Hotel stocks in focus; Indian, EIH, Chalet hit new highs, surge up to 7%

Growth in the industry is largely expected from domestic demand which is expected to remain strong through FY 2023-24

Shares hotel companies were on a roll on Wednesday, hitting their respective new highs and surging up to 7 per cent on the BSE in the intraday trade, on healthy business outlook.

Indian Hotels Company, Chalet Hotels, EIH, and Lemon Tree Hotels among the frontline stocks were trading higher in the range of 3 per cent to 7 per cent. In comparison, the S&P BSE Sensex was up 0.5 per cent at 65,401 at 01:43 PM.

Further, in the past six months, these stocks have rallied between 35 and 35 per cent as against 10.9 per cent gain in the benchmark index.

The government's focus on developing infrastructure, constructing new airports, and demand-supporting factors such as the G20 Summit, Miss World Beauty Contest, and ODI Cricket World Cup should directly boost the hospitality business, favour revenue per available room (RevPAR) growth and improve the sector's occupancy rates, according to analysts.

The Ministry of Tourism has been allocated a budget of Rs 2,400 crore ($2.1 billion) in the 2023-24 fiscal year with a substantial portion dedicated to enhancing the tourism industry and infrastructure in India. The country's tourism sector is expected to witness steady growth in 2023, fuelled by increasing domestic demand, and a resurgence in international travel. Investor interest in the Indian hospitality space is also on the rise, with projected investments exceeding $ 2.3 billion over the next five years, further bolstering the positive outlook of the industry.

Growth in the industry is largely expected from domestic demand which is expected to remain strong through FY24 even as international travel has shown green shoots of recovery and provides scope for further growth in demand.

Additionally, India's G20 Presidency and an opportunity to host international events, including the ICC Men's World Cup, is expected to increase demand for hotels in the cities hosting the events. Growth in India's service sector and higher disposable income of people working in it is also expected to increase demand for corporate travel and holidays. All segments of leisure, weddings, conferences events, airline crew layovers, and corporate travel are expected to grow further during the year, according to Indian Hotels Company (IHCL).

IHCL and its subsidiaries bring together a group of brands include Taj – the iconic brand for the most discerning travellers and ranked as India’s Strongest Brand 2023 as per Brand Finance; SeleQtions, a named collection of hotels; Vivanta, sophisticated upscale hotels; and Ginger, which is revolutionising the lean luxe segment.

Brokerage firm IDBI Capital have been positive on IHCL in domestic hospitality space given its superior revenue growth outlook, cost optimisation measures, increasing contribution of new initiatives in net sales as well as Ebitda, and healthy balance sheet. They believe demand will remain buoyant in upcoming quarters aided by G20 summit and Cricket World Cup. Qmin, Ama, Chambers are growing at healthy pace, and should contribute to earnings in a meaningful way in near-term.