higher revenues.
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