Hotel counters find favour on the street

Hotel sector stocks have been in the limelight of late on renewed buying support from institutional and well as retail investors.

Analysts tracking the sector say the hotel industry is seeing buoyant times with both occupancy rates and average room rates are on the rise, with growing international traffic.

The average room rent has also soared as a result of the high demand, and non-availability of an adequate number of rooms, analysts added.

According to industry estimates, the occupancy rate in the fist six months of the current fiscal has gone up to 65 to 70 per cent compared to 60 to 65 per cent in the same period last year.

Also the average room rents (ARRs) have increased by nearly 15 to 20 per cent. This trend is likely to gather pace going forward and hotels are expected to hike room rents 10 per cent over current levels in 2004-05.

The demand for hotel rooms in the premium segment is expected to grow at a compounded annual growth rate (CAGR) of 9 per cent over the next 5 years. On the other hand, supply will remain constrained at no more than a CAGR of 6 per cent.

Also, room additions in the premium segment over the next 5 years are likely to dip to merely 390 by financial year 2008 as against 1,640 rooms added in 2004.

Alok Agarwal, analyst with Motilal Oswal Securities said, "The hospitality sector is witnessing a boom in business tourism as well as in leisure tourism because of various concessions given to the sector by the previous government. And the fact that the second half of the year has always been more productive for the hotel industry, the occupancy rates are expected to go up, which will be sustained in the next financial year (2004-05)."

Among the hotel sector scrips, the major gainer in the last one month was Oriental Hotels, which surged 27.38 per cent from Rs 120.00 on August 6, 2004 to yesterday's close of Rs 152.85.

The Taj GVK Hotels scrip is up 23.29 per cent to Rs 172.05, Indian Resort Hotels has gained 17.90 per cent to Rs 123.80, Indian Hotels is up 12.56 per cent to Rs 393.35, Asian Hotels is up 12.09 per cent to Rs 201.60 and EIH Associated Hotels gained 11.65 per cent to Rs 44.55 in the last one month.

Of all the listed hotels, only four scrips has shown a loss in value in the last one month. The renewed buying interest in hotel scrips has materialised on the back of a positive outlook for the sector, said an analyst.

Sharad Shukla, head of investment advisory services at IL&FS Investmart said, "Hotel occupancy rates are expected to go up, since the second half of the year is typically good for the industry."

However, the uncertain geo-political scenario can spoil the party for the hotel sector if some unforeseen acts of terrorism shake tourists off the Asian trail.

The sharp growth has been because of a significant jump in foreign tourist arrivals, with the inbound traffic increasing by 18.5 per cent to 2.96 million in 2003-04. And in the first six months of the current fiscal, the inbound traffic has surged nearly 11.07 per cent compared to the same period last year.

Most hotel companies like Indian Hotels, Hotel Leela and ITC Hotels reported strong financial performances for the quarter ended June 30, 2004.