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India's hotel industry is expected to recover its momentum as the West Asia conflict impact normalises and foreign travel returns to pre-war levels, Kotak Securities said in a report.
With occupancy likely inching toward 72 per cent and Annual Recurring Revenue compounding at 6.4 per cent Compounded Annual Growth Rate, the brokerage projects 16 per cent EBITDA CAGR for its coverage universe over FY2026-28E. Stock performance will hinge on how quickly the crisis resolves and whether ARR growth beats Street expectations. India's hospitality sector delivered modest results in 4QFY26 as geopolitical tensions weighed on demand. RevPAR grew 5.3 per cent YoY to Rs 6,868/day, supported by 6.3 per cent YoY ARR growth to Rs 10,100/day but offset by a 67 bps YoY drop in occupancy to 68 per cent. The weakness was driven by lower foreign travel in March 2026 due to the West Asia war. According to the Kotak Securities report, for FY2026, RevPAR rose 7.4 per cent YoY to Rs 5.7k/day on 7.4 per cent YoY ARR growth to Rs 8.8k/day and healthy 65 per cent occupancy. The year faced multiple disruptions: the India-Pakistan conflict in 1QFY26, the IndiGo airline crisis in 3QFY26, and the West Asia tensions in 4QFY26. Kotak expects the dip in occupancy to reverse in the coming quarters. 4QFY26 room rates of Rs 10.1k/day and 68 per cent occupancy form a base as foreign travel demand picks up. Earnings momentum should follow. 4QFY26 aggregate EBITDA rose 11 per cent YoY, led by The Leela +17 per cent, IHCL +14 per cent and ITC Hotels +13 per cent. ARR improvement was offset by lower occupancy, keeping RevPAR growth modest. On supply, signings accelerated, but commissioning stayed measured. India signed 14k new keys in 4QFY26, taking FY2026 signings to 61.9k versus 41k in FY2025. Actual supply addition was just 2.9k keys in 4QFY26 and 13.3k keys for FY2026, similar to 15-16k added in each of the last two years. Kotak highlights that the 4-5 year gestation period and execution slippages will keep incremental supply measured. Kotak Securities report said that the brokerage models 8 per cent supply CAGR over FY2026-31E, taking branded inventory to 310k keys. Demand, measured as room nights sold, should grow faster at a nine per cent CAGR. That gap should support pricing power. Kotak builds 6.4 per cent ARR CAGR and occupancy gradually climbs toward 72 per cent over the period. Valuations have corrected in the past quarter, but Kotak notes upside depends on the resolution of the current crisis and ARR growth surprising positively. With demand tailwinds intact and supply discipline likely, the upcycle investments by hoteliers should translate into stronger earnings once geopolitical noise subsides. (ANI)
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