scorecardresearchQ4 earnings preview: Sustained demand may aid strong operational performance

Q4 earnings preview: Sustained demand may aid strong operational performance for hotels, says ICICI Direct

Updated: 12 Apr 2023, 02:04 PM IST
TL;DR.

The brokerage firm anticipates QoQ revenue growth of 8% and 3% for Lemon Tree Hotels and EIH, respectively, but a 6% fall for Indian Hotels Company (IHCL) due to weak seasonality in its international business.

The hotel industry's performance has been strong in FY23, with RevPAR increasing 10% when compared to pre-Covid levels.

The hotel industry's performance has been strong in FY23, with RevPAR increasing 10% when compared to pre-Covid levels.

The Indian hotel industry is expected to continue the strong performance it has shown in Q3FY23, according to a report by brokerage firm ICICI Direct Research. Average room rates for January and February 2023 have increased by 10% compared to Q3 FY23, and occupancy levels have also improved to nearly 68%, up from 66% in Q3FY23.

Owing to continued demand from business and leisure travellers, aided by a strong wedding season, the brokerage expects Q4 FY24E to see another strong performance from the hotel sector.

As per the latest Directorate General of Civil Aviation (DGCA) data, the daily passenger traffic is trending at 106% of pre-Covid levels, with domestic air traffic crossing 1.20 crore for February 2023.

The brokerage foresees passenger traffic to reach 3.8 crore in Q4 FY23, which is 105% of pre-Covid levels. It anticipates enhanced domestic tourism and a sharp rebound in corporate travel to aid in healthy revenue growth for Q4FY23E.

Overall, ICICI Direct forecasts revenues for its coverage universe to increase 88% YoY (3% QoQ decline) to 2,364 crore.

The brokerage anticipates QoQ revenue growth of 8% and 3% for Lemon Tree Hotels and EIH, respectively, but a 6% fall for Indian Hotels Company (IHCL) due to weak seasonalityin its international business.

On the margin front, the brokerage expects EBITDA margins for Lemon Tree and EIH to remain steady QoQ while IHCL is anticipated to see a marginal drop.

The brokerage also notes that a majority of the industry's costs are fixed, with power, lighting, and employee costs taking the largest share, accounting for over 65% of total costs.

During the Covid-19 pandemic phase, hotel players structurally re-aligned their cost base and become leaner in terms of cost. “We expect operating costs to continue to be lower than pre-Covid levels in Q4FY23E, which would help the companies to improve margins,” it said.

The performance of the hotel sector has been strong in FY23, with RevPAR increasing 10% when compared to pre-Covid levels. However, occupancy levels