The September quarter numbers of hotel companies were broadly in line with expectations and brokerage firms expect robust growth across hotels to sustain.
"We anticipate the robust growth across hotels to sustain in FY23 and FY24 based on: (a) an increase in ARR (average room rent) across hotels on the back of improved occupancies, (b) operating leverage coupled with cost rationalization across hotels to maintain higher margins versus pre-pandemic levels, and (c) strong demand drivers in place driving occupancies," said brokerage firm Motilal Oswal Financial Services.
The brokerage firm highlighted an HVS Anarock report which said demand remained strong during the quarter with an occupancy rate at nearly 62% in Q2FY23 (in line with Q2FY20), with ARR higher by 13% from that in Q2FY20.
Motilal said that compared to pre-pandemic levels, the hospitality basket reported higher flow through (incremental EBITDA to incremental revenue) in Q2FY23 from that in Q2FY20, with Lemon Tree Hotels leading the pack (103%), followed by EIH and Brigade Enterprises.
EBITDA for the basket came in at ₹7.5b in Q2FY23, higher by 75% than Q2FY20. Adjusted net profit of the hospitality basket stood at ₹1.9b in Q2FY23 versus ₹2.8b in Q1FY23 and ₹1.1b in Q2FY20, said Motilal Oswal.
"The Q2FY23 aggregate revenue for the hospitality basket grew 78% year-on-year (YoY) to ₹27.4b. Lemon Tree Hotels' performance led the pack, growing by 29% from that in Q2FY20, followed by ITC (26%) and Indian Hotels standalone (25%), on the back normalcy in the hotel industry, coupled with higher ARR," Motilal Oswal said.
The brokerage firm believes the occupancy rate will improve further from the pre-pandemic levels, on the back of strong demand drivers such as wedding season, G20 summit meetings, and the resumption of foreign inbound travel.
"ARR is expected to continue inching higher, thereby boosting revenue per available room (RevPAR)," said Motilal Oswal.
Motilal Oswal has a 'buy' call on Indian Hotels with a target price of ₹365 for Sep’24. Lemon Tree Hotels is also a buy for Motilal Oswal with a target price of ₹110 for FY24.
Disclaimer: The views and recommendations given in this article are those of the broking firm. These do not represent the views of MintGenie.