New Delhi, December 13, 2017:The domestic hotels sector has registered a pan-India revenue per available rooms (RevPAR).posting a steady 4-5% improvement in Q2 FY2018 as well as in H1 FY2018, contributed equally by improvement in occupancy and average room rate (ARR). As per an ICRA note, pan-India average occupancy improved to 62-63% in H1 FY2018 as compared to ~61% in H1 FY2017, a Y-o-Y growth of ~2%. ARR also grew by ~2% during H1 FY2018 to Rs. 5,400, compared to the Rs. 5,300 in H1 FY2017.
Says Mr. Subrata Ray, Senior Group Vice President, Corporate Sector ratings, ICRA, “ARRs have slowly but steadily started to improve on a pan-India basis. While most of the cities have witnessed uptick in ARRs, some cities with recent supply additions (like NCR, Bengaluru and Kolkata) witnessed only modest ARR growth. Despite the steady RevPAR growth over the past three years, the current RevPAR levels (~Rs. 3,350 for H1 FY2018) are at ~30% discount to the peak levels witnessed in H1 FY2009; while current occupancy levels are ~4% higher compared to the levels in FY2009, the current ARRs are at ~34% discount to the FY2009 levels.”
On the flip side, despite the RevPAR growth, revenue growth for Q2 FY2018 for ICRA’s industry sample remained subdued as some of the hotels under the industry sample were taken up for renovation. The adjusted (for renovation/ sale of hotels) industry revenue remained flat, on a Y-o-Y basis. On an unadjusted basis, industry revenue declined by 2.1% during the quarter (compared to flat revenue in Q2 FY2017 and 1.6% decline in Q1 FY2018). Q2 FY2018 (Y-o-Y) operating profit margins declined by ~160 bps, constrained by scale, inflationary pressures and a few one-time expenses; operating profit margins for Q2 FY2018 stood at 9.2% (compared to 10.8% in Q2 FY2017).
Demand for rooms however continues to remain buoyant as Foreign Tourist Arrival (FTA) growth picked up strongly to 15.6% during 10m CY2017 as compared to the 9.8% growth during 10m CY2016. Arrivals into India during the period were higher than the 5.6% and 10.3% ITA growths in the Asia-Pacific and South Asia regions respectively for Jan-Aug 2017. Domestic Revenue Passenger Kilometer (RPKM), a proxy for domestic travel, exhibited a strong 15% plus growth (Y-o-Y) every month, barring just two months in CY2016. The growth in 10m CY2017 continued to remain robust, although lower than the corresponding previous year levels because of base effect.
On the supply side, ICRA’s premium room inventory database (12 key cities) across the country indicates a CAGR of just over 5% in supply during the period FY2017-FY2020; the expected growth is lower than the 12%+ CAGR supply addition witnessed in the last 6-7 years. With no large project announcements over the past year, the muted supply pipeline is expected to be the backbone for the current up-cycle, even as demand continues to grow by about 13-14%, led by slow recovery in the domestic economy, increasing FTAs, and higher MICE activity.
Mr. Ray adds on the outlook for the sector, ” going forward we expect ~2% growth in occupancies and ~2-2.5% growth in ARRs, leading to ~4-4.5% growth in RevPARs during FY2018. RevPAR growth is estimated to accelerate to 5%-7% during FY2019 and FY2020, driven largely by traction in ARRs.”
Corporate Comm India(CCI Newswire)
