Improvement in key operating variables including occupancy rates and average room rates has benefited select hotels players which followed strict cost control, cautious expansion and debt reduction.
Foreign tourists arrivals improved by 3.1 per cent in the September 2018 quarter in comparison with the same quarter last year.
In addition, occupancy rates improved to 65-70 per cent from 58-65 per cent three years ago and average room rates increased by 3-7 per cent.
Indian Hotels and Lemon Tree Hotels have shown recovery in the financials.
The performance is expected to continue since the second half of a fiscal has historically been good for the sector.Lemon Tree Hotels, a mid-sized company, turned profitable in the September 2018 quarter with a net profit of Rs 6.5 crore compared with the loss of Rs 4.4 crore in the corresponding quarter of the previous year.
Factors such as cost control, improving occupancy rates (3-11 per cent across brands year-on-year) expanded the hotels operating margin by five-nine percentage points to 30-44 per cent whereas revenue per available room improved by 5-19 per cent across its brands.Indian Hotels is another company showing signs of a turnaround.
The company reduced its net loss to Rs 5.2 crore in the September 2018 quarter from Rs 57.6 crore in the year-ago quarter.
Due to a focus on debt reduction, the companys interest cost as percentage of operating profit fell to 88 per cent in the September 2018 quarter from 131 per cent in the same quarter last year.
The companys debt-equity ratio fell to 0.5 in FY18 from 1.4 in FY16.In addition to stable business from corporates and small and mediumsized enterprises, Indian Hotels revenue increased by a rising base of millennial travellers who are opting to stay in mid-sized and luxury hotels given increasing affordability.Analysts point out that the momentum in the sector is likely to continue in the coming quarters.
According to the Bloomberg estimates, revenues of Indian Hotels and Lemon Tree Hotels are expected to grow in the range of 9-30 per cent for the next two fiscals.