While the first few months of FY2022 were impacted because of Covid 2.0, the industry witnessed faster-than-expected ramp up in Q2 FY2022, because of lower restrictions, increasing pace of vaccination and pent-up demand, which resulted in revenge travel.
The industry is expected to clock at least 45-50% of pre-Covid revenues in FY2022. Further, it is also likely to report operating profits in the current fiscal, aided by improved operating leverage and sustenance of some of the cost-optimisation measures undertaken in FY2021. However, the situation is still evolving and remains contingent on the efficacy of vaccines and a potential third Covid-19 wave.
The industry has raised about `660 crore of equity in FY2021 and has announced `3,300 crore of equity/fund raising plans in FY2022. ICRA expects further equity fund raising/asset monetisation to support capital structure improvement going forward.
The hotel industry demand has recovered at a sharper pace post Covid 2.0 compared to last year’s lockdown, aided by the easing of restrictions in Q2 FY2022. Partial lockdown as well as travel restrictions in many states in April and May 2021 post the onset of Covid 2.0 resulted in the ICRA sample of companies reporting a 56% decline in revenues on a QoQ basis, in line with the ratings agency’s estimates. However, the revenues are expected to improve by 85-90% sequentially in Q2 FY2022.
Occupancy has picked up, with the August-21 Pan-India premium hotel occupancy at 44-46%. For 5M FY2022, the same is estimated to be 32-34% (up from 13-15% in 5M FY2021) vis-à-vis 46-48% in Q4 FY2021. The Pan-India ARRs are estimated at `3,850-3,950 for 5M FY2022 and still remain at a 25-30% discount to pre-Covid levels, although some high-end hotels and leisure destinations have even seen ARRs return to pre-Covid levels in Aug-21/Sep-21. Travel during the festive season will act as a key demand booster for the industry in Q3 FY2022.
Giving more insights, Ms. Vinutaa S, Assistant Vice President and Sector Head, ICRA Limited says, “While the first few months were impacted, the industry witnessed faster-than-expected ramp up in Q2 FY2021, because of lower restrictions, high vaccination pace and pent-up demand, which resulted in revenge travel. Demand in the last few months has come from staycations, weddings and travel to driveable leisure destinations, and from special purpose groups. There is the new trend of biscations (which is working from a resort) that is picking up. Business travel pickup has been mainly to project sites/manufacturing locations from specific sectors. The Covid-related demand which was prevalent April mid to June mid, waned from July and we are seeing real demand pick up. The situation is evolving, and sustenance of demand will depend on efficacy of vaccines and a potential third Covid wave. The industry is currently cautiously optimistic.”
Most markets reported over 50% occupancy in Jul-21 and Aug-21, the key markets – Jaipur, Goa, Delhi, Mumbai and Hyderabad displayed healthy occupancies whereas Bangalore and Pune lagged behind. The ARRs in leisure destinations were above pre-Covid levels in Jul-21 and Aug-21. Going forward, ARRs will be a function of sustenance of demand.
The demand recovery pattern has different from other crises, with properties with affiliated strong brands and in the luxury segment standing to benefit, as trust and safety are paramount. Drive-to leisure, staycations, social MICE/weddings and special purpose groups are expected to drive revenues for hotels for the next one year at least. International traffic arrivals will take time to pick-up and in the intervening period, demand will be supported by domestic travel. Hotels/cities dependent on business travel/foreign tourist arrivals (FTAs) will also take considerable time to recover.
In terms of supply, in the immediate term, temporary shutdowns are possible in affected regions, if there is a third wave. Acquisitions and industry consolidation are the way forward, and rebranding in the midscale and upscale segments will add to share of organised supply. Over the medium term, a part of pre-Covid supply may be permanently shelved, while there could be new properties coming up in leisure destinations.
“The hotel industry is expected to clock at least 45-50% of pre-Covid revenues in FY2022. Further operating profits in the current fiscal will be aided by improved operating leverage and sustenance of some of the cost-optimisation measures undertaken last fiscal. However, pre-Covid revenues and profits are likely only by FY2024. As a result of sustenance of some cost-saving measures, the breakeven is expected to reduce and hotels are likely to report pre-Covid margins of 85-90% of revenues going forward. Nevertheless, the situation is still evolving and as the estimates are contingent on timelines tied to the pandemic,” added Ms. Vinutaa.
Moratorium and ECLGS provided the much-needed financial support during Covid-19. About 70% entities in ICRA’s hospitality portfolio availed moratorium during the first wave, though it was only 39% of rated debt. Some companies also raised funding through equity and debt tie-ups before ECLGS announcement. However, debt metrics are expected to return to pre-Covid levels only over the medium term, while RoCE is expected to remain sub cost-of capital at least for the next few years.
ICRA continues to have a negative outlook on the Indian hotel industry, as the sustenance of the demand pickup in the recent months remains to be seen. A potential third wave and its impact on travel and hotel occupancies cannot be ruled out. Further, the RevPAR is still significantly lower than pre-Covid levels. About 63% of ICRA’s ratings are also on negative outlook currently.
According to new forecasts from IWSR, global beverage alcohol is showing positive signs of recovery, and is projected to grow in volume by +2.9% by the end of 2021.
