Daijiworld Media Network - New Delhi

New Delhi, Jun 9: India’s hospitality sector is expected to register a moderate revenue growth of 6–8% in FY26, building on three years of double-digit expansion from FY23 to FY25, according to a report released by ICRA on Monday.

Pan-India premium hotel occupancy is projected to hold steady at 72–74% in FY26, slightly above the 70–72% levels witnessed in FY24 and FY25. Average room rates (ARRs) for premium hotels are expected to rise to Rs 8,200–8,500 in FY26, up from Rs 8,000–8,200 in FY25, driven by lagging supply additions and ongoing hotel renovations.

“After three years of strong demand driven by domestic leisure travel, MICE (meetings, incentives, conferences, and exhibitions), weddings, and business travel, the growth in the Indian hospitality sector is forecast to normalise at 6–8% year-on-year in FY26,” said Jitin Makkar, Senior Vice President, ICRA Limited.

He noted that while the terror attacks in April 2025 and the subsequent uncertainties in North and West India led to travel cancellations in May, the impact was largely temporary and localised. “In recent weeks, there has been a healthy recovery in sentiments following the abatement of the conflict,” he added.

Foreign tourist arrivals (FTAs) are expected to remain subdued in the near term due to the recent attacks but are likely to recover gradually. However, domestic tourism — which has been the main demand driver — is expected to remain strong.

ICRA highlighted that factors such as improved infrastructure, better air connectivity, favourable demographics, and the growth of large-scale MICE events — thanks to the opening of multiple new convention centres — would sustain the sector’s medium-term growth.

Despite moderating revenue growth, ICRA’s sample of 13 large hotel companies is expected to maintain operating margins of 34–36% in FY26, supported by cost rationalisation and asset-light expansion strategies. However, margins may vary depending on property renovations and rising employee costs.

Balance sheet deleveraging has led to lower interest costs, which will support net margins and improve credit metrics, the report added.

“While the recent demand uptick spurred new supply announcements and the resumption of deferred projects in the past 24–30 months, supply growth is expected to lag demand over the next 12–18 months,” ICRA noted.

According to ICRA’s premium room inventory database, 12 key cities are expected to see a compound annual growth rate (CAGR) of 4.5–5% in premium room inventory addition during FY23–FY26. Much of this supply is through management contracts and operating leases.

Land availability issues continue to constrain new supply in premium micro-markets in metros and larger cities, with most new additions in these areas coming from rebranding or upgrades of existing properties. Greenfield projects are largely being initiated in the suburbs, Makkar said.