India's Hotel Industry Set for 12% Growth in FY26 on Strong Demand

This will be supported by steady domestic leisure travel, MICE activity, weddings and resilient corporate demand, according to the ICRA report.

The report noted that the growth outlook remains favourable despite the high base of FY25.

The rating agency has projected average room rates (ARRs) to increase to Rs 8,200-8,500 from Rs 8,000-8,200 in FY25, aided by sustained demand conditions and healthy pricing power.

Meanwhile, premium room inventory across 12 key cities is expected to grow at a CAGR of 5-6 per cent over FY2025-FY2026, trailing the estimated demand growth of 8-9 per cent.

However, the demand-supply imbalance is likely to persist over the next two to three years, ICRA said.

Operating margins for the premium hotel segment are projected at 34-36 per cent in FY26, broadly in line with the estimated 35.8 per cent in FY25 and materially higher than the 20-22 per cent levels observed in the pre-COVID period.

Healthy cash accruals over the past two fiscals have strengthened balance sheets, supported deleveraging and improved debt coverage metrics across rated entities.

ICRA has expected that the hotel industry's overall credit outlook to remain stable, underpinned by sustained demand visibility and disciplined capacity additions.

"Hotel companies are increasingly adopting asset-light expansion models through management contracts and franchise arrangements," the rating agency said.

"These models generate fee-based income with lower capital intensity, improve return on capital employed and support stronger free cash flow generation," ICRA added.

It also noted that demand drivers have broadened significantly, encompassing corporate travel, weddings and social events, MICE activities, concerts, sports events, religious tourism, as well as leisure travel to Tier-2 and Tier-3 cities.

- IANS