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Rates remain strong, occupancies soften marginally

As per HVS Anarock, May’23 was another strong month with hotel industry RevPAR of Rs4,216 being 24% above May’19 (pre-Covid) levels and 13% above May’22 levels (Apr’23 RevPAR of Rs4,536 was 19% above Apr’22 levels). For May’23, industry ARR of Rs6,800 was up 16% YoY, while occupancy declined by 200bps YoY to 62%. As per our channel checks, a few leisure markets such as Rajasthan have seen occupancies softening YoY, while Goa has seen flattish RevPAR on YoY basis. At the same time, business hotels continue to see stable demand and forward hotel room rates for Jul-Sep’23 compared to the Jul-Sep’22 period (previous year) – this indicates that hotels continue to follow a strategy of keeping rates at least 8-10% higher than previous year levels. For FY24, demand drivers such as the G20 Summit coupled with sports events such as the Men’s Cricket ODI World Cup in Oct-Nov’23 to be held in India, may drive RevPAR growth for hotels.

As per HVS Anarock, compared to CY22 industry RevPAR of Rs3,600, RevPAR is estimated to rise to Rs4,690 in CY23, Rs5,194 in CY24 and Rs5,588 in CY25 or a 15.8% CAGR in industry RevPAR over CY22-25. As per various industry estimates, with incremental room supply CAGR expected to range between 5-6% over CY22- 26, the medium-term demand supply dynamics remain healthy for the Indian hotel sector. At the same time, we remain cognizant of any headwinds in the form of global macro factors and discretionary consumption slowdown which may impact demand. However, given favourable demand-supply dynamics over the long term, we reiterate our ADD rating on Indian Hotels Co. Ltd. (IHCL) and BUY rating on Lemon Tree Hotels (LTH).

* Channel checks indicate that Jul-Sep’23 forward hotel rates are 8-10% above previous year (Jul-Sep’22) levels: Our channel checks for forward hotel room rates for Jul-Sep’23 compared to the Jul-Sep’22 period (previous year) indicate that hotels continue to follow a strategy of keeping rates at least 8-10% higher than pre-Covid levels. While leisure destinations such as Goa and Rajasthan may see Q2FY23 RevPAR remaining flat or declining marginally YoY, among business hotels, Mumbai and New Delhi/Gurugram continue to see the strongest demand with the cities of Bengaluru and Hyderabad playing catch up.

* Industry RevPARs expected to grow at double digit CAGR over CY22-CY25: According to the India Hospitality Industry Overview 2022 by HVS Anarock, industry level occupancies which recovered to 60% in CY22 are estimated to reach 66% in CY23, 68% in CY24 and 70% in CY25. At the same time, industry ARR which stood at Rs6,100 in CY22 is estimated to reach Rs7,106 in CY23, Rs7,639 in CY24 and Rs7,983 in CY25. In RevPAR terms, this implies that compared to CY22 industry RevPAR of Rs3,600, RevPAR may rise to Rs4,690 in CY23, Rs5,194 in CY24 and Rs5,588 in CY25 or a 15.8% CAGR in industry RevPAR over CY22-25. As per various industry estimates, with incremental room supply CAGR expected to range between 5-6% over CY22-26, the medium-term demand supply dynamics remain healthy for the Indian hotel sector.

* Brand signings pick up in CY22, management contracts rule the roost: As per HVS Anarock, CY22 brand signings increased 33% YoY in CY22 with 166 new hotels with 14,885 rooms being signed, while 90 hotels with 5,702 rooms were rebranded. Management contracts continue to account for the majority share of signings in the Indian hotel sector, and in CY22, management contracts accounted for ~80% of the total signings by keys during the year. Hotel re-branding or conversion accounted for 27.7% of keys signed in CY22 vs. 20% in CY21, while 35.8% of the keys signed in CY22 were for greenfield projects as opposed to 32% in CY21.

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