13 Apr 2022 , 04:07 PM
With significant improvement in demand, RevPARs are expected to improve to pre-Covid levels in FY2023, as against the earlier expectation of pre-Covid levels only by FY2024. While the possibility of a fourth Covid wave cannot be ruled out, the increasing vaccination coverage and reducing disruption with each Covid-19 wave provide comfort. ICRA expects that a month of complete lockdown could impact FY2023 pan-India occupancy by ~5 percentage points, ICRA report added.
“Despite the Omicron impact, we expect Q4 FY2022 revenues and margins to be better than Q2 FY2022. The staff-to-room ratio continues to remain significantly lower than pre-Covid levels aided by redeployment of staff, reskilling employees and centralization of business functions. With improvement in operating performance, coverage metrics are likely to be the best in H2 FY2022 since the start of Covid-19. While Q4 FY2022 interest coverage is likely to witness some sequential moderation because of the Omicron wave, it is still expected to be better on YoY basis,” Vinutaa added.
Leisure markets continued to report strong occupancy in H2 FY2022. Goa’s occupancy has been better than pre-Covid levels since September 2021. While Gateway cities like Mumbai and the NCR region have also witnessed healthy improvement in occupancy, Bengaluru and Pune were laggards because of muted business/IT sector travel. However, we expect sequential improvement in occupancy in these markets over the next few months. The recovery has largely been occupancy driven, with ARRs lagging in most markets.
Adds Ms. Vinutaa, “ICRA expects the hotel industry to clock ~60% of pre-Covid revenues in FY2022, despite almost four months of impact because of Covid 2.0 and Covid 3.0. Further, the industry is also likely to report operating profits in FY2022 aided by improved operating leverage and sustenance of some of the cost-optimization measures undertaken in FY2021. Notwithstanding the potential impact on demand with further Covid waves, if any, ICRA expects the industry to return to pre-Covid levels in FY2023, as against FY2024 earlier. The demand in the near term is expected to stem largely from domestic leisure travel, although there will be gradual recovery in business travel and FTAs. Hotels are likely to report pre-Covid margins at 85-90% of revenues going forward.”
“Accordingly, ICRA has revised its outlook on the Indian hotel industry to Stable from Negative in March 2022, following the swift demand recovery. About 49% of ICRA’s ratings are on stable outlook currently.”
Debt metrics are expected to return to pre-Covid levels in FY2023, while RoCE is expected to remain sub cost of capital, at least for the next few years.
ICRA expects equity fund raising/asset monetization to support further capital structure improvement going forward. Despite the improvement in operating metrics, lenders and investors continue to be cautious, and incremental external funding is largely based on promoter comfort.
Compared to the previous downcycle in FY2009, which saw untimely supply increases of over 15% of the inventory at the bottom of the cycle in FY2009-2013, the current pipeline inventory is about 3-4% for the period FY2022-FY2025. This will facilitate an upcycle, as demand improves over the medium term, and supply lags demand. The financial loss from Covid and the preference for larger brands will result in some consolidation in the industry.
Related Tags
IIFL Customer Care Number
(Gold/NCD/NBFC/Insurance/NPS)
1860-267-3000 / 7039-050-000
IIFL Capital Services Support WhatsApp Number
+91 9892691696
IIFL Capital Services Limited - Stock Broker SEBI Regn. No: INZ000164132, PMS SEBI Regn. No: INP000002213,IA SEBI Regn. No: INA000000623, SEBI RA Regn. No: INH000000248
ARN NO : 47791 (AMFI Registered Mutual Fund Distributor)
This Certificate Demonstrates That IIFL As An Organization Has Defined And Put In Place Best-Practice Information Security Processes.