The domestic hospitality industry is projected to see a 9–12% year-on-year revenue growth in FY26, supported by various factors like domestic leisure travel, MICE activities, weddings, and corporate demand, as per a recent report by ICRA. Despite a high base in FY25, the industry’s growth outlook remains positive. Average room rates are anticipated to rise to Rs 8,200–8,500 from Rs 8,000–8,200 in FY25, driven by sustained demand and strong pricing power.
Premium room inventory in 12 major cities is forecasted to grow at a CAGR of 5–6% between FY2025 and FY2026, slightly below the estimated demand growth of 8–9%. However, there may be a persistent demand-supply imbalance over the next few years, according to ICRA. Operating margins for premium hotels are expected to be around 34–36% in FY26, aligning with the 35.8% in FY25 and significantly higher than the pre-COVID levels of 20–22%.
The industry has witnessed healthy cash accruals in recent years, leading to stronger balance sheets, reduced leverage, and improved debt coverage ratios among rated entities. ICRA maintains a stable credit outlook for the hotel industry, supported by sustained demand visibility and disciplined capacity expansions. The adoption of asset-light expansion models through management contracts and franchise arrangements is becoming more prevalent among hotel companies, enhancing return on capital employed and promoting free cash flow generation.
Moreover, the demand drivers for the industry have diversified to include corporate travel, weddings, social events, MICE activities, concerts, sports events, religious tourism, and leisure travel to Tier-2 and Tier-3 cities.
