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Omicron variant dampens sentiments for hotel industry: ICRA
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SME Times News Bureau | 06 Jan, 2022
Hotel industry demand is expected to be curtailed in Q4FY22 due to Covid-19's Omicron variant, said ratings agency ICRA.
According
to the agency, demand recovered at a sharp pace post Covid 2.0, aided
by easing restrictions, high pace of vaccination, and pent-up demand.
Besides,
demand for hotel stays in the last few months has come primarily from
'staycations', weddings, travel to driveable leisure destinations, and
special purpose groups.
Another trend of 'Biscations', or working from a resort, has seen traction in Q2FY22 and the early part of Q3FY22.
"The
pan-India premium hotel occupancy picked up from July 2021 post
relaxation of lockdown and was more than 50 per cent in Q3 FY2022,
better than our earlier expectations," said Vinutaa S., Assistant Vice
President and Sector Head, ICRA.
"With the emergence of the
Omicron variant and sharp rise in infections, several states have
imposed partial lockdowns. This will curtail travel over the next few
weeks.
"We are witnessing cancellations and hotel enquiries have
dropped. A month of complete lockdown will impact FY2022 Pan-India
occupancy by 4 percentage points."
Besides, she said that
notwithstanding the potential Omicron impact, the industry is expected
to post a healthy YoY revenue growth in FY2022 supported by Q2 and Q3
demand, closing at 50-55 per cent of pre-Covid revenues for the full
year.
"The net losses are likely to be lower compared to FY2021,
supported by operating leverage benefits and sustenance of some of the
cost-saving initiatives undertaken earlier. Hotels are likely to report
pre-Covid margins at 85-90 per cent of revenues going forward," she
said.
"The FY2022 debt metrics will remain stretched and return
to pre-Covid levels is sometime away. The RoCE is expected to remain
sub-cost of capital at least for the next 3-4 years. Given the
relatively high fixed costs in the business, any significant demand
slowdown or prolonged lockdowns will require external support."
She
also said that lenders are cautious as far as the sector is concerned,
and incremental external funding is largely expected to be based on
promoter comfort.
"Over the medium term, ICRA expects that
promoters would bring in capital or monetise assets held by companies,
to improve capital structure."
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