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By Nandivardhan Jain, Founder & CEO NOESIS Capital Advisors, NOESIS
The Indian hospitality industry has emerged with remarkable resilience and strength in the first quarter of FY23-24. Based on ground-level research, the sector is poised to report an impressive 15% rise in revenues compared to the same period in the previous financial year. This remarkable growth is primarily attributed to an upswing in occupancy rates, while the increase in Average Daily Rate (ADR) remained limited. Despite the positive revenue trajectory, it is important to note that the profitability rise numbers may not be directly proportional to the revenue surge in comparison to Q1 of FY22-23. This is because the expenses in Q1 of FY22-23had not yet reached their peak, with full-scale services and manning expenses hitting their stride only in the third quarter of the previous fiscal year. Nonetheless, the industry is expected to exhibit a significantly more robust profitability than the pre-COVID era. However, it is estimated that reported profitability growth for Q1 FY24 will be around 100 to 200 basis points lower than the previous financial year’s quarter 1.
Given the seasonal nature of the hospitality industry, it is prudent to gauge the FY24 quarter 1 performance by comparing it to the same quarter of the previous fiscal year rather than its preceding quarter. This approach offers a more accurate outlook on the industry’s performance, as opposed to other sectors where seasonality plays a limited role. By adhering to this practice, stakeholders and investors can better assess the sector’s true growth and identify the underlying trends and potential challenges.
Looking ahead, the prospects for the hospitality industry in quarter 3 and 4 of FY23-24 are exceptionally promising. The sector is poised to benefit significantly from major events like the G20 summit and ICC Cricket World Cup matches. With 48 matches scheduled across ten cities, namely Hyderabad, Ahmedabad, Dharamsala, Delhi, Chennai, Lucknow, Pune, Bengaluru, Mumbai, and Kolkata, these venues are expected to capitalize on the influx of visitors.
The hosting of G20 events and ICC Cricket World Cup matches is expected to create a substantial surge in demand for accommodation and hospitality services. Hotels situated in these cities will enjoy maximum advantages as venue locations, attracting domestic and international tourists. As a result, the demand for branded hotel rooms is expected to skyrocket, putting a strain on the available supply. This scarcity of supply will likely lead to a significant increase in room rates and, coupled with the robust demand, ensure higher occupancy levels. Hotels in these cities can capitalize on this advantageous situation to maintain pricing levels and secure strong profitability.
Despite the surge in demand, it is noteworthy that the nation’s branded room supply remains limited, with approximately 160,000 keys available. This scarcity of supply is anticipated to prevent any significant corrections in room rates or a dip in occupancy for the current financial year. As a result, hoteliers can leverage this advantage to maintain pricing levels and capitalize on the strong demand, contributing to sustained profitability. With careful planning and strategic execution, the Indian hospitality industry is well-positioned to capitalize on the current positive trajectory and continue its journey towards a thriving and resilient future.
