The Indian tour and travel sector is poised for a healthy growth of 12-14% in fiscal 2025 driven by continuing high air fares and volumes almost at pre-Covid levels across segments, including long-haul travel where visa-related challenges are easing. Moreover, the revision in the rate of tax collected at source (TCS) on overseas travel packages may not have a material impact on demand, as per credit rating agency CRISIL Ratings.
To be sure, the growth in fiscal 2025 will be on a high base of the current fiscal, where the sector is poised for a robust on-year revenue growth of 30%, or 18% above the pre-pandemic peak.
Operating margin, too, is expected to be healthy at above 6.5% this fiscal and the next, despite higher promotional spend, backed by operating leverage benefits and various cost optimisation/ automation initiatives undertaken since the pandemic. Healthy cash flows and strong balance sheets will support credit profiles. An analysis of four major travel operators accounting for 60% of the domestic sector revenue, indicates as much.
Poonam Upadhyay, Director, CRISIL Ratings said, “Growing overseas-travel aspirations of people, especially after the pandemic, and rising demand for short getaways are propelling the growth of Indian tour and travel operators. The TCS rate hike may have a limited impact on demand as expenditure per individual per trip is usually much less than the Rs 7 lakh threshold for over 80% of tour packages.”
Shounak Chakravarty, Associate Director, CRISIL Ratings, “Travel operators will likely increase promotional spends by 100-150 basis points (as a percentage of total revenue) to further leverage the strong surge in demand across segments. Higher scale will help keep operating margin at 6.5-7% in this and the next fiscal. Debt protection metrics such as interest coverage is seen at over 4 times this fiscal and the next compared with 3 times last fiscal.”
