The hospitality sector is one of the worst affected due to the pandemic, with three out of four companies facing negative credit profiles. According to an ICRA report, the second wave has only added to their woes, derailing the industry's recovery by almost three quarters.
"With weakening credit profiles in the last 12 to 15 months and 74% entities having to face negative credit action, we continue to maintain a negative credit outlook to the sector," rating agency ICRA said in a report.
The industry has been further hit by the lockdown and restrictions since mid-April, derailing the industry’s recovery by 6 to 8 months. A return to pre-pandemic levels in room occupancy and rates is expected only by FY2024.
After two-quarters of recovery in Q3 and Q4 FY2021, the report warned of weakened operating performance and part-funding of losses through debt likely to result in stretched coverage metrics due to the second wave impacting FY2022.
Despite minimal capital expenditure, the debt/operating profit ratio is expected to exceed 2019-20 levels (of 5x) by FY2024, leaving the 'return on capital employed' at sub-cost of capital at least until FY2025.
The slowdown in demand has had a significant impact on first-quarter occupancy and average room rates, though they are still higher than the year-ago quarter. In April-June this year, occupancy was higher at 26-28 per cent, compared to 10-12 per cent in April-June 2020, with demand in May primarily coming from quarantine business for mildly infected patients. The average room revenue across the country was Rs.3,600-3,700, 8-10% higher on a year-on-year basis, although it has been impacted by the slowdown in demand since the onset of the second wave of the pandemic.
"We expect a significant scale back in FY2022 pan-India room rentals at Rs.1,300-1,500, down from an earlier estimate of Rs.2,500, as this fiscal is likely to trend at 60-65 per cent discount to pre-pandemic levels," according to the ICRA report.