Hotel stocks Indian Hotels and Lemon Tree are on Motilal Oswal's radar after the brokerage reiterated Buy recommendations on both of them and said it sees healthy growth for the companies during the second half of the fiscal.
During the second half of the fiscal, investors can watch out two key trends playing out, Motilal said, namely, an increase in ARR, or Average Room Rate, by 8-10% on year. ARR stands for the average price charged for a hotel room, calculated by dividing total room sales by the total number of rooms sold. The other key factor is heathy operating leverage, indicating hotels have scope to improve profitability with higher sales growth.
"OR (Occupancy Rates) and ARR are expected to continue trending higher in 3QFY25, backed by favourable demand-supply dynamics and healthy traction in MICE activities, which will be supported by a strong wedding season," said Motilal Oswal note. The brokerage said there are long-term structural demand drivers in place that are going to fuel growth.
Read More: IHCL aims to grow its portfolio to more than 700 hotels by 2030
The hotel sector is likely to see an uptick in business during the third quarter, which is also a seasonally strong one, helped by 'healthy traction' in MICE (meetings, incentives, conferences, and exhibitions) activities, said the MOSL note. The growth forecast is also supported by a very strong wedding season during the third quarter, which will see 33% more wedding muhurats compared to a year ago.
The excitement is being captured in the share prices, with IHCL having doubled in 2024, while Lemon Tree has seen a sharp surge in the last one month to notch up 29% gains on YTD basis.
"As per our recent channel checks, key hospitality players are likely to witness RevPAR growth of ~10-12% YoY in 3Q," said Motilal Oswal. A growth in RevPAR, or a hotel's Revenue Per Available Room (RevPAR) indicates how much revenue generated per available room has grown compared to a year ago.
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While October saw muted RevPAR of only 3% on year, November saw top player expect 15-17% growth, helped with the wedding season and MICE activities, which should continue in December as well, said MOSL, citing an Anarock report.
Anarock also said that Q1FY25 was marred by heatwaves and elections, and Q2FY25 saw a recovery helped by MICE activities. What may be heartening for the hotels business is that the growth momentum is 'likely to continue' throughout H2FY25, said MOSL, supported by MICE activities and an expectation of higher foreign tourist arrivals.
Read More: Top 10 Most-Googled Travel Destinations in India
Air traffic growth has remained stable, growing 6% YoY in 1HFY25, indicating strong domestic travel demand. For 2024, India could see inbound tourist arrivals touch the one crore mark, as compared 92 lakh om 2023, which is another sign of recovery.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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