COVID second wave to adversely impact hotel occupancy rates: ICRA

The resurgence of COVID-19 will adversely impact the occupancy rates of India's hotel industry for another two-three months, ratings agency ICRA said.

The pandemic's second wave has plunged the sequential occupancy rates of the industry.

Accordingly, the occupancy rate had sequentially dipped from 45 percent in March 2021 to 32-34 percent in April 2021 and further to about 25-27 percent in May 2021.

The occupancy rate had fallen to lows of 13-15 percent during the first few months of FY2021 and demand was largely limited to Vande Bharat repatriation travelers, medical or other frontline workers, stranded travelers and work-from-hotel guests.

After hotels reopened gradually from Q2 FY2021, demand came from staycations, drive-to-leisure and wedding 'Meetings, Incentives, Conferences, and Exhibitions' (MICE) and occupancies inched closer to 50 percent in Q4 FY2021 providing a healthy dose of optimism to the industry.

As per ICRA, the recently expanded scope of ECGLS has come as a relief for larger hotel companies.

Under the expanded scope of the scheme, Centre has recently removed Rs 500 crore ceiling cap on loan outstanding for eligibility under the ECLGS 3.0, subject to a maximum assistance of Rs 200 crore or 40 percent of the borrowings whichever is lower.

Centre had launched the ECLGS in May 2020 to protect the MSME sector from the massive economic upheaval caused by the pandemic.

"About 70 percent of ICRA's hospitality portfolio applied for moratorium during the first wave," said Vinutaa S, Assistant Vice President and Sector Head, ICRA Ratings.

"Subsequently, most companies availed debt under ECLGS 1.0 and 2.0, and through other long-term debt to shore up their liquidity for meeting operational and financial commitments. Some companies also resorted to equity fund raising from investors and promoters."

According to ICRA, the recent expansion is a welcome move and is expected to benefit larger hospitality companies.

"About 32 percent of ICRA rated debt is incrementally eligible for loan availment because of the cap removal."

Besides, a severe impact of the pandemic has resulted in a sharp increase in downgrades.

"About 70 percent of the entities are on negative credit outlook, compared to 92 percent of the entities with stable outlook in January 2020," ICRA said.

"The industry credit profile is expected to weaken with the second wave derailing the recovery momentum and this could result in more negative rating actions."

Currently, ICRA expects the occupancy and 'RevPAR' to be adversely impacted, at least over the next two-three months because of the second wave.

"The industry 'RevPARs' would be tied to the pandemic timelines, although widespread vaccination rollout would ease the situation to an extent."

"The situation is still evolving and remains a monitorable. Recovery to pre-COVID levels is still at least two years away."