Growth is expected to accelerate to 9-12% over the next two years, it added.
Indian hotel industry's revenues are likely to increase by 7-9% in 2014-15 mainly driven by incremental rooms and food and beverage income, ratings agency ICRA has said.
The agency however said that the outlook for the industry is expected to remain subdued over the next 12-18 months due to weak demand in view of supply.
ICRA estimates quarter three, 2014-15, revenues to grow by 5-6 per cent, while growth for 2014-15 is expected to be in the range of 7-9 per cent, largely driven by incremental rooms and food and beverage (F&B) income, it said.
"The outlook for the Indian Hotel Industry over the next 12-18 months is expected to remain subdued given the gap between supply and demand. However, measures by the government to drive tourism through several strong policy initiatives could bring in stronger demand, supporting the industry over the next 12-18 months," ICRA said in a report.
Growth is expected to accelerate to 9-12% over the next two years, it added.
Average Room Rates (ARRs) are expected to be largely flat while occupancies are estimated to improve by 2-4% during 2014-15, ICRA said.
Industry occupancy levels have witnessed improvement in the current fiscal. However, it has been geographically concentrated in pockets like Mumbai.
But there continues to be lack of traction in ARRs even in markets like Mumbai, which has been maintaining a steady Rs 100-200 discount on year-on-year basis, it pointed out.
Domestic demand has showcased a growth of over 10%, driven by both business and leisure travellers during 2014-15.
However, falling global economic sentiments have affected inbound travel and with a booking window of 8-12 months for western leisure travel, the impact is expected to be felt in 2015-16 as well.
ICRA expects easing visa and policy norms will support inbound travel into India even as a weaker global economy curtails traveller budget, it said.
Foreign tourist arrivals growth increased from 5.9% in 2013 (calender year) to 7.1% during 2014, the rating agency said.
As per ICRA Research, India has over 29,000 premium rooms under construction- to be launched over the next six years.
As a result of supply-demand mismatch, ICRA said, industry players have been resorting to significant belt tightening by keeping a check on key cost drivers like payroll expenses, which have gone up only by an estimated 4% over the last three fiscals.
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