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ICRA data shows that while India’s premium hotel room supply grew just 3% in fiscal 2024, demand surged at 9-10%, outpacing supply. / Credit: PradeepGaurs via Shutterstock
India’s hospitality sector is experiencing a significant imbalance between hotel room supply and burgeoning demand.
According to credit ratings firm ICRA, the growth rate of premium hotel supply has decelerated, registering only a 3% increase in fiscal year 2024, a decline from the 5% growth observed in the previous year.
Projections indicate a modest 5% growth in fiscal 2025, tapering to 4% in fiscal 2026.
In contrast, demand has surged ahead, with a 9-10% increase in fiscal 2024. ICRA anticipates this robust momentum to persist, forecasting 8-9% growth in both fiscal 2025 and 2026.
This disparity between supply and demand is expected to elevate average room rates (ARRs) and enhance profit margins for hotel operators.
Financial performance and profit margins
The financial health of India’s hotel industry reflects this demand-supply gap. ICRA’s analysis of 13 major hospitality companies reveals a net profit margin increase from 3% in fiscal 2020 to 15% in fiscal 2024.
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Projections suggest that profit margins will remain within the 13-15% range through fiscal 2025 and 2026.
Additionally, these companies have reported over a 200% increase in income in fiscal 2024 compared to pre-COVID levels, with expectations of continued revenue growth supported by strong demand and improved margins.
Average room rates have also seen a notable rise. In the 2023-24 period, ARRs for premium hotels across India ranged between ₹7,200 and ₹7,400, marking a 15% improvement over fiscal 2023. In the first nine months of fiscal 2025, ARRs have further increased to approximately ₹7,800-8,000.
This upward trend is expected to continue, driven by sustained demand and limited supply growth.
Industry outlook and expansion plans
The constrained supply pipeline, currently smaller than post-2009 financial crisis levels, coupled with ongoing renovations and upgrades in existing hotels, is likely to support higher ARRs.
ICRA notes that while supply announcements have increased over the past 18-24 months, they are expected to lag behind demand in the coming years. Major global hotel brands are recognising India’s market potential and are planning expansions to capitalise on the growing demand.
For instance, Hilton Worldwide has announced plans to significantly expand its presence in India, aiming to quadruple the number of hotel rooms within the next five years.
This strategic move underscores the attractiveness of the Indian market amid a booming domestic travel sector.
In summary, the Indian hotel industry’s current supply-demand dynamics are poised to sustain higher room rates and profit margins in the near to medium term.
The anticipated supply lag presents opportunities for both existing players and new entrants to invest and expand in this growing market.
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