Hospitality Demand to Rebound as West Asia Crisis Fades, 16% EBITDA CAGR in FY26-28: Kotak Securities

Why It Matters

The forecast signals a multi‑year earnings upswing for Indian hotel operators, making the sector attractive for investors as demand outpaces constrained supply.

Key Takeaways

• Occupancy expected to rise to 72% by FY2028
• ARR projected to grow 6.4% CAGR through FY2028
• EBITDA forecasted to compound at 16% CAGR FY26‑28
• Supply addition limited to 8% CAGR, keeping inventory disciplined
• Pricing power supported by 9% room‑night growth versus supply

Pulse Analysis

The Indian hospitality market has weathered a turbulent 2026, with geopolitical flashpoints—from the India‑Pakistan standoff to the West Asia war—sapping foreign traveler confidence. As the conflict in West Asia recedes, inbound tourism is rebounding, lifting RevPAR to roughly ₹6,868 per day (about $83) and ARR to ₹10,100 per day (around $122). This recovery is underpinned by a modest 5.3% YoY RevPAR increase in the fourth quarter, suggesting that demand is stabilising despite lingering supply constraints.

Kotak Securities’ model paints a bullish picture: occupancy is slated to inch up to 72% by FY2028, while ARR is expected to expand at a 6.4% compound annual growth rate. More striking is the projected 16% EBITDA CAGR for the sector’s covered universe over FY2026‑28, driven by stronger pricing power as room‑night growth (9% CAGR) outpaces the 8% supply CAGR. New hotel keys added in FY2026 total about 13,300, keeping the total branded inventory on a disciplined trajectory toward 310,000 keys by FY2031. This supply‑demand gap should enable operators to command higher average daily rates without eroding margins.

For investors, the outlook translates into a compelling earnings narrative. Valuations have already corrected, but upside remains contingent on the swift resolution of geopolitical risks and ARR exceeding street expectations. Hotels with strong brand portfolios—such as The Leela, IHCL, and ITC Hotels—are already posting double‑digit EBITDA growth, positioning them to capture the next wave of demand. As foreign travel normalises, capital allocation toward upscale and mid‑scale projects is likely to accelerate, reinforcing the sector’s growth trajectory through the late 2020s.