India's hotel Industry to grow at 9% CAGR against demand of 12%c CAGR: Report

New Delhi [India], December 12 (ANI): India's hotel industry is set for sustained growth as demand outpaces supply, according to a report by Axis Capital.
The report forecasts a 12 per cent compound annual growth rate (CAGR) in demand for FY24-27E, compared to a more restrained 9 per cent CAGR in supply.
This favourable supply-demand dynamic, coupled with structural growth drivers and improved operating metrics, is expected to extend the industry's upcycle.
The hotel industry in India is witnessing a cyclical recovery in supply addition following years of robust Average Room Rate (ARR) growth.
During the previous cycle (FY08-15), supply expanded at a rapid 15 per cent CAGR, leading to overcapacity. However, in the current cycle, supply growth is projected to be moderate, ensuring that the upcycle lasts longer.
Luxury hotels remain less cyclical due to their higher capital expenditure requirements--20 times that of mid-scale hotels--and longer gestation periods.
Furthermore, India's branded hotel supply remains among the lowest globally, indicating significant room for growth.
While the majority of branded hotels are concentrated in Tier-1 cities, the focus is gradually shifting to Tier-2 cities as domestic players expand their market share.
The report highlights several structural drivers that are expected to sustain demand growth. Leisure travel, which accounts for 46 per cent of the total hotel demand, has consistently grown over the past three decades, driven by increasing disposable incomes and a rising number of upper-income households.
Business travel, which has declined from 48 per cent of total demand in 2008 to 31 per cent currently, is expected to recover as corporate profits improve, travel budgets rise, and Global Capability Centers (GCCs) expand.
The Meetings, Incentives, Conferences, and Exhibitions (MICE) segment is also anticipated to grow, fueled by higher wedding budgets and an increase in global events being hosted in India.
International tourism, which has yet to return to pre-COVID levels, is another area poised for expansion. Improvements in India's infrastructure and offerings are expected to attract more international visitors, further boosting demand.
With demand growth outpacing supply, the industry is expected to see higher occupancy rates and ARR growth. While Q1FY25 faced temporary challenges due to elections, the second half of the fiscal year is projected to deliver strong performance.
Axis Capital notes that the sector has undergone significant de-leveraging in recent years, resulting in improved cash flows and a higher share of managed rooms in hotel portfolios.
Despite the positive outlook, Axis Capital identifies key risks for the sector. The industry remains vulnerable to seasonality and economic downturns, which can adversely impact both leisure and business travel. Additionally, the entry of new players may disrupt the current supply-demand dynamics. (ANI)