Hotels seek more tax breaks
The hospitality industry has sought an extension of the loan moratorium and an indirect tax holiday as its credit ratio has worsened amid a nationwide lockdown to prevent the spread of the coronavirus in India.
The credit ratio for hotels, restaurants and the leisure sector, measured by the ratio of credit upgrades to downgrades by rating agencies, has come down from 0.69 in the second half of 2018-19 to 0.16 in the second half of 2019-20, according to data compiled by the research arm of State Bank of India. This implies that companies operating in this sector have seen more rating downgrades in the second half of 2019-20 than in the corresponding previous period.
“Just three months of EMI deferment is not going to help the industry at all,” said R. Sushila, member of the tourism committee of Indian Chamber of Commerce.
What started as a slowdown because of a weak macroeconomy in the first half of 2019-20 has now translated into a major loss of revenue after the lockdown started. The industry anticipates a lagging effect at least over the first half of 2020-21. Most players have initiated stringent cost management efforts to prevent the rapid erosion of the bottomline.
According to research firm Icra, hotels tend to have elevated operating and financial leverage, making them highly susceptible to any reduction in revenues. Icra said hotels were operating at significantly sub-par occupancies and 10-20 per cent lower average room rents.
Allied income sources from MICE (meetings, incentives, conferences and exhibitions), food and beverage have been significantly curtailed or entirely shut down. Several hotels are pruning all costs, fixed and variable, letting go of contract employees, curtailing power and fuel costs, deferring payments for leases and maintenance contracts. Icra, which has downgraded the sector’s outlook to negative, anticipates the stock of stressed hotel assets to rise.
“Overall, the impact of the lockdown on the Indian travel and tourism sector would be a decline in occupancies, MICE activity and consequently rate pressures. The depth of the contraction would be contingent on the duration and breadth of the pandemic,” said Pavethra Ponniah, vice-president and sector head of Icra.