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ICRA Hospitality Outlook: ICRA Lowers Hospitality Sector Outlook to 'Stable' for FY2026 Amid Growth Moderation, ET TravelWorld

ICRA Hospitality Outlook: ICRA Lowers Hospitality Sector Outlook to 'Stable' for FY2026 Amid Growth Moderation, ET TravelWorld

Time of India3 days ago

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Ratings agency ICRA has revised the outlook for the Indian hospitality industry to 'Stable' from 'Positive', projecting a normalisation in revenue growth for FY2026 after three consecutive years of double-digit expansion. Revenue is expected to grow at a more modest pace of 6–8 per cent year-on-year, on the back of a high base and temporary disruptions earlier in the year.Pan-India occupancy for premium hotels is estimated at 72–74 per cent in FY2026, a marginal increase from the 70–72 per cent range seen in the previous two financial years. Average room rates (ARRs) are forecast to rise to INR 8,200–8,500, slightly up from INR 8,000–8,200 in FY2025, supported by limited supply and hotel refurbishments. Jitin Makkar , Senior Vice President and Group Head – Corporate Ratings at ICRA, noted: 'After three years of strong demand, driven by domestic leisure, MICE, and business travel, the sector's growth is expected to moderate in FY2026. The impact of terror attacks in April 2025 was temporary and sentiment has largely recovered.'While foreign tourist arrivals may remain subdued in the short term, domestic tourism continues to drive the sector, aided by infrastructure improvements, better air connectivity, and growth in MICE events following the opening of new convention centres.ICRA's sample of 13 major hotel companies is projected to maintain operating margins of 34–36 per cent in FY2026, supported by cost rationalisation and asset-light expansions. However, margin performance may vary depending on renovation activity and rising staffing costs.The industry's financials are expected to remain healthy, with improved credit metrics. Interest coverage is projected to exceed 2x, and Debt/OPBITDA is likely to remain under 5x, reflecting improved balance sheets following recent de-leveraging.Supply, however, continues to trail demand. ICRA's premium room inventory data across 12 major cities shows a compound annual growth rate (CAGR) of 4.5–5.0 per cent from FY2023 to FY2026. Most additions are coming through management contracts and leases, while greenfield projects are limited to suburbs due to land constraints in metro areas.

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