Healthy demand to absorb a 20% rise in branded hotel rooms

Branded hotels are poised to witness nearly 20,000 room additions over this and next fiscal, a good 20% increase in supply as per Crisil Ratings. This follows 16,500 room additions seen over the previous two fiscals.

Crisil Ratings said despite a sizeable addition to room inventory, occupancies are expected to remain steady, while average room rates (ARR) are expected to inch up as demand continues to outpace supply in majority of these locations.

Nearly 80-85% of the room additions will be done by hotel developers with own brands who plan to expand their operations primarily through an asset-light management contract route. As these brand owners will only charge management fee from hotel asset owners, their revenue growth will moderate slightly by 150-250 basis points over a strong 15% growth recorded last fiscal, Crisil Ratings said.


The remaining additions will be done by hotel asset owners operating under external brands. These entities will continue to maintain their growth momentum of 13-14% next fiscal. Overall healthy cash flows, lower capital requirement and equity raises will ensure stable credit profiles for these companies. The company said its analysis is based on 55 entities operating around 48% of total branded rooms.

Mohit Makhija , senior director , Crisil Ratings said rising travel aspirations and improved air and road connectivity are driving growth in domestic tourism, with a 15-16% annual increase in tourists observed over the past two years.

"With this trend expected to continue, hotel players are focussing on leisure and spiritual destinations like Ayodhya, Lucknow, Udaipur, Jaipur, Amritsar, Gwalior etc. for expansion," he said.

"Nearly two-thirds of the 20,000 new rooms are coming up in these tier 2 and 3 locations including an estimated ~20% through acquisitions. The remaining additions will be spread across six metros, which are hubs for MICE (meetings, incentives,
conferences and exhibitions) activities and will be experiencing commercial expansion, over the next two fiscal years," he added.

Crisil Ratings expects occupancies to remain stable at 74-75%. "Additionally, ARRs are also expected to increase by 5-7% over the next two fiscal years as demand will continue to outpace supply," the company said in a statement.