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Indian hospitality sector growth set to normalise in FY26, says Icra
Growth in the Indian hospitality sector is expected to normalise in the current financial year (FY26), with revenue growth for listed companies projected to moderate to 6–8 per cent. This comes after three consecutive years of double-digit revenue expansion from FY23 to FY25.
'We estimate pan-India premium hotel occupancy to hold at 72–74 per cent in FY26, slightly higher than the 70–72 per cent levels witnessed in FY24 and FY25. Average room rates (ARRs) for premium hotels are projected to rise to ₹8,200–8,500 in FY26, up from ₹8,000–8,200 in FY25,' credit rating agency Icra said in a note on Monday, revising the sector outlook to 'stable' from 'positive'.
Listed hospitality companies such as Indian Hotels Company Ltd (IHCL), the parent of the Taj brand, and mid-scale player Lemon Tree Hotels, expect to sustain double-digit growth in FY26 while carrying out upgrades across select properties.
'We expect to deliver strong growth with sustained margins and continued portfolio expansion. We're targeting the opening of 30-plus hotels in FY26 — three of which will be on our balance sheet. We are well on track to achieve our guidance of double-digit growth,' said Puneet Chhatwal, managing director and chief executive officer of IHCL, in a post-earnings call after announcing March quarter results last month.
Despite the lower revenue growth forecast, companies are expected to report stable operating margins of 34–36 per cent in FY26, supported by cost rationalisation and asset-light expansion strategies adopted in recent years.
'However, within the sample, performance is likely to be mixed, depending on renovation schedules and rising employee expenses amid growing demand,' the Icra note said.
IHCL spent over ₹1,000 crore in FY25 towards capital expenditure, with half allocated to renovations, routine maintenance, and digital initiatives. For FY26, the company has earmarked over ₹1,200 crore for capital expenditure.
'Of the ₹1,200-odd crore, a large portion is planned for major renovations at assets such as Taj Palace in Delhi, Fort Aguada in Goa, St James in the UK, and Taj Kolkata. Overall, around 60–65 per cent of the capex will go toward renovations and digital investments,' Chhatwal said during the analyst call.
At Lemon Tree Hotels, ongoing renovation expenses are expected to temporarily impact gross ARR and occupancy.
'The timely completion of renovation activities in the owned portfolio will further improve gross ARR and occupancy. Increased investment in renovation will continue through FY26 and into early FY27, by which time our entire owned portfolio — about 6,000 rooms — will have been fully renovated. Post that, renovation expenses will stabilise at 1.5–1.7 per cent of revenue on an ongoing basis,' said Patanjali Keswani, chairman and managing director of Lemon Tree Hotels, after the company's March quarter results.
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