The Indian hotel sector is on a roll.
Occupancy is high. Room rates are climbing. Revenue Per Available Room (RevPAR) is up.
And if you believe the commentary from hotel chains, the runway is long and clear.
According to a recent report by HVS Anarock (a global consulting firm focused exclusively on the hospitality industry), industry Average Room Rates (ARR) rose ~12% year-on-year, occupancy surged 500 basis points (5%) and RevPAR jumped 20% in April 2025.
EIH, the owner and operator of the luxury Oberoi and Trident hotel brands, reported an ARR growth of 11–13% and RevPAR growth of 14–16% across its domestic hotels in Q4 FY25, supported by 68–70% occupancy and a 9% increase in air traffic compared to the previous year.
Lemon Tree reported a 15% YoY rise in RevPAR in Q4 FY25, with ARR up 7%.
But when everything looks this good, what’s being overlooked?
The Five Stories the Sector Is Telling Itself and What Could Go Wrong
1. The Spiritual Tourism Boom
The narrative: Spiritual tourism is exploding. The market is pegged to hit USD 59 billion by 2028. Lemon Tree is adding 1,100 rooms across 15 spiritual locations.
The doubt: Pilgrimage demand often leans toward low-cost stays such as, dharamshalas, lodges, family-owned guesthouses. Can a Rs 6,000/night hotel really cash in on this trend?
The reality check: Hotels are targeting higher-value pilgrims and domestic tourists. EIH has identified cultural and heritage destinations as key growth nodes, while Lemon Tree’s spiritual expansion is almost entirely asset-light, so downside risk is limited.
2. The Wedding Windfall
The narrative: FY26 has 68 muhurat days i.e., more wedding dates than FY25. Banquets are full. Rooms are booked. ARR is flying.
The doubt: More dates mean more options, not necessarily more weddings. Plus, inflation is pinching household budgets.
The reality check: Hotels report robust occupancy and high-yield event revenues in FY25. Weddings remain a high-margin segment, especially in premium and upper-midscale hotels with banquet infrastructure.
3. Concerts and Cricket = Pricing Power
The narrative: Hotel rates surged 3x during the Coldplay tour and 10x during the ICC World Cup. The concert economy is real.
The doubt: Events come and go. Can a few weekends of inflated rates justify long-term bullishness?
The reality check: Hotels aren’t building new inventory for Coldplay. They’re learning to price dynamically. And the calendar is starting to fill up with events, sports leagues and premium conferences that help sustain pricing power.
4. Tier 2 and 3 Cities: The Next Growth Engine
The narrative: Smaller towns are the new frontier. Lemon Tree is entering Moga, Pali, Chittorgarh.
The doubt: These cities have low premium hotel demand. Who’s paying Rs 5,000+ a night in Pali?
The reality check: This expansion is through management contracts. Capital isn’t being deployed. Hotel chains provide branding and systems; risk remains with local owners. If demand materialises, hotels benefit. If not, the downside is minimal.
5. Loyalty and Direct Booking: The New Moat
The narrative: Loyalty programs and direct booking platforms will drive customer retention and reduce OTA costs.
The doubt: Loyalty takes time. Is this a game-changer or just tech packaging?
The reality check: Lemon Tree relaunched Infinity 2.0, targeting 66% retail direct bookings by CY28. EIH is also seeing traction through its digital channels, as high-end guests increasingly prefer direct, personalised engagement. OTA costs are falling as a result.
The Numbers Don’t Lie
Despite all the caveats, the FY25 numbers speak volumes.
Revenue for listed hotel companies grew 18% YoY. EBITDA rose 20%. PAT was up 27%.
EIH reported consolidated FY25 revenue of Rs 2,743 crore (up 9.2% YoY) and EBITDA of Rs 1,153 crore, while Lemon Tree posted 21% and 23% growth, respectively.
Margins aren’t just holding, they’re expanding. Lemon Tree’s Q4 FY25 EBITDA margin hit 54%, the highest among peers. EIH’s consolidated margin stood at 42%. ARR growth continues to be broad-based.
Even a temporary May 2025 demand dip (due to geopolitical tensions) didn’t derail momentum. Demand bounced back by June, thanks to rescheduled MICE events and weddings.
Looking ahead, Q1 FY26 is expected to post a strong recovery, especially given a low base in Q1 FY25, when industry RevPAR grew just 3–4% due to general elections and summer heatwaves. For Q1 FY26, industry-wide RevPAR is projected to grow in high single digits YoY.
The One Thing That Really Is Different This Time
What separates this upcycle from past ones isn’t just demand, it’s also discipline.
Supply growth remains modest. Moreover 80% of the new room inventory through FY29 will come via asset-light models.
Lemon Tree signed 15 such deals in Q4 alone.
EIH has 21 new hotels in its domestic and global pipeline, with a balanced mix of managed properties and long-term alliances.
Yes, costs are rising.
Cost inflation, especially in staffing and food, could hurt margins if pricing power weakens. Lemon Tree’s renovation spend rose to 2.7% of revenue in FY25.
Execution delays are a concern, especially in franchise and management contracts. Lemon Tree admits that launches often get pushed back due to owner-level financial issues.
And of course, if everyone piles into the same hot segments, Ayodhya, weddings, concerts, oversupply could return to haunt the industry.
Still, there’s no reckless expansion. No debt-fuelled land grabs.
Just cautious, calibrated growth.
The Bottom Line: Not a Perfect Story. Yet, a Solid One
Every growth lever has its caveats. Every bullish claim has a counterpoint. Spiritual tourism isn’t a silver bullet. Weddings aren’t immune to economic pressures.
But when demand is strong, supply is measured and capital isn’t being burned, it’s hard to be bearish.
This time, hotels aren’t just hoping demand will save them. They’re building strategies that let demand lead.
The Indian hotel story isn’t flawless. But right now, it’s surprisingly well put together.
And in a sector known for extremes, that’s saying something.
Note: We have relied on data from www.Screener.in throughout this article. Only in cases where the data was not available, have we used an alternate, but widely used and accepted source of information.
The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educative purposes only.
Manvi Aggarwal has been tracking the stock markets for nearly two decades. She spent about eight years as a financial analyst at a value-style fund, managing money for international investors. That’s where she honed her expertise in deep-dive research, looking beyond the obvious to spot value where others didn’t. Now, she brings that same sharp eye to uncovering overlooked and misunderstood investment opportunities in Indian equities. As a columnist for LiveMint and Equitymaster, she breaks down complex financial trends into actionable insights for investors.
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