India’s hotel industry is bracing for a stronger second half of the fiscal year, with sector executives and analysts pointing to easing geopolitical tensions and resilient domestic demand as the key drivers, even as the March quarter bore the brunt of disruptions tied to the conflict in West Asia.
A note from Nomura’s Global Markets Research, dated June 15, said the sector’s fourth quarter revenue and EBITDA grew 12% and 9% year-on-year, respectively. According to the report, the first quarter of FY27 is expected to be strong for the companies mentioned below as they cater to delegation travel and have super-luxury properties.
Domestic demand picks up the slack
The Nomura report further noted that the hotel companies leaned heavily on domestic travellers to offset the dip in foreign tourist arrivals during the quarter.
At Leela Palaces Hotels & Resorts, management said the international share of business had slipped from roughly 50% to around 40%, with domestic business making up the difference at close to 60%. The company said cancellations of MICE (meetings, incentives, conferences and exhibitions) bookings in March had largely been deferred rather than lost, with credit notes issued and a high proportion of that business expected to return over the following two quarters.
Indian Hotels Company (IHCL) management said industry fundamentals remained favourable on the back of resilient domestic demand and limited incremental supply in key markets, even as the company watches how the international mix evolves through the year.
Brigade Hotel Ventures said its foreign tourist arrival mix had fallen to around 25% from a more typical 30%, but that occupancy had held up, and average daily rates had continued to climb as domestic travellers filled the gap.
Tier 2 and 3 markets emerge as a bright spot
The brokerage firm also suggested that domestic demand has shifted. People who used to plan foreign vacations are opting for destinations within India as a consequence of a weaker rupee.
According to Leela Palaces Hotels & Resorts, the company’s extensive sales network helps it attract customers directly, thereby allowing the chain to generate about two-thirds of its revenue without depending on third-party booking platforms. According to the report, this gives it greater control over pricing, customer relationships and profitability.
Chalet Hotels said that its leisure segment continued to perform strongly with a significant upside which was expected from its recently acquired property in Khandala. The company further added that the property is still ramping up occupancy and operating performance.
Juniper Hotels, which operates assets in Delhi, Mumbai and Ahmedabad, said it had not seen major disruption in April and May despite a foreign tourist arrival dependency of roughly 25-30%, with domestic business travel continuing to hold steady.
Super-luxury segment leads on rates, takes a hit on occupancy
Average daily rates grew fastest in the super-luxury segment during the quarter, with EIH (Oberoi) and Leela posting growth of 12-15% year-on-year.
IHCL’s standalone average daily rate rose 9%, aided by strong January-February seasonality and an AI summit held in the National Capital Region. Ventive Hospitality’s India business saw rates rise 12%, helped by its exposure to the Pune market.
Other listed operators recorded rate growth of 5-8%, with Nomura attributing the relatively softer pace to the impact of the war in the Middle East.
On the other side, the report also noted a sharper hit to occupancy at the super-luxury end. EIH and Leela saw occupancy declines of 4-6% during the quarter, which, as per the report, was because of the reduction in international guests. The super-luxury end is said to be 50% of their business.
Other operators were broadly able to hold occupancy levels steady despite the disruption to flights and business travel caused by the conflict. IHCL was the only company in Nomura’s coverage that managed to grow both occupancy and average daily rates simultaneously during the quarter, according to the note.
Revenue per available room growth across most operators came in at a moderate 4-6% for the quarter, with super-luxury players such as EIH and Leela seeing growth driven more by rate increases than occupancy. IHCL and Ventive Hospitality were among the better performers on this metric, posting RevPAR growth of 11-12%, led largely by rate gains.
Early signs of recovery in the new fiscal
Nomura also pointed out that the early weeks of the new fiscal year had shown signs of stabilisation after a soft start to April. According to Leela, occupancy in April had recovered to levels seen a year earlier, with healthy RevPAR growth, and that it expected double-digit revenue and EBITDA growth for the first quarter.
Chalet Hotels said April had surprised on the upside, though partly because the year-ago base was weak due to Operation Sindoor, and described May as “really strong” with June expected to be steady.
Juniper Hotels said average rates for its portfolio had grown 1-2% in April, with occupancy for the month-to-date in May running about 10 basis points higher year-on-year on a consolidated basis. Lemon Tree Hotels said it had deliberately prioritised occupancy growth over rate increases from mid-March, given the temporary dip in demand, and that occupancy levels had since hit what the company described as a “ceiling.”
Earnings outlook trimmed, but growth still expected
Nomura estimated that consensus EBITDA estimates for the sector had been cut by 3% for FY27 and 4% for FY28. Even so, the brokerage expects the sector to deliver EBITDA growth of 14% in FY27 and 16% in FY28.
At the sector level, fourth-quarter EBITDA margins contracted by about one percentage point year-on-year, while full-year margins for FY26 held roughly flat at 37.3%.
Valuations seen as attractive
Nomura said sector valuations, at around 15 times FY28 EV/EBITDA, were trading at levels last seen between FY10 and FY14. The brokerage said it expects a rerating as visibility on the geopolitical situation improves, and reiterated its “buy” rating on both Indian Hotels Company, with a target price of Rs 800, and Leela Palaces Hotels & Resorts, with a target price of Rs 530.
For IHCL, Nomura cited visibility on rate growth amid constrained supply, an improving return on capital profile driven by its asset-light expansion model, and the company’s positioning relative to its 2030 targets for revenue and returns.
For Leela, the brokerage pointed to potential RevPAR growth in the high-single to low-double digits, supply constraints in the super-luxury segment, and a capex plan it believes is comfortably funded by projected operating cash flow over the next three years.