Hospitality Industry’s Pre-Covid Level Recovery Expected by FY24: ICRA

The recovery of the hospitality industry, after getting derailed by the second Covid wave, is expected to return to pre-Covid levels only in 2023-24, said rating agency ICRA. 

Since mid-April, the industry has been affected by the pandemic-related lockdowns or restrictions on mobility by various states, ICRA said in a statement.

The industry was impacted in the first quarter of the ongoing fiscal after two-quarters of sequential recovery witnessed in the third and fourth quarter of the previous fiscal, it added.

Commenting on the scenario, ICRA Sector Head and Assistant Vice President Vinutaa S said the intensity of 'Covid 2.0' has been far steeper than the first and it has put a temporary brake on the industry's recovery path. 

"We expect a significant scale back in 2021-22 pan-India RevPAR (Revenue per available room) estimated to Rs 1,300 - Rs 1,500, from an earlier estimated RevPAR of about Rs 2,500. 2021-22 RevPAR is likely to be at a 60-65 per cent discount to pre-Covid levels," Vinutaa added.

Although this will be an improvement from the low base of 2020-21, the pandemic timelines pose downside risks to the estimates. The situation is still evolving and remains contingent on the pace of vaccination, efficacy of vaccines, high infection rates, and the possibility of a third Covid wave. 

"We expect a long road to recovery, with the revenue recovery to pre-Covid levels expected only by 2023-24. ICRA continues to maintain a negative credit outlook on the sector," Vinutaa said.

ICRA said the pick-up in demand in the second half of 2020-21 was largely led by leisure travel, 'staycations', wedding MICE, and higher F&B revenues. Some business travel in specific sectors also aided recovery. 

However, with demand and occupancy declining severely in Q1 FY2022 due to cancellation of several events, travel restrictions, revenues are expected to witness a drop of 50-55 per cent quarter-on-quarter basis, although the decline would be lower than Q1 FY2021, which was marred by the pan-India complete lockdown, it said.

ICRA's industry sample is expected to report operating losses in 2021-22 as well, although it will be lower at low-single-digit, compared to the 23 per cent operating loss witnessed in 2020-21. This will be supported by better operating leverage and sustenance in fixed cost-saving initiatives undertaken in 2020-21, the rating agency added.

"The debt levels rose in 2020-21, owing to incremental borrowings for meeting financial and operational commitments and push-back of debt repayments because of availment of the RBI-provided moratorium. Given the second wave and delayed recovery, ICRA expects the industry sample to report cash losses in 2021-22 as well," Vinutaa said.