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Concerts, conferences, and check-ins

RevPAR growth to continue with ARR gains and strong occupancy trends

Following a strong close to FY25, the Indian hospitality industry is well-positioned to maintain its growth momentum, driven by healthy RevPAR growth. This is expected to be majorly driven by an increase in ARR and higher occupancy levels, supported by continued traction in Meetings, Incentives, Conferences, and Exhibitions (MICE) activities—such as cultural events—and a strong wedding season in 2HF26. According to our recent channel checks, key hospitality players are likely to witness 11-12% YoY RevPAR growth in 1QFY26, primarily driven by ARR gains (10-11%), given that occupancy rates are already at higher levels.

* A robust end to FY25 has set the stage for strong 1QFY26, with key hospitality players witnessing healthy RevPAR growth, driven by 10-11%ARR growth and higher occupancy rates.

* The Indian hospitality sector is expected to remain resilient in 1QFY26, with Apr’25 posting strong occupancy growth led by stable business travel. While May saw a temporary dip in activity due to geopolitical tensions, the impact was short-lived, with most MICE events largely rescheduled. June witnessed a recovery in occupancy rates, supported by the remaining wedding muhurat days and continued momentum in spiritual tourism.

* The surge in India’s live entertainment industry is emerging as a key demand driver for the hospitality sector, with cities like Mumbai, Delhi NCR, Ahmedabad, Bangalore, and Hyderabad witnessing sharp spikes in occupancy and ARRs during large-format events. With a robust pipeline of concerts, festivals, and sporting events in FY26, the segment is expected to meaningfully support RevPAR growth and strengthen pricing power for hoteliers during peak periods.

* The hospitality sector is expected to sustain strong momentum in 1QFY26, led by 10- 11% ARR growth and healthy occupancy levels. Demand continues to be driven by a diversified MICE mix (such as weddings, spiritual tourism, and a strong pipeline of large-format live events). Supported by favorable demand-supply dynamics, corporate rate revisions, and incremental contributions from new inventory, these factors are expected to support healthy earnings growth for hospitality companies in the coming quarter.

Momentum intact; hospitality sector positioned for strong 1Q

* Hospitality companies (refer to Exhibits 7 and 8) concluded 4QFY25 on a strong note, posting revenue/EBITDA growth of 19%/24%. We expect this momentum to continue in FY26, supported by sustained demand in MICE, a higher number of auspicious wedding muhurat days (~68 days in FY26 vs ~62 days in FY25), and a growing pipeline of large-scale events (such as concerts and sports).

* According to our channel checks, most hospitality companies anticipate ~11- 12% RevPAR growth in 1QFY26 (primarily in the upscale and above categories), with occupancy levels expected to remain healthy despite a ~10-day industrywide impact stemming from India-Pakistan border tensions.

* Apr’25 was a particularly strong month for the sector, marked by high-teen RevPAR growth driven by robust double-digit ARR expansion and elevated occupancy rates. However, May’25 saw a marginal moderation in occupancy rates owing to a temporary deferment of MICE activities. June witnessed a recovery in occupancy rates, supported by MICE activities and continued momentum in domestic tourism.

* With healthy growth expected in 1QFY26 for the hotel industry—driven by large events (domestic and international) and steadily rising MICE activities in India, we expect a healthy start to FY26. This momentum is expected to be further supported by a higher number of wedding dates in FY26 (vs FY25), the rescheduling of some MICE events from May’25 to 2Q/2HFY26, and overall favorable demand-supply dynamics.

Seasonal headwinds ease with evolving tourism themes

* Historically, the summer months (1Q) in India have been seasonally weak for the hospitality industry due to intense heat, reduced business and MICE travel, and fewer auspicious wedding dates, which are the key reasons for a seasonally weak quarter for hotels and banquets during this period.

* With business and MICE activity gradually normalizing throughout the year, along with a pickup in domestic tourism driven by emerging themes (experiential travel, spiritual tourism, and medical tourism), the hospitality industry is witnessing a gradual normalization of seasonality.

* One such emerging theme is spiritual tourism. Renowned for its profound spiritual heritage and numerous sacred sites, India’s spiritual tourism market is projected to be worth around USD59b by CY28, according to IBEF.

* States like Madhya Pradesh have seen a notable influx of visitors to key spiritual destinations, resulting in a 4% YoY rise in hotel occupancy during Apr-May’25.

