Icra projects 6-8 pc growth for hospitality sector, downgrades outlook to 'stable'

New Delhi, Jun 9 (PTI) Growth of India's hospitality sector is expected to "normalise" at 6-8 per cent in the current financial year, rating agency Icra said on Monday while downgrading the sectoral outlook to "stable" from positive.

The rating agency also stated that foreign tourist arrivals (FTAs) to India are expected to remain muted in the next few months in the aftermath of the terror attack at Pahalgam in Jammu and Kashmir, but are estimated to witness a gradual recovery thereafter.

However, domestic tourism has been the prime demand driver so far and is likely to remain the same in the near term.

Factors, including improvement in infrastructure and air connectivity, favourable demographics, and anticipated growth in large-scale MICE events, with the opening of multiple new convention centres in the last few years, will support the growth over the medium term, Icra said.

According to the rating agency, the domestic hospitality sector's earnings and credit metrics are expected to remain stable in FY2026 with benefits from cost rationalisation measures and operating leverage.

A "stable" outlook indicates a low likelihood of change in the near to medium term, whereas a "positive" outlook suggests a high probability of an upgrade in the near to medium term.

The rating agency estimates pan-India premium hotel occupancy to hold at 72-74 per cent in FY2026, slightly higher than the 70-72 per cent levels witnessed in FY2024 and FY2025.

The average room rates (ARRs) for premium hotels are projected to rise to Rs 8,200-8,500 in FY2026, after a healthy Rs 8,000-8,200 in FY2025 amid lagging supply additions and several hotels undergoing renovation, refurbishment and upgradation, the ratings agency said.

"After three years of strong demand, driven by favourable domestic leisure travel, demand from meetings, incentives, conferences and exhibitions (MICE), including weddings, and business travel, the growth in the Indian hospitality sector is forecast to normalise at 6-8 per cent YoY in FY2026," Jitin Makkar, Senior Vice President and Group Head - Corporate Ratings, Icra Ltd, said.

"While the terror attacks in April 2025 and consequent heightened uncertainties in North and West India in May 2025 had led to a surge in cancellation of travel/MICE, the impact has been largely temporary and localised. In recent weeks, there has been a healthy recovery in sentiments following the abatement of the conflict," Makkar added.

Icra's sample set, comprising 13 large hotel companies, is likely to report range-bound operating margins of 34-36 per cent for FY2026, despite a lower revenue growth.

The margins will remain supported by factors like cost-rationalisation measures and asset-light expansions in recent periods.

However, within the sample, it is likely to be a mixed bag, depending on renovations and an increase in employee expenses amidst growing demand.

"Land availability issues currently constrain supply addition in the premium micro-markets in metros and larger cities. The addition to premium hotel supply in these areas is largely on account of rebranding or property upgradation, and the greenfield projects are largely being initiated in the suburbs," Makkar said. PTI RSN SHW