Crisil Research has announced that India’s 5-star segment can expect a decrease in profit margins over the next two years due to a saturated market.
As a drop in both occupancy rates and ADR shrink revenues, simultaneously rising costs put pressure on operating margins in India’s 5-star segment. According to Crisil, Indian operating margins in the sector will drop to just over 16% in the 2013-14 period. These are the lowest margins India has seen in 10 years.As the global economic crisis slows upscale demand to a crawl, 14,500 new rooms are projected to be added to the market in the 2013-14 period, in addition to the existing 46,200 rooms. With these numbers, occupancy rates of premium hotels will fall from 64% in 2011-12 to 56% in 2013-14.The supply imbalance also means intensified competition, which is likely to cause an ADR drop by 10% for premium hotels. RevPAR for premium hotels is expected to drop from Rs5,000 per day in 2011-12 to Rs3,900 per day in 2013-14.
