Lemon Tree, EIH: Good time to check into hotel stocks, say analysts

Domestic journey trade has been one of many worst victims of Covid-19, because the pandemic and the following lockdown hit their coffers arduous. However, the financial exercise selecting up over the previous few months, travellers – each leisure and business – are slowly returning. With an enchancment in macro indicators when it comes to business in addition to COVID recovery rate, the hospitality sector can also be anticipated to witness a revival in demand, although at a slower tempo.

“There has been a sharp surge in demand, our on-ground checks reveal. That apart, the room costs have surged as more and more people are now willing to travel. On their part, hotels are in no mood of giving discounts / offers on room rent. This is something unheard of in the last few years. All this augurs well for the hotel sector. Among the lot, those with less debt and focus on domestic market should do well given the current overseas travel restrictions,” says A Ok Prabhakar, head of analysis at IDBI Capital.

At the bourses, most hotel shares have gained floor from their respective March 2020 low. ITDC, Lemon Tree Hotels, Indian Hotels, EIH and Taj GVK have rallied 56 per cent to 163 per cent since then.

India’s hospitality trade, in accordance to a current report by realty consultants JLL, witnessed a decline of 54.9 per cent in Revenue Per Available Room (RevPAR) throughout January to December (CY 2020) as in contrast to CY 2019. But, issues are slowing normalising.

“We are already seeing signs of domestic business travel pick up in 2021. We expect that occupancies in business hotels will ramp up from March/April 2021 onwards as companies gradually lift travel embargo. Furthermore, domestic leisure travel will continue to drive occupancies across the country. Food & beverage (F&B) demand will continue to grow as eating out will increase, albeit cautiously,” stated Jaideep Dang, Managing Director, Hotels and Hospitality Group, South Asia, JLL.

Among areas, Goa emerged because the RevPAR chief in absolute phrases, regardless of a decline of 33.3 per cent in December 2020 quarter (This autumn’2020) in contrast to This autumn’2019, the JLL report stated. Bengaluru noticed the sharpest decline of 77 per cent in RevPAR in This autumn’2020 in contrast to the identical interval in 2019. However, the town has witnessed a month-on-month progress in efficiency throughout This autumn’2020, JLL notes.

“The revival of the sector has primarily been driven by leisure ‘revenge travel’ during weekends, festive season, weddings and F&B demand. However, the sector would likely see a full recovery in demand only post full resumption of international flights as foreign tourist arrivals, especially from US, UK in October – March remains a top contributor to the revenues of premium segment hotel rooms,” explains Rashesh Shah, an analyst monitoring the sector at ICICI Securities.

As per ANAROCK Property Consultants, over 26,340 rooms had been added within the organized or branded motels phase throughout 2017-19, at a CAGR of three per cent. As of May 2020, provide was forecast to improve at a median of two.8 per cent (including roughly 44,000 rooms) throughout the 2020 – 2024 interval.

“EIH is best placed on the balance-sheet front. The Rs 350 crore fund raise thorough rights issue would improve debt/equity mix to 0.1x from 0.2x. While Indian Hotels has a strong promoter backing, its debt/equity is 0.7x, which combined with capex requirement could lead to further rise in debt-equity to 0.9x, if COVID persists for a longer period. Lemon Tree, being on a capex mode, is highly levered versus peers. However, it also has strong institutional backing for liquidity support,” Shah of ICICI Securities says.

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