- Nomura: India’s hotels seeing a “golden cycle” of sustained ADR growth.
- ADR growth is expected to be driven by a widening luxury demand-supply gap.
- Supply in business cities, luxury hotels to grow 6 to 7 percent annually.
INDIA’S HOSPITALITY SECTOR is entering a “golden cycle” of sustained ADR growth, mid-teen internal rates of return and attractive valuations, attracting investors, according to Nomura. The ADR growth cycle is expected to continue over the medium term, driven by a widening luxury demand-supply gap.
Supply in key business cities and the luxury hotel segment is projected to grow only 6 to 7 percent annually because of barriers to entry, Nomura Asian Equity Research said in its latest report, citing Hotelivate data.
Demand, by contrast, is expected to grow at a high-single- to low-double-digit pace, driven by spending from affluent Indians and high-net-worth individuals, corporate travel in GCC-focused cities such as Hyderabad, Bengaluru and Pune, and foreign and domestic tourism. The rupee’s depreciation is also supporting ADR growth by making Indian hotels more attractive to international travelers.
Underpenetrated market
Indian hotels remain underpenetrated by global standards. Nomura said its analysis of hotel density across Asia-Pacific cities, based on population, air traffic and Grade A office stock, shows demand-supply gaps even in major metros such as Delhi NCR, Mumbai and Bengaluru.
While commercial office rents in India are lower than in most other Asian cities, the gap in hotel ADRs is narrower. That is resulting in better yields for hotels than for commercial office space, strengthening the sector’s investment case.
The report also highlighted differences in returns across hotel segments and business models. Luxury assets maximize earnings per room, while budget hotels combine operating margins with lower capital intensity to generate higher returns on capital and equity. Upscale hotels offer a more balanced risk-adjusted profile.
Overall, Nomura estimates hotel internal rates of return in India remain at mid-teen levels, supported by operating leverage, improving demand-supply dynamics and pricing power. Even in weaker scenarios, IRRs are expected to hold in the low teens, suggesting downside protection.
Valuations also appear reasonable against historical cycles. Sector valuations rose from 16x EV/EBITDA in fiscal year 2022 to 23x in fiscal year 2025, but have since eased to 18x for fiscal year 2027 and 15x for fiscal year 2028 estimates. Those levels are comparable with fiscal year 2011–2014, when the industry was in a downcycle.
Current consensus estimates point to 15 percent EBITDA compound annual growth over fiscal year 2026–2028, while most companies maintain net debt or net cash positions, a sharp contrast with the highly leveraged balance sheets of earlier cycles.
Nomura expects growth to be led by luxury and corporate demand. The shortage of rooms, particularly in the luxury category, should sustain pricing power as urbanization, business travel and inbound tourism rise. The brokerage added that rupee depreciation could further boost ADR growth by making India a more cost-effective destination for foreign visitors.
Separately, a recent report by Hotelivate-Savills found that India’s hotel sector continues to expand as development economics shift. Stable construction costs are being offset by rising fit-out expenses and longer project timelines, reshaping investment returns.
