Hospitality demand to rebound as West Asia crisis fades, 16 per cent EBITDA CAGR in FY26-28: Kotak Securities
New Delhi, June 6
India's hotel industry is expected to recover its momentum as the West Asia conflict impact normalises and foreign travel returns to pre-war levels, Kotak Securities said in a report.
With occupancy likely inching toward 72 per cent and Annual Recurring Revenue compounding at 6.4 per cent Compounded Annual Growth Rate, the brokerage projects 16 per cent EBITDA CAGR for its coverage universe over FY2026-28E. Stock performance will hinge on how quickly the crisis resolves and whether ARR growth beats Street expectations.
India's hospitality sector delivered modest results in 4QFY26 as geopolitical tensions weighed on demand. RevPAR grew 5.3 per cent YoY to Rs 6,868/day, supported by 6.3 per cent YoY ARR growth to Rs 10,100/day but offset by a 67 bps YoY drop in occupancy to 68 per cent. The weakness was driven by lower foreign travel in March 2026 due to the West Asia war.
According to the Kotak Securities report, for FY2026, RevPAR rose 7.4 per cent YoY to Rs 5.7k/day on 7.4 per cent YoY ARR growth to Rs 8.8k/day and healthy 65 per cent occupancy. The year faced multiple disruptions: the India-Pakistan conflict in 1QFY26, the IndiGo airline crisis in 3QFY26, and the West Asia tensions in 4QFY26.
Kotak expects the dip in occupancy to reverse in the coming quarters. 4QFY26 room rates of Rs 10.1k/day and 68 per cent occupancy form a base as foreign travel demand picks up. Earnings momentum should follow. 4QFY26 aggregate EBITDA rose 11 per cent YoY, led by The Leela +17 per cent, IHCL +14 per cent and ITC Hotels +13 per cent. ARR improvement was offset by lower occupancy, keeping RevPAR growth modest.
On supply, signings accelerated, but commissioning stayed measured. India signed 14k new keys in 4QFY26, taking FY2026 signings to 61.9k versus 41k in FY2025. Actual supply addition was just 2.9k keys in 4QFY26 and 13.3k keys for FY2026, similar to 15-16k added in each of the last two years. Kotak highlights that the 4-5 year gestation period and execution slippages will keep incremental supply measured.
Kotak Securities report said that the brokerage models 8 per cent supply CAGR over FY2026-31E, taking branded inventory to 310k keys. Demand, measured as room nights sold, should grow faster at a nine per cent CAGR. That gap should support pricing power. Kotak builds 6.4 per cent ARR CAGR and occupancy gradually climbs toward 72 per cent over the period.
Valuations have corrected in the past quarter, but Kotak notes upside depends on the resolution of the current crisis and ARR growth surprising positively. With demand tailwinds intact and supply discipline likely, the upcycle investments by hoteliers should translate into stronger earnings once geopolitical noise subsides.
— ANI
Reader Comments
As someone who follows the Indian market, I think Kotak's projections are realistic but optimistic. The 6.4% ARR CAGR and occupancy recovery to 72% are reasonable if the West Asia crisis truly normalizes. However, the supply addition of 61.9k keys signings vs just 13.3k actual additions shows a big disconnect. That 4-5 year gestation period could delay earnings. I'd be cautious about the near-term.
Good analysis from Kotak. I stayed at an ITC hotel last month—the rates were high but occupancy seemed okay for an off-season. The Leela's 17% EBITDA growth is impressive! But honestly, I worry that if geopolitical tensions flare up again (and when don't they?), this recovery could be short-lived. Diversify beyond foreign travel, please. Domestic tourism in India is huge—focus on that!
I'm cautiously optimistic. The 7.4% RevPAR growth in FY2026 despite so many disruptions is actually quite robust. If West Asia stabilizes, we could see a boom. But the supply-demand gap is tricky—9% demand CAGR vs 8% supply CAGR means pricing power, but only if demand materializes. I just hope the hotels don't get greedy with ARR and push away budget travelers.
Interesting. I work in the tourism sector and can tell you foreign travel to India has been slow since March 2026 due to the war. But Indians are traveling more than ever—domestic tourism is booming. The hotel industry should leverage that. Also, 68% occupancy in a tough quarter is not bad at all. With the right marketing, especially for leisure destinations like Kerala and Goa, we can hit those targets. Fingers crossed! 🤞
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