ICRA says Omicron variant dampens sentiments for hotel industry

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Hotel industry demand is expected to be curtailed in Q4FY22 due to Covid-19’s Omicron variant, said rating agency ICRA.

According to the agency, demand recovered at a sharp pace post-Covid 2.0, aided by easing restrictions, the high pace of vaccination, and pent-up demand.

Besides, demand for hotel stays in the last few months has come primarily from ‘staycations’, weddings, travel to driveable leisure destinations, and special-purpose groups.

Another trend of ‘Biscations’, or working from a resort, has seen traction in Q2FY22 and the early part of Q3FY22.

“The pan-India premium hotel occupancy picked up from July 2021 post relaxation of lockdown and was more than 50 percent in Q3 FY2022, better than our earlier expectations,” said Vinutaa S., Assistant Vice President, and Sector Head, ICRA.

“With the emergence of the Omicron variant and sharp rise in infections, several states have imposed partial lockdowns. This will curtail travel over the next few weeks.

“We are witnessing cancellations and hotel enquiries have dropped. A month of complete lockdown will impact FY2022 Pan-India occupancy by 4 percentage points.”

Besides, she said that notwithstanding the potential Omicron impact, the industry is expected to post healthy YoY revenue growth in FY2022 supported by Q2 and Q3 demand, closing at 50-55 percent of pre-Covid revenues for the full year.

“The net losses are likely to be lower compared to FY2021, supported by operating leverage benefits and sustenance of some of the cost-saving initiatives undertaken earlier. Hotels are likely to report pre-Covid margins at 85-90 per cent of revenues going forward,” she said.

“The FY2022 debt metrics will remain stretched and return to pre-Covid levels is sometime away. The RoCE is expected to remain sub-cost of capital at least for the next 3-4 years. Given the relatively high fixed costs in the business, any significant demand slowdown or prolonged lockdowns will require external support.”

She also said that lenders are cautious as far as the sector is concerned, and incremental external funding is largely expected to be based on promoter comfort.

“Over the medium term, ICRA expects that promoters would bring in capital or monetise assets held by companies, to improve capital structure.”

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