* The launch of the ‘Ekadasha Teertha Yatra’ in Goa marks a significant step by the state government to showcase Goa’s spiritual heritage and diversify its tourism offerings beyond its world-renowned beaches.

* In addition to state-led initiatives, the central government is actively investing in connectivity and infrastructure development with a focus on establishing new hubs for spiritual tourism and enhancing existing centers such as Tirupati and Ayodhya.

* The Ministry of Tourism advanced its flagship schemes such as Swadesh Darshan, PRASHAD, UDAN, and Dekho Apna Desh, encouraging regional and cultural tourism. Under PRASHAD, 27 new sites across 18 states and UTs were selected for development, with a continued emphasis on spiritual and heritage tourism.

* Hospitality players are capitalizing on their presence in prominent spiritual destinations while also expanding into emerging ones. Notably, The Leela plans to add 100 keys in Ayodhya by CY28, while Lemon Tree plans to add ~15 hotels (~1,141 keys) across key spiritual destinations.

* With the recently announced 300-key Taj Ayodhya set to open in 2026, along with an existing portfolio of over 60 hotels across 50+ spiritual destinations, IHCL is well-positioned to be a key beneficiary of the accelerating growth in India’s spiritual tourism segment.

India’s rising live entertainment economy

* India’s live entertainment sector is witnessing unprecedented growth, driven by a vibrant mix of creativity, technological advancements, and expanding economic opportunities. According to industry sources, the organized live events segment crossed the INR120b milestone in 2024 and is expected to register a robust CAGR of ~19% over the next three years.

* The successful hosting of large-scale events and concerts in India has underscored the country's readiness and infrastructure capability, leading to a growing pipeline of similar high-profile events.

* These large-format events continue to drive higher occupancy levels and ARRs across all hotel segments, supported by a demand-supply mismatch created by the substantial influx of outstation visitors into host cities.

* For instance, during the ICC World Cup 2023, hotel tariffs in Ahmedabad surged up to 10x. Similarly, during the Coldplay concert in Jan’25, room rates in Mumbai and Ahmedabad escalated by up to 300%. These sharp rate increases underscore the significant pricing power hoteliers can exercise during periods of elevated demand.

* Supported by a strong lineup of upcoming live events and the government’s focus on promoting a ‘concert economy’, the hospitality industry stands to gain meaningfully through improved occupancy and higher ARRs (refer to Exhibit 6).

Strong performance by the hospitality basket

* According to HVS Anarock, the average industry RevPAR rose 8% YoY to INR5,326 in FY25, as ARR growth (up ~7% YoY to INR8,175) was supported by a marginal increase in occupancy (up 25bp YoY to 65%).

* The industry saw a strong demand rebound after an initial slowdown from heatwaves and general elections. Growth was fueled by surging domestic business travel, mega events like Mahakumbh and international concerts, and a strong wedding season.

* Backed by rising disposable incomes and expanding air, road, and train connectivity, this momentum is expected to sustain with India’s continued economic growth.

* Air traffic growth remained stable (the number of domestic air passengers grew 8% YoY to 165m in FY25), highlighting the strong demand for domestic travel.

* In FY25, aggregate revenue/EBITDA for the hospitality basket (including IHstandalone, LEMONTRE, EIH, CHALET, SAMHI, JUNIPER, PARK OBER, BRGD, PHNX, and ITC) grew 18%/20% YoY to INR214.8b/INR77.8b.

* Adj. PAT (excluding OBER, BRGD, and PHNX as their segmental PAT is unavailable) grew 27% YoY to INR37.5 (refer to Exhibit 10) in FY25.

* IHCL and Lemon Tree outpaced their peers with the highest revenue growth in FY25 (up 23%/21% YoY), while Samhi recorded an EBITDA growth of 52% YoY, followed by IHCL (up 28% YoY) in FY25.

Valuation and view: ARR growth and high occupancy to drive continued momentum in the hospitality sector

* The outlook of the hospitality sector remains positive, supported by sustained high occupancy levels and robust ARR growth. This is underpinned by long-term structural tailwinds, favorable demand-supply dynamics, and increased domestic travel driven by a strong pipeline of MICE and cultural events.

* We anticipate hotel companies to post healthy growth in FY26/FY27, supported by: 1) an increase in ARR across hotels; 2) healthy occupancy levels propelled by favorable demand-supply dynamics; and 3) increased corporate travel, MICE, weddings, and other social events.

* We reiterate our BUY rating on IH (TP: INR940) and LEMONTRE (TP: INR200).

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