India’s hospitality sector is firmly in the midst of a structural upcycle, with strong and broad-based demand colliding with supply constraints, according to a recent report by HSBC Global Investment Research. The brokerage argues that the current cycle is fundamentally stronger than previous ones, underpinned by rising room rates, record occupancy levels and a sustained recovery in both domestic and foreign travel.
HSBC notes that average room rates (ARRs) have risen consistently for four years, while occupancy has reached all-time highs. Importantly, demand growth is no longer limited to large metro cities. Smaller cities are increasingly contributing to incremental room nights, widening the base of the recovery and making it more resilient.
Supply Lag Boosts Pricing Power
A key pillar of HSBC’s bullish stance is the ongoing supply-demand imbalance. Despite rising demand, room supply has struggled to keep pace, even as new capacity is added. HSBC describes this mismatch as the sector’s “biggest opportunity” over the next 10-30 years, arguing that pricing power remains firmly with hotel operators.
The brokerage also highlights the growing role of managed inventory-typically a higher-margin business-as operators expand asset-light models. Segments such as MICE (meetings, incentives, conferences and exhibitions), weddings and corporate events now account for an estimated 30-45% of sector revenues, adding stability and margin visibility.
Ratings, Initiations And Target Price Changes
HSBC has initiated coverage with Buy ratings on Chalet Hotels, ITC Hotels, Lemon Tree Hotels, The Leela, and Samhi Hotels. It maintained a Buy on Indian Hotels, while Ventive Hospitality was downgraded to Hold from Buy.
Among target revisions, HSBC raised its price target on Chalet Hotels sharply to Rs 1,144 from Rs 820, implying nearly 40% upside. Indian Hotels’ target was cut to Rs 874 from Rs 964, still offering over 35% upside. ITC Hotels was assigned a target of Rs 226, Lemon Tree Rs 179, Leela Rs 568, and Samhi Rs 244. Ventive’s target was trimmed to Rs 838, reflecting more limited upside of about 16%.
HSBC forecasts industry-wide EBITDA to grow at a 16-21% CAGR over FY25-FY28, driven by ARR growth of 5-7% a year, improving occupancies across leisure and key urban markets, and operating efficiencies. EBITDA margins for its coverage universe are expected to expand by around 140 basis points on average over the next three years, supported by better traffic mix and scale benefits.
Despite this strong earnings outlook, HSBC believes valuations remain attractive. The sector currently trades at a 17% discount to its five-year average EV/EBITDA multiple, which the brokerage argues is unwarranted given balance sheet strength, improving cash flows and healthy margins. Recent stock price weakness linked to geopolitical concerns and weather disruptions is seen as a buying opportunity.
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