Moneycontrol Pro Panorama | Have hotels cracked the growth code?

Indications are that hotels will keep up the growth momentum in FY25.

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Amid capacity constraints in the aviation sector, hotels, another key segment in the travel and hospitality industry, are registering stellar financial performance.

The Indian Hotels Co, EIH and ITC’s hotels division posted the best ever December quarter results. The industry saw a sizeable number of room additions last year. Yet, they managed to grow at a healthy pace, thanks to rising demand. Shares of Indian Hotels and EIH scaled new 52-week highs in Tuesday morning trade.

Indications are that companies will keep up the growth momentum in FY25. Indian Hotels expects to continue to clock double-digit revenue growth next fiscal. According to Indian Hotels, demand growth is outpacing branded rooms supply. “Rooms demand per day up 65 percent and 19 percent, respectively, compared to 2015 and 2019,” EIH said in an investor update citing industry data.

The healthy demand can increase Indian hotel industry’s revenue by 11-13 percent in FY25 on the back of an estimated 15-17 percent growth in FY24, projects ratings agency CRISIL.

With occupancy at Indian Hotels and EIH exceeding 70 percent, pricing is expected to remain firm, helping large hotel chains. “Industry ARR (average room rate) has sustained double-digit growth and most management(s) guide for strong FY25 as well. Strong demand trends give comfort on strong pricing outlook,” analysts at Jefferies India said in a review note.

Tracking the healthy demand, large hotels-chains including Indian Hotels, EIH, ITC, Lemon Tree are adding major capacities, both through company ownership and leased properties. ITC added 22 properties to its portfolio in the last 24 months and plans to add another 25 by December 2025. Indian Hotels has a pipeline of 85 hotels and plans to open two hotels per month. EIH is aiming to add 50 hotels by FY30. Read our Research Team’s note on EIH here.

New properties create a growth runway for these hotel chains and provide a good alternative to investors in the travel and hospitality sector who otherwise are bogged down by capacity constraints in the aviation sector. Investors should keep a tab on balance sheet leverage and operating metrics such as utilisation and pricing.

The stock prices reflect the investor optimism. Promoters are seeing good valuations for their companies in the market. The Apeejay Surrendra Park Hotels listed at a premium to the issue price. The IPO of Juniper Hotels is set to open on Wednesday, February 21.

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Moneycontrol Pro