INSUBCONTINENT EXCLUSIVE:
For almost a decade, this industry was stuck in a rut due to over-supply, disruptions due to technological innovations and also demand
slowdown due to macro issues.
For once, the Indian hotel industry appears to be out of the woods finally: demand is back, average room rates
are rising and analysts are betting on these stocks to deliver good returns.
Industry leaders are sounding bullish too
during a recent interaction.
Hotel chains have also tweaked business models, making them asset light
As if on cue, select stocks are already hovering near their 52-week highs or all-time high levels
Indian Hotels scaled its all-time high of Rs 156 on Mar ch 13, while EIH is just shy of its 52-week high at Rs 205.
Signs of green shoots
Data show capital efficiency of select hotels and hospitality majors have improved greatly over the past three years.
Return on capital
employed (RoCE) of The Byke Hospitality that runs vegetarian resort chains in North and South India has jumped from 25.70 per cent in FY15
to 30.70 per cent in FY18
For EIH Associated Hotels, it has risen from 17.30 per cent to 20.20 per cent and for Mahindra Holidays Resorts from 5.20 per cent to 20.90
Among others, RoCE increased from 6.8 per cent to 9.10 per cent for EIH, from 3.8 per cent to 9.20 per cent for Royal Orchid and from -0.40
per cent to 7.40 per cent for The Indian Hotels Company
Value investor Safir Anand likes hotel stocks following the recent tariff hike and a shift in business models from asset heavy to asset
average room rates (ARR) across premium hotels have grown 5 per cent YoY on optimum occupancy and this trend is likely to continue
For instance, the average room rate of Royal Orchid Hotels has increased to Rs 4,200 from Rs 3,800 last year
Demand is again outpacing supply after lagging it during 2007-2015.
Lemon Tree Hotels is already adding capacity and plans to have around
12,000 rooms in its inventory by the end of 2021, mainly in India.
In recent months, ARR has grown at a faster pace than occupancy, which
At Royal Orchid, we have reached 75 per cent occupancy and now we have started seeing a hike in rates too
Last quarter, there was an average rate increase of 8 per cent and this quarter the average rate across hotels have started going up
While shares of Taj GVK Hotels Resorts, Asian Hotels (West) and Orient Hotels have rallied more than 100 per cent since March 2016, others
like TGB Banquets and Hotels, The Byke Hospitality, Country Club Hospitality and Hotel Leela Ventures slipped between 35 and 81 per cent in
Recently listed players including Chalet Hotels and Lemon Tree Hotels are up 18 per cent and 49 per cent from their issue prices of Rs 280
and Rs 56, respectively.
IDBI Capital Markets recently recommended the stock of The Indian Hotels Company with a price target of Rs 193
