A prolonged second Covid wave to weaken industry credit profile: ICRA

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FY2022 Debt/OPDBITA is expected at multi-year high levels for the industry; slower-than-expected recovery to weaken coverage metrics further

Negative credit outlooks have been at an all-time high in FY2021. Severe impact of pandemic resulted in sharp increase in FY2021 downgrades as well. Prolonged lockdowns could result in further negative actions


ICRA Ratings has said that negative rating actions in the hotel sector were at an all-time high in FY2021 with 74% of its hotel portfolio impacted in the post-Covid scenario. A severe impact of the pandemic has resulted in a sharp increase in downgrades as hotel closures and low occupancies led to deep losses. About 70% of the entities are on negative credit outlook, compared to 92% of the entities with stable outlook in January 2020.

Giving more insights, Vinutaa S, Assistant Vice President and Sector Head, ICRA Ratings said: “Over 45% of the premium hotel inventory is in highly-impacted states. The industry credit profile will weaken if the second wave derails the recovery momentum significantly. This could result in more negative rating actions.”

Demand pick-up was visible in the recent months from staycations, drive-to-leisure and social MICE and occupancy inched closer to 50% in Q4 FY2021 providing a dose of optimism to the industry. However, the second wave has put a temporary brake on the recovery. Wedding MICE, which showed traction, will get impacted over the next one to two months. Post that also, pax restrictions could impact revenues for hotels from this segment. While hoteliers are currently witnessing cancellations till May end, the situation is evolving. Business travel, although low, was picking up in certain manufacturing sectors. Travel by field force was also witnessing improvement. This is likely to witness a setback because of the lockdowns. However, a few hotels have had some respite from quarantine traffic and alternate revenue streams such as F&B takeaways. Leisure travel, particularly to drive-to destinations, will be the first segment to recover post the second wave. While widespread vaccination rollout will ease the situation once the curfews are lifted, the pace of recovery remains to be seen.

The second Covid wave in India is much steeper than the first. While the pace of vaccination roll-out was picking up a few weeks back, vaccine shortages in several states have affected the drive. An effective vaccination rollout remains the key. The FY2022 RevPARs were expected to be weaker than that post the Global Financial Crisis in 2010, even before the second wave. Currently, ICRA expects the occupancy and RevPAR to be impacted, at least over the next two months because of the second wave. While widespread vaccination rollout would ease the situation to an extent, it is still evolving and remains to be seen. The extent of YoY RevPAR improvement in FY2022 is tied to the pandemic timelines and could witness a revision in the coming months. Recovery to pre-Covid levels is still two to three years away.

Adding further, Vinutaa S said: “About 70% of ICRA’s hospitality portfolio had applied for moratorium in H1 FY2021. Post that, some companies have availed of debt under the ECLGS 2.0 scheme, to shore up their liquidity for meeting operational and financial commitments. A few companies had also resorted to fund-raising from investors and promoters. In ICRA’s sample of larger hotel companies, about 38% of the FY2021 loss funding was from promoters/investors. Further, the ECLGS 3.0 scheme is also expected to benefit the hospitality sector.”

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