TBM Staff - Mumbai Rising domestic tourism and increasing propensity to travel overseas will expand revenue of India’s tour and travel operators by a robust 15-17% this fiscal, says Crisil Ratings.
Improving infrastructure, rising disposable incomes, a behavioural shift in travel patterns, and the government’s increasing focus on boosting domestic tourism will further support the sector’s revenue growth.
To be sure, the growth in revenue will be on a high base of last fiscal, when revenue jumped ~40% on-year to about INR 14,500 crore, surpassing the pre-pandemic peak by ~20%.
The credit profiles of travel operators, too, are expected to remain healthy, supported by strong balance sheets and steady operating margins of 6.5-7%, in line with last fiscal, resulting in sizeable cash flows and continuing low reliance on debt.
An analysis of four major travel operators, which account for ~60% of the sector’s revenue, indicates as much.
Poonam Upadhyay, Director, Crisisl Ratings Ltd, said, “The trend of ‘revenge travel’ seen after the pandemic has evolved into ‘regularised travel’ in recent years with a significant shift towards shorter and frequent vacations, for both domestic and overseas trips. Moreover, growing middle-class aspirations, rising urbanisation, affordable packages, steadily increasing income levels, and the government’s focus on boosting Indian tourism will maintain the strong momentum in the tour and travel sector. This will, in turn, ensure healthy double-digit revenue growth for travel operators this fiscal as well.”
In the domestic tourism market, growth is being fuelled by micro holidays (e.g., quick getaways or staycations over long weekends), growing spiritual tourism, and better infrastructure (improved last-mile connectivity) facilitating travel to newer destinations.
An increase in inbound travel (i.e., foreign tourist arrivals) to pre-pandemic levels and high demand from the corporate and MICE (meetings, incentives, conferences and exhibitions) segments are also supporting domestic travel.
For overseas leisure travel, growth is being led by higher disposable incomes, visa-free facilities from 37 countries, simplified visa processes (e.g., visa-on-arrival and e-visa facilities) and easing visa-related challenges related to long-haul destinations. In addition, attractive travel packages and increased focus of Indian airlines on new destinations in Southeast Asia and central Asia are spurring international trips, driving outbound travel to a record high this calendar year.
The increase in overseas travel is despite the hike3 in the rate of tax collected at source (TCS) on overseas travel packages effective October 1, 2023.
Anil More, Associate Director, CRISIL Ratings Ltd, added, “Strong customer retention, diverse revenue streams, various cost-optimisation measures, and investments in technology/automation undertaken since the pandemic will keep operating profitability of travel operators healthy at 6.5-7%, in line with last fiscal, despite higher marketing spend. Interest coverage ratio will also continue to be strong at over 5 times, in line with last fiscal.”
The tour and travel sector’s liquidity is expected to remain strong given the inherent negative working capital cycle on account of significant customer advances and lower dependence on debt.
That said, revision in visa guidelines, growth in commercial air fleet, sharp movement in air fares, change in tax structure, and inflation will bear watching.
