Strong Re hits hotel stocks

Hotel stocks have lagged the broader market over the past one month with investors increasingly concerned that a rising rupee could affect realisations for this sector. The rupee has gained nearly 8.5 per cent against the greenback since the beginning of CY07.

As a result, several hotel stocks have underperformed the broader market. Indian Hotels has declined nearly 1.7 per cent over the past one month compared with 5.5 per cent rise in the Sensex. Other stocks such as Hotel Leelaventure has declined 1.8 per cent, while Kamat Hotels has gained 2.5 per cent in the period.

Investors have turned cautious towards this sector at a time when average room rates (ARR) for most five-star hotels in metro cities have continued to move upwards on a y-o-y basis, point out analysts tracking this sector.

For instance, Indian Hotels' ARR was at Rs 10,772 in the December 2006 quarter, an increase of 32 per cent y-o-y. Strong growth in ARRs has been powered by buoyant tourist inflows to the country. The tourist arrivals in India had grown 16 per cent y-o-y to 4.5 million in CY06.

The hospitality sector has also received a strong boost in the Union Budget 2007, with the finance minister providing tax incentives for two, three and four-star hotels and convention centres to be set up in the National Capital Region between April 1, 2007 and March 31, 2010.

Other sectors such as textiles, where a significant proportion of company's earnings are in dollars, investors have adopted a cautious stance, say analysts.