NEW DELHI — India’s hospitality sector is expected to maintain strong momentum in fiscal year 2026, with revenues projected to grow 9% to 12% year over year, supported by steady leisure travel, corporate demand and a surge in events, according to a new report by ICRA.
The ratings agency said the growth outlook remains favorable despite the high base of FY25, as demand continues to be driven by domestic leisure travel, meetings, incentives, conferences and exhibitions (MICE), weddings and resilient corporate activity.
ICRA projects average room rates (ARRs) to rise to Rs 8,200–8,500 in FY26, compared with Rs 8,000–8,200 in FY25, citing sustained demand and healthy pricing power across the premium segment.
At the same time, premium room inventory across 12 key cities is expected to expand at a compound annual growth rate of 5% to 6% over FY2025–FY2026. That trails estimated demand growth of 8% to 9%, suggesting that the demand-supply imbalance is likely to persist over the next two to three years.
Operating margins for premium hotels are projected at 34% to 36% in FY26, broadly in line with the estimated 35.8% in FY25. Those levels remain significantly higher than the 20% to 22% margins seen before the COVID-19 pandemic.
ICRA noted that strong cash accruals over the past two fiscal years have strengthened balance sheets across rated hotel entities, enabling deleveraging and improving debt coverage metrics.
The agency expects the industry’s overall credit outlook to remain stable, supported by sustained demand visibility and disciplined capacity additions.
“Hotel companies are increasingly adopting asset-light expansion models through management contracts and franchise arrangements,” ICRA said.
“These models generate fee-based income with lower capital intensity, improve return on capital employed and support stronger free cash flow generation,” the agency added.
ICRA also pointed to the broadening of demand drivers, including corporate travel, weddings and social gatherings, MICE events, concerts, sporting events, religious tourism and leisure travel to Tier-2 and Tier-3 cities.
The report suggests that with diversified demand streams and controlled supply growth, the hospitality sector is positioned to sustain healthy performance into FY26. (Source: IANS)