Total beverage alcohol volume decreased by -6.2% globally in 2020, impacted by the near complete shutdown of bars and restaurants around the world. Though an unprecedented downturn, the -6.2% decline was less than previously forecast, as several factors ultimately helped the industry last year, such as: acceleration of e-commerce (up +45% from 2019, to reach US$29 billion in 2020), growth of RTDs, strong at-home consumption in key markets, and resilience and growth in the US and China.
Another pre-Covid trend that will continue to accelerate beverage alcohol recovery is product premiumisation. Though the economic impact of Covid-19 has led to restricted spending for some, alcohol is an affordable luxury for those willing to spend. IWSR forecasts that premium-and-above wine and spirits will increase by +25.6% in total volume 2020-2025 (compared to +0.8% volume growth over the same period for brands in lower price tiers).
By 2023, IWSR expects total beverage alcohol consumption to return to pre-Covid levels, with consumption steadily increasing through to 2025. Recovery will be boosted by the industry pivoting rapidly in key markets, the momentum of e-commerce and RTDs, and increasing sophistication of the at-home occasion in many markets. The two fastest-growing categories, according to IWSR forecasts, are no-alcohol spirits and RTDs.
“In many global markets, Covid-19 accelerated the impact and growth of key industry drivers, such as the development of e-commerce, premiumisation, the rise of the ‘home premise’, moderation, and the need for convenience in product formats,” says Mark Meek, CEO, IWSR. “These are the trends that will also underpin the industry’s resilience as it pivots to meet consumers where they are in the years to come. Additionally, across many markets, some segments of the population now have significantly more disposable income than they did in 2019, some of which will be spent on beverage alcohol products.”
As a result of the lockdown in India last year, total alcohol volume plummeted 30%, but the market is expected to rebound to more than 8% volume (CAGR 2021-2025). Spirits are predicted to rise by nearly 5% over the four-year period, while beer will increase by 13%.
Whisky sales in India declined by 16%, but the IWSR noted that ultra-premium-and-above Scotch witnessed growth, along with Irish and Japanese whiskies, where were boosted by rich consumers.
IWSR’s analysis of the outlook of the global beverage alcohol market also shows:
Tequila overtakes rum to become the third-largest spirits category in the US
The global tequila category grew by +9.6% in 2020, driven especially by gains in the US (the world’s largest tequila market) where tequila is now the third-largest spirits category in the country (behind vodka and whisky). Also, thanks in large part to the success of tequila, consumer awareness and interest in mezcal has also lifted that category, and agave-based spirits overall are expected to grow +4.7% (volume CAGR 2021-2025).
Whisky sub-categories have been more impacted by Covid-19, but show long-term resilience
Global whisky experienced a -10.7% volume decline in 2020, but the category is forecasted to rebound in 2021 and continue on its growth path, bolstered by the US and India. Whiskies are among the fastest-growing sub-categories of spirits: Irish whiskey will be aided by the return of the on-trade and strength of new entrants; growth in Japanese whisky and US whiskey will mainly come from both of their respective home markets. Most of the growth for Scotch whisky will come from delayed recovery in the key market of India and eventual revival of global travel retail, especially for premium Scotch.
Gin grows, vodka remains flat
Gin is forecasted to increase +4.5% CAGR 2021-2025, driven notably by Brazil, South Africa, and Russia, and also by brands priced premium-and-above (with this segment projected to grow +11.4% CAGR 2021-2025). Global vodka volume was flat last year and is expected to remain so through to 2025. In Russia, the top global market for vodka, consumers are trading down from premium vodka as a result of the impact of Covid-19, however in the US (the second-largest market for the category), vodka is projected to grow. In total, spirits are expected to grow +0.6% globally this year, and +0.8% CAGR 2021-2025.
Many consumers in key markets chose still wine as their go-to drink at home during Covid-19
Though wine consumption has been in decline, consumers in markets such as the UK, Australia, Brazil, Canada, and the US have lifted wine volumes. In Brazil alone, still wine grew by +28% in 2020, driven by a rise in higher-quality imports and increasingly accessible prices. Conversely, imported wine in China has experienced a steep decline which will contribute to an expected decrease in wine volume in the country 2021-2025.
RTD volume projected to increase by almost +27% in volume this year
RTDs posted double-digit global growth in 2020, resonating with consumers across all demographics, and driven by the trend for convenience, refreshment, and flavour. IWSR projects that RTD volume will increase by +26.6% in 2021, and +10.2% CAGR 2021-2025, driven primarily by growth in the US and Japan, as well as Australia, Canada, and China. In the US, where the hard seltzer sub-category of RTDs grew by +130% in 2020, RTD volume is already larger than the total spirits category, and by the end of this year, RTD volume consumption there will be larger than that of wine.
Top beer markets forecasted for growth
Beer was the most exposed category during lockdown, losing -7.1% volume globally in 2020. However, beer volume is forecasted to grow by +2.5% in 2021, and continue on its growth path over the forecast period (2021-2025). Except for the US, where RTD competition has considerably impacted beer sales, all of the top-10 global beer markets (by volume) are projected to show growth into 2025.