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Branded hotels in India are likely to see double-digit revenue growth of 13-14 per cent this fiscal (FY25) and 11-12 per cent in the next (FY26), fuelled by demand outpacing supply, a Crisil report said on Thursday. 

Operating margin is likely to improve by 100-150 basis points (bps) this fiscal and sustain at similar levels in the next, with benefits of operating leverage kicking in and other cost optimisation measures undertaken, said the Crisil Ratings report.

It further stated that while domestic leisure and business travel will continue to be the primary demand drivers, growing traction in MICE (meetings, incentives, conventions and exhibitions) segment and pickup in foreign tourist arrivals will provide an additional fillip.

This comes on the back of a strong 17 per cent growth recorded last fiscal.

“The domestic leisure segment will continue to drive growth on the back of rising travel aspirations and better regional connectivity. Further, positive economic outlook and the government’s ‘Meet in India’ initiative to promote corporate events will support the business and MICE segments,” said Mohit Makhija, senior director, Crisil Ratings.

Foreign tourist arrivals are also expected to surpass the pre-pandemic levels this fiscal.

These factors will drive up the average room rates (ARRs) of branded hotels by 6-7 per cent this fiscal on an already high base, said Makhija.

To meet increasing demand, the pace of room additions, which has increased since last fiscal, is expected to pick up further and majorly through the asset-light management contract route.

As a result, supply will increase by a cumulative 20 per cent over this fiscal and the next, the report mentioned.

Strong cash flows, asset-light expansion and sizeable equity raising will keep debt levels under check, thereby strengthening credit profiles.

The number of branded-hotel rooms is slated to rise 8-9 per cent this fiscal and 11-12 per cent in the next, with leisure and non-metro destinations accounting for 65 per cent of additions.

Pallavi Singh, associate director, Crisil Ratings, said that the hotel industry is expanding more into non-metros and emerging leisure destinations as travellers seek more choices and infrastructure in these regions improve.