Hotel stocks have been on a rise in the last one year after a massive decline during the pandemic amid the closing of the economy and ban on travel and tourism. However, as the economy finds its feet again, these stocks have once again come in demand. The rise of leisure and corporate travel, and festive and wedding seasons have fueled hotel prices to pre-Covid levels.
The outlook of the industry also looks robust and according to a recent note by CRISIL, the revenue of the Indian hotel industry is likely to jump around 45 percent from a decadal low last fiscal on the back of the above-mentioned reasons.
Among stocks, most hotel stocks have turned into multibaggers in the last 1 year, giving over 100 percent returns. Oriental Hotels have surged the most, up over 156 percent followed by Indian Hotels and Royal Orchid Hotels, rallying around 125 percent each. Meanwhile, Chalet Hotels and EIH Associated Hotels have also climbed 100 percent each in this period. Lemontree Hotels added 86 percent and Taj GVK rose 57 percent in the last 1 year.
As per the CRISIL report, the rebound in revenue and leaner cost structures can drive up operating profitability by 200-400 basis points this fiscal, compared with fiscal 2020, a CRISIL Rating analysis of hotels with an aggregate of 30,000 rooms across categories indicates as much.
Nitesh Jain, Director, CRISIL Ratings, says “after the second wave of Covid-19, the average room rent (ARR) had reached 85-90 percent and occupancy 80-85 percent of the pre-pandemic levels, before the third wave impaired the last quarter. To be sure, Covid-19 cases are sprouting again, but with no strict lockdowns and significant —
and widening — vaccination coverage, both ARR and occupancy should recover from this quarter. But the pace of recovery will vary by the category of hotels.”
The report added that for properties in tourist destinations such as Udaipur and Goa, which lean towards leisure travel, ARR and occupancy had surpassed the pre-pandemic levels in the third quarter of last fiscal itself, on-demand for staycations and the wedding season.
While international flights have commenced, the flow of inbound tourists — a key user segment — may be slow to pick up, but high pent-up demand from domestic travellers would provide an offset, noted CRISIL.
It added that the mid-premium and budget segment hotels, with ARR of ₹3,000-5,000, benefited from upgrades by small and medium enterprise (SME) clients due to hygiene concerns amid the pandemic. This segment saw both, ARR and occupancy recovering to 80-85 percent of the pre-pandemic levels, and should rebound fully in the first half of this fiscal.
However, luxury business hotels, which were slower to track back because of their high dependence on corporate travel, should also pick up pace now with offices reopening, stated the report.
CRISIL expects a sustained recovery will result in a gradual improvement in the sector’s financial leverage over the medium term.
"While there is a rise in cases of a new variant of Covid-19, the sector remains resilient given people seem more confident of the outdoors, especially because of wide vaccination coverage. Any constraints on the economic activity or movement of people will bear watching," it added.
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