Investors are doing well in shares of hotel companies. By 2024, The Indian Hotels Co. Ltd (IHCL), EIH Ltd, Chalet Hotels Ltd and Lemon Tree Hotels Ltd gained 97%, 64%, 41% and 27% respectively. A good part of the recent stock performance can be attributed to the recovery seen in the September quarter (Q2FY25) after a challenging Q1 due to heatwaves and elections. The sector witnessed a pick-up in growth across the board in the last quarter due to strong business and improvement in ARR or Average Room Rate.
Investor sentiment may also be boosted by the Q3 outlook, which appears favorable due to strong demand, supported by more wedding dates and strong meetings, incentives, conferences and exhibitions (MICE) activity. Motilal Oswal Financial Services expects major hospitality players, particularly in the luxury and upscale categories, to post around 10-12% RevPAR growth in Q3, driven by around 8-10% ARR growth and 100-200 basis points improvement in business. RevPAR is short for revenue per available room and a basis point is one-hundredth of a percentage point.
“We expect hotel companies to post healthy growth in 2HFY25/FY26, aided by: favorable demand-supply conditions, increase in ARR across hotels due to increase in corporate rates and room upgrades through renovations; and healthy operating leverage,” Motilal Oswal analysts said in a December 16 report.
Expressing optimism over continued revenue growth, IHCL Managing Director and CEO Puneet Chatwal said in the Q2 earnings call, “With 30% more wedding dates and increased foreign tourist arrivals expected in H2, we are confident of comfortably delivering double-digit revenue growth. , excluding the positive impact of TajSATS.” TajSATS is the airline catering division of IHCL.
In general, enhanced connectivity, growing interest in spiritual and wildlife tourism and high foreign tourist arrivals are expected to support demand in the medium to long-term perspective.
Analysts at Nuwama Research point out, “The near-term outlook appears mixed with slowdown in broader markets while major cities of Delhi, Hyderabad, Bangalore and Mumbai – which account for 30% of branded inventory – seem to be doing well.” However, all is not hunky dory “While the short-term outlook for the sector is positive, medium-to-long-term flat growth expectations of 7-8% may limit operating leverage gains,” analysts said.
Shares of IHCL, Chalet & Lemon tree A new 52-week high was reached this month. After a sharp boom, valuations have elevated, making investors wary. “Valuation for IHCL is running well above its historical average, forcing us to downgrade the stock to ‘reduce’,” a Nuwama report earlier this month added, “although we are optimistic about the business.”
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Meanwhile, to capitalize on strong demand trends, hotel companies are raising funds, which can be used for expansion. For instance, Schloss Bangalore (Leela Hotels), Vantive Hospitality and Brigade Hotels are eyeing initial public offerings (IPOs). “Collectively, these companies are looking to expand around ₹8,000 crore including the fresh increase in IPOs ₹6,000 crore. This follows a ₹1,000 crore QIP by Chalet Hotels earlier in the year and three IPOs (Samhi Hotels, Park Hotels & Resorts, Juniper Hotels), which raised a total of around. ₹4,000 crore,” said a December 10 Jefferies India report.
As the listed universe of hotels expands with the potential IPO of four new companies, the industry’s ARR and occupancy rates will become key monitors for investors.
Also Read: Chalet’s next 1,000: Acquisitions, new formations to fuel aggressive expansion of hotel chain
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