The hotel industry is witnessing a strong revival as the fear of the Covid-19 pandemic appears faded while there are abundant demand drivers.
Brokerage firm ICICI Securities highlighted for FY24, demand drivers such as the Government of India’s intent to leverage the G20 Summit as a launchpad to boost inbound tourism, coupled with sports events such as the Men’s Cricket ODI World Cup in Oct-Nov’23 to be held in India, may drive RevPAR (revenue per available room) growth for hotels.
"From April 2022 to February 2023, industry RevPAR has been 11 percent higher than pre-Covid levels while occupancy has been 2 percent lower, leading to overall RevPAR being 8 percent higher than pre-Covid levels," said ICICI Securities.
"As per HVS Anarock, Feb’23 was another strong month with hotel industry RevPAR of about ₹5,900 being 13 percent above Feb’19 (pre-Covid) levels. A key highlight for Feb’23 was that pan-India hotel occupancy crossed 70 percent, the first time since the onset of Covid in Feb/Mar’20. The Mumbai market saw Feb’23 ARRs crossing the ₹12,000 mark, while Goa and New Delhi also recorded Feb’23 ARRs over ₹10,000," said the brokerage firm.
While the outlook for the sector appears bright, there are concerns too. As per ICICI Securities, headwinds in the form of global macro factors and discretionary consumption slowdown may impact demand.
Nevertheless, the brokerage firm is positive about the sector.
"Given favourable demand-supply dynamics over the long term with industry demand expected to grow at 10 percent CAGR over FY23-26E versus room supply CAGR of below 5 percent over the same period, we reiterate our ‘buy’ ratings on Indian Hotels Co. and Lemon Tree Hotels," said ICICI Securities.
Akhilesh Jat, Category Manager - Equity Research at CapitalVia Global Research, underscored the Indian hospitality sector, which has been severely hampered over the past two years by the pandemic, is hoping to take off in 2023 by cashing in on India's G20 presidency and the ICC Cricket World Cup.
"ARR has already reached the pre-pandemic level. Even though inflation might restrict the growth rate in FY24, the industry's outlook for demand is favourable," said Jat.
Jat believes the hospitality sector in India not only rebounded from the pandemic but also continued to develop. The sector's ARR should continue to rise in FY24 ahead of the ICC Cricket World Cup, the country’s G20 presidency and higher domestic leisure travel.
"It is recommended investors add quality stocks to their portfolios, as the sector's performance indicators are above pre-pandemic levels and the industry is on its way back to profitability," said Jat.
Disclaimer: The views and recommendations given in this article are those of individual analysts and broking firms. These do not represent the views of MintGenie.
