Check-in time: HDFC Securities sees room for growth in Indian Hotels, Lemon Tree

Further, it highlighted that demand is set to outpace supply in the near term as well, which will be the driver for healthy ARR growth over FY19-21. Interestingly, this demand has been not just from large corporates.

“Traditionally, large corporate (50%) has been one of the major demand drivers with strong bargaining powers followed by SMEs (35%) and Individuals (15%) for branded hotels. However, contribution from the millennials has been on the rise,” analysts at the firm wrote in their report.

This, it said, is owing to greater affordability, changing attitudes, improved connectivity and increasing number of short stay vacations.

Additionally, consolidation of inventory among branded asset owners through management contracts (asset light) is also adding to the sentiment. This, it said, improves pricing.

Among key risks to its thesis are:

(a) Increase in competition as the industry revives

(b) Reluctance from hoteliers to raise rates

(c) Downgrading by customers

(d) Higher ARR and tax incidences may divert domestic leisure and MICE (meetings, incentives, conventions and exhibitions) demand overseas. Poor infrastructure may accentuate this as travel numbers are burgeoning, but airport/highway capacities are coming under pressure

On Wednesday, the stock ended at Rs 120.35, up Rs 2.15, or 1.82 percent, while Lemon Tree Hotels was quoting at Rs 71.00, up Rs 1.25, or 1.79 percent, on the BSE.