The Indian Hotels Co. Ltd put up a solid show in the June quarter (Q1FY23). Occupancy and average room rates exceeded pre-covid levels because of improving demand across markets and segments. Consequently, the company swung to profit in Q1 with a consolidated profit after tax of ₹170 crore versus a loss of ₹277 crore in the same quarter last year.
The management expects the business momentum seen in Q1 to sustain as the demand from corporate travel continues to recover. Last quarter, revenue per available room in the key metro markets of Mumbai, Bengaluru, and Delhi and the National Capital Region saw faster recovery than the industry. Further, hotel demand led by international travellers is expected to make a comeback in Q3FY23, after the Diwali festival, driving demand for the company’s hotels in places such as Rajasthan and Goa, the management said in its earnings call. International travel had contributed about 15% to the company’s pre-covid revenues.
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Leisure and business travel is fast catching-up and investors’ sentiment towards hotel stocks is upbeat.
In CY22, the Indian Hotels’ stock has rallied by nearly 50%, even as the Nifty500 index has given negative returns. The stock is trading close to its 52-week high of ₹275.30 seen on 4 August.
“Hotel stocks are seen benefiting from abating covid fears, which are supporting domestic leisure and business travel demand. Indian Hotels’ presence across various price points means it is better placed than peers having higher exposure to the business travel segment. Debt reduction and sticking to an asset-light model for expansion are other positives for the company,” said Shobit Singhal, analyst at Anand Rathi Shares and Stock Brokers.
Investors are likely to cheer Indian Hotels’ stellar Q1 performance, but a sharp and a sustainable move up would depend on the absorption of higher room rates, especially in the leisure segment and how the company’s Avhaan 2025 growth strategy pans out. One objective is to achieve a consolidated earnings before interest, tax, depreciation and amortisation (Ebitda) margin of 33% by FY26.
“Indian Hotels’ result would aid investors’ sentiment towards the sector and we expect it to meet the Ebitda margin guidance before the stated time. That said, most of the positives are priced-in and a meaningful upside looks unlikely in the near-term,” said an analyst with a domestic brokerage house requesting anonymity. Also, external risks arising from a potential spread of Monkeypox or a war, could hamper foreign tourist-led demand for hotels.
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