The Hindu Business Line : Hotel room rates to rise as demand outpaces supply

WITH the demand for hotel rooms expected to outpace supply over the next five years, room rates in India are likely to grow beyond their current highs, according to a study released by CRIS INFAC, CRISIL's research arm. However, the study adds that pockets of oversupply may emerge in centres such as Hyderabad, which will soften average room rates (ARRs).

The credit profile of major players is unlikely to change significantly, as the positive effects of improving margins will be balanced by their debt-funded capital expansion plans.

The demand for hotel rooms in the premium segment, driven by business travel, will grow at a compounded annual growth rate (CAGR) of 9 per cent over the next five years, the study said.

North Mumbai, Chennai, Bangalore and Hyderabad are the business destinations that will see the highest growth in room demand in the next five years, while Goa will top the leisure segment.

Mr Sudhir K. Nair, Head of Research, CRIS INFAC, said, "Demand will outpace supply in the short to medium-term, and ARRs will, therefore, grow faster than before. ARRs are expected to increase by 13 to 14 per cent annually over the next two years."

Hotels, he said, are reworking their strategies to consolidate and maximise their ARRs, given the thrust on incentives, conventions and exhibitions during the off-season and weekends. Further, occupancy rates are expected to touch 83 per cent by 2008-09 from the current levels of around 72 per cent with the spurt in tourist inflows and demand outstripping supply, he said.

With no significant addition of fresh room capacity expected in Delhi in the medium term, ARRs will rise sharply there.

In contrast, excess supply in Hyderabad will see occupancy rates drop to as low as 65 per cent by 2007-08 with a consequent slump in ARRs. Among the leisure destinations, Goa and Jaipur will see a supply shortage (especially during the peak seasons), which will be reflected in their respective ARRs.

The report forecasts that while the industry's profitability will look up in the medium term, its credit profile will not improve due to the investments planned to augment room supply in various cities.

The study expects that the industry will invest Rs 2,000-Rs 2,300 crore over the next five years to add fresh capacities. Of this, Rs 1,200-1,500 crore is likely to be in the form of debt. Thus, CRIS INFAC does not anticipate an improvement in credit profiles over the near to medium term.

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Pepsi to start bottling of Gatorade in India by Aug

Bid to boost exports to W.Asia — Spices Board to market value-added cardamom

Natco challenges Novartis' patent on anti-cancer drug

Within patent regime ambit: Novartis

British Airways unveils special fares for students

Kribhco plans to sell Omani granulated urea

Hotel room rates to rise as demand outpaces supply

Elder Pharma may bring all brands under single agency

Philips gung-ho about growth

Hindi software tools, fonts for free

Unniversal Foods plans ready-to-use food items