Higher Occupancy, Rising Room Rates and Expanding Hotel Pipelines Strengthen Long-Term Growth Outlook for the Hospitality Sector

India’s hospitality industry is witnessing a robust recovery, driven by a sharp rebound in domestic travel, improving foreign tourist arrivals and sustained business travel. Reflecting this positive momentum, ICICI Securities has reaffirmed its ‘Buy’ recommendation on several leading hotel companies, citing strong operating performance, healthy pricing power and an optimistic long-term outlook for the sector.

The brokerage has maintained positive ratings on ITC Hotels, Indian Hotels Company (IHCL), Leela Palaces Hotels & Resorts, Chalet Hotels, Lemon Tree Hotels, and Brigade Hotel Ventures, expecting these companies to benefit from rising demand and continued expansion across India’s hospitality market.

Hotel Demand Rebounds Strongly in May

According to ICICI Securities, the Indian hotel industry posted an impressive recovery during May 2026, following a temporary slowdown caused by geopolitical uncertainties during the corresponding period last year.

Industry-wide Revenue Per Available Room (RevPAR) increased by more than 20% year-on-year, reflecting a combination of higher occupancy levels and stronger room pricing.

The growth was supported by:

• Around 10% increase in Average Room Rates (ARR)

• Occupancy improving by nearly 700 basis points

• Industry-wide occupancy reaching approximately 63–65%

The brokerage noted that the strong performance was partly aided by a favourable base but also reflected a genuine improvement in travel demand across key markets.

Domestic Tourism Continues to Drive Growth

Domestic travellers remain the backbone of India's hospitality industry.

Leisure travel, weekend tourism, destination weddings, religious tourism, corporate events and business conferences have all contributed to higher occupancy levels across premium, upscale and mid-market hotels.

Growing disposable incomes, improved road and air connectivity, and changing consumer preferences have encouraged more Indians to travel throughout the year rather than only during traditional holiday seasons.

This sustained domestic demand has helped hotels maintain healthy occupancy even during non-peak travel periods.

International Tourist Arrivals Improve

The brokerage also highlighted encouraging signs of recovery in inbound international tourism.

Foreign visitor arrivals strengthened during May and June, supporting premium hotels located in major metropolitan cities, business hubs and popular tourist destinations.

Higher international traffic not only boosts occupancy but also contributes to improved average room rates, as overseas travellers generally spend more on accommodation and hospitality services.

The gradual normalization of global travel is expected to further strengthen this trend in the coming quarters.

Healthy Outlook for the First Quarter of FY27

Based on current booking trends and industry feedback, ICICI Securities expects the hospitality sector to report another strong quarter.

The brokerage estimates same-store RevPAR growth of 8–12% year-on-year during Q1 FY27, indicating that demand remains resilient despite global economic uncertainties.

Improving occupancy and pricing are expected to translate into stronger revenues and enhanced operating margins for listed hotel companies.

Room Rates Expected to Remain Firm

One of the strongest tailwinds for the sector continues to be pricing power.

ICICI Securities projects Average Room Rates (ARR) to grow at a 6–8% compound annual growth rate (CAGR) between FY26 and FY29, provided there are no prolonged geopolitical disruptions.

Several structural factors continue to support room pricing:

• Strong leisure demand

• Increasing business travel

• Growth in Meetings, Incentives, Conferences and Exhibitions (MICE)

• Rising international tourism

• Limited premium hotel supply in major cities

These factors are expected to help hotels maintain healthy profitability over the medium term.

Occupancy Levels to Improve Further

Apart from higher room tariffs, occupancy is also projected to strengthen gradually.

The brokerage expects occupancy across organized hotel chains to improve by 50–100 basis points annually during FY27 and FY28, supported by sustained travel demand and increasing tourist arrivals.

Higher occupancy enables hotel operators to improve operational efficiency, resulting in better margins and stronger cash generation.

Expansion Strategy Shifts Towards Asset-Light Growth

A key trend shaping the hospitality industry is the growing preference for asset-light expansion.

Instead of investing heavily in owning hotel properties, many operators are increasingly expanding through management contracts and franchise agreements.

ICICI Securities estimates that more than 80% of incremental room additions between FY26 and FY29 will come through management contracts.

This strategy enables hotel companies to scale rapidly while maintaining lower capital expenditure and higher returns on capital employed.

Meanwhile, companies with strategic land banks are expected to selectively develop new owned properties or acquire operational hotels in high-demand locations.

Earnings Growth Outlook Remains Robust

Supported by new room additions, healthy pricing and improving occupancy, ICICI Securities expects listed hotel companies to deliver EBITDA growth of 15–20% CAGR between FY26 and FY29.

The brokerage believes operating leverage, disciplined cost management and expanding hotel portfolios will continue to support profitability.

As more hotels become operational and mature properties achieve higher occupancy, earnings visibility across the sector is expected to improve further.

Preferred Hotel Stocks

Based on its positive sector outlook, ICICI Securities continues to recommend the following hospitality companies:

• ITC Hotels

• Indian Hotels Company (IHCL)

• Leela Palaces Hotels & Resorts

• Chalet Hotels

• Lemon Tree Hotels

• Brigade Hotel Ventures

These companies are considered well positioned due to their strong brands, diversified portfolios, expansion pipelines and improving financial performance.

Long-Term Drivers Remain Intact

Beyond the immediate recovery, India's hospitality sector continues to benefit from several long-term structural growth drivers, including:

• Rising middle-class incomes

• Growing domestic tourism

• Expansion of airport infrastructure

• Increasing corporate travel

• Government initiatives promoting tourism

• Rising demand for premium and luxury experiences

• Growth in religious, wellness and experiential tourism

These trends are expected to support sustained demand for hotel accommodation over the coming decade.

Outlook

India's hospitality sector appears well positioned for another phase of sustained expansion, supported by improving travel activity, strong pricing power and continued capacity additions.

The combination of robust domestic tourism, recovering international arrivals, healthy occupancy levels and an asset-light growth strategy is expected to drive strong earnings growth for leading hotel operators.

For investors, the sector offers attractive long-term opportunities as India's travel ecosystem continues to expand alongside rising consumer spending, infrastructure development and increasing global connectivity. With demand expected to remain resilient and supply additions carefully managed, organized hotel companies are likely to remain among the key beneficiaries of India's evolving tourism and hospitality landscape.