ICRA, leading rating agency, expects industry-wide margins for the current quarter Q2FY14 to ebb down to a five-year low of 7 % to 8 % on the back of decline in RevPAR ,seasonally weak July-September quarter and inflation in consumable costs. 

With uncertain demand conditions and further supply additions, the outlook for the Indian hotel industry during 2013-14 remains negative, according to ICRA. The down-cycle in the Indian hotel industry has stretched to five years (barring a brief pick-up in 2010-11), as compared to past hotel industry cycles globally, which has 1-2 years of lows, preceded by 5 -6 years of highs. 

“We expect 2013-14 to be another difficult year for the hotel industry in India,” ICRA has noted. 

The industry-wide margins have nearly halved over the last five years to 18% as on 2012-13 from a high of 37% in 2007-08, on the back of the industry reporting a CAGR of mere 4% in revenues. “Our analysis of eight key cities in the country indicates an inventory of 50,600 rooms in the premium space, with bulk of it being located in two gateway cities of Mumbai and NCR,” ICRA has noted adding: “The inventory levels in the eight cities for 2013-14 would go up by 16%, with most of the rise coming from Mumbai, NCR and Bengaluru.” 

ICRA, although, expects the Indian Hotel industry to benefit in the future from structural reforms such as better infrastructure, improved law and order situation (encouraging foreign tourist arrivals) and granting of Infrastructure status, it would however, need to remain focussed on cost control by trimming frills, and cutting non-essential expenditure to improve profitability. 

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