Reflecting a sluggish economic scenario and lower business and consumer sentiment, the hospitality industry is set to finish fiscal 2012 on a weaker note.
With softer average room rates (ARRs), hotel companies are likely to report muted growth and lower operating margins for Q4 and fiscal 2012, say industry analysts.
It has been a double whammy for hospitality companies. On the one hand, the sector is grappling with high input costs and, on the other, room rates have been under pressure owing to the increased supply.
As per the estimates of brokerage firm ICICI Securities, despite the last quarter being the peak season for the hotel industry, major hotel players are likely to report a moderate growth of 5-6% year-on-year in revenues during the fourth quarter of fiscal 2012.
?Even though volume-wise the business has grown, ARRs have been soft. This year, growth for the sector will be flat,? said Rashesh Shah, research analyst at ICICI Securities.
Hoteliers also agree that room rates and higher input costs are putting pressure on hotel margins.
?Occupancy has been good in Q4, but with oversupply in many key markets, there has been no scope to hike room rates,? said Suresh Kumar, president, ITC Fortune Hotels.
At the same time, interest cost continues to impact the bottomline of hotel players such as Hotel Leelaventure, Royal Orchid Hotels and Kamat Hotels.
A new Icra report cites a bleak macroeconomic picture for the hospitality industry?s sluggish growth. Globally weak macroeconomic scenario, the European sovereign debt crisis, geo-political turmoil in the Arab countries, high interest rates, inflation and a muted domestic corporate performance during the current fiscal have sapped the industry?s ability to sustain inflation adjusted average room realisations. Muted ARRs and high costs have led to one of the weakest nine-month periods (April-December) in over five years, the report said. Analysts at Icra expect ARR growth during the current fiscal to be limited to around 5%, and a little better at around 5-8% during fiscal 2013.
ICICI Securities in its preview for the last quarter of the fiscal (Q4) expects net profit of Indian Hotels to remain flat year-on-year, while EIH?s (which operates the Oberoi chain) net profit to decline 26% to R50 crore mainly due to a sharp decline in other income during Q4FY12. Small players like Royal Orchid are expected to report net profit growth of 2% year-on-year, while Kamat Hotels is expected to report a net profit of about R0.2 crore.