New Delhi, June 10, 2025 — Credit rating agency ICRA has revised its outlook for the Indian hospitality sector from “Positive” to “Stable,” anticipating a normalisation in revenue growth to 6–8% year-on-year (YoY) for FY2026. The revision comes after three consecutive years of double-digit expansion, driven by robust demand in domestic leisure, MICE (Meetings, Incentives, Conferences, and Exhibitions), and business travel segments.
ICRA expects pan-India premium hotel occupancy to stabilise at 72–74% in FY2026, a marginal improvement over 70–72% levels recorded in FY2024 and FY2025. Average Room Rates (ARRs) are projected to increase to ₹8,200–₹8,500, following a healthy ₹8,000–₹8,200 range this fiscal, amid slow supply additions and multiple hotel renovations.
Resilient Performance Despite Geopolitical Disruptions
While the April 2025 terror attacks and subsequent uncertainty in North and West India briefly dampened travel sentiment, the impact has been largely localised and short-lived. According to Jitin Makkar, Senior Vice President and Group Head – Corporate Ratings, ICRA, “There’s been a healthy recovery in recent weeks, and domestic tourism continues to be the primary demand driver.”
Foreign tourist arrivals (FTAs) are expected to remain subdued in the short term due to geopolitical concerns but are likely to pick up gradually. Medium-term growth will continue to benefit from improving infrastructure, enhanced air connectivity, favorable demographics, and a growing pipeline of convention centres.
Earnings and Margins to Remain Stable
ICRA’s sample set of 13 large hotel companies is expected to maintain operating margins in the range of 34–36% in FY2026, despite moderated revenue growth. Asset-light expansion strategies, operational efficiencies, and earlier cost-rationalisation efforts will provide continued margin support. However, renovation activity and rising employee costs may result in a mixed performance across companies.
Credit metrics are expected to remain robust, aided by deleveraged balance sheets and lower interest expenses. ICRA projects key metrics such as interest coverage ratio to remain above 2x and Debt/OPBITDA below 5x in FY2026.
Supply to Lag Demand in Premium Segment
Over the past 24–30 months, supply announcements and project resumptions have accelerated, but new room supply is still expected to lag demand over the next 12–18 months. ICRA’s premium room inventory database covering 12 major cities shows a compound annual growth rate (CAGR) of 4.5–5.0% in room addition from FY2023 to FY2026.
Much of the new supply is driven by management contracts and operating leases rather than owned assets, with greenfield development concentrated in suburban locations due to land constraints in metro city micro-markets. Rebranding and property upgrades are also contributing to premium supply growth in urban cores.
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