Hospitality has been one of the first and most affected sectors due to the pandemic
According to a report, three out of four companies in the hospitality sector have faced negative rating actions with respect to their credit profiles due to the impact of the COVID-19 pandemic, and the second wave derailed the recovery of the industry by almost three quarters. has taken off.
Being one of the high-contact sectors, hospitality has been one of the first and worst hit sectors due to the pandemic, and the second wave has only added to their woes as it comes at a time when the industry is on its way. was. health benefit.
“Since mid-April, the pandemic-related lockdown/restriction on mobility by various states has affected the industry and increased vigilance for travel due to the fear of infection,” ICRA said in a statement.
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“We continue to maintain a negative credit outlook on the hospitality sector, as their credit profile has weakened in the last 12-15 months, with 74 per cent of entities facing negative rating actions,” rating agency ICRA said in a report on Wednesday. is.” .
The report also noted that the second wave has derailed the recovery of the industry in 6-8 months, and is expected to return to pre-pandemic levels by the financial year 2023-24.
The report mentions the impact of the second wave of the pandemic on the industry in the first quarter of FY12 after two quarters of sequential recovery in Q3 and Q4 of FY21 till mid-March this year. It warned that coverage metrics are likely to increase in FY22 as well, as a result of weak operating performance and partial financing of losses through debt.
Commenting on the scenario, ICRA Sector Head and Assistant Vice President Vinuta S said that the intensity of ‘Covid 2.0’ has been faster than ever before and has put a temporary brake on the recovery path of the industry.
“We expect the all India revpar (revenue per available room) in FY22 to be Rs 1,300 to Rs 1,500 on a significant scale from the earlier estimated revpar of Rs 2,500. 60- of FY2022 RevPAR. There is likely to be 65 per cent relaxation at pre-Covid levels,” Vinuta said.
While this will improve from the low base of FY21, the timeline of the pandemic poses risks contrary to projections. The situation is still evolving and depends on the pace of vaccination, the efficacy of the vaccines, the high infection rate and the likelihood of a third COVID wave.
The all-India average room revenue stood at Rs 3,600-3,700, up about 8-10 per cent on a year-on-year basis, though the slowdown in demand since the start of the pandemic has hit it.
“We expect a long road to recovery, with only revenue recovery at pre-Covid levels by FY2024. ICRA continues to maintain a negative credit outlook on the sector,” Vinuta said.
Going on the long road to recovery, the report said that the improvement in room occupancy and rates is expected only till FY24.
It said that the debt/operating profit ratio, excluding the ‘return on capital employed’, on sub-cost of capital at least up to FY25, notwithstanding the minimum capital outlay, will be at the level of 2019-20 (FY24) till FY24. 5x) is expected to exceed.
The slowdown in demand significantly impacted first-quarter occupancy and average room rates, although this is better than the level of the year-ago quarter. As against 10-12 per cent occupancy in April-June 2020, it was 26-28 per cent higher in April-June this year, with the demand in May largely coming from the quarantine business for mildly infected patients.
ICRA said the pick-up in demand in the second half of 2020-21 was mainly due to leisure travel, ‘stay’, wedding MICE and higher F&B revenues. Some business travel to specific areas also aided in the recovery.
However, with a sharp drop in demand and occupancy in Q1 FY2022 due to several events, cancellation of travel restrictions, revenue is expected to see a decline of 50-55 per cent on a quarter-on-quarter basis, though the decline is less than that of Q1 FY2021. Will be , which was affected by the pan-India complete lockdown, it said.
ICRA’s industry sample is expected to report operating losses in FY22 as well, though it will be lower at low-single digits compared to the 23 per cent operating loss seen in FY21. This will be supported by improved operating leverage and sustenance in the fixed cost savings initiative launched in FY21, the rating agency said.
“Debt levels rose in FY21 due to push-back of loan repayments on account of incremental borrowing to meet financial and operational commitments and the benefit of the moratorium granted by RBI. In view of the second wave and delayed recovery, ICRA expects the industry sample to report cash loss in FY22 as well,” Vinuta said.
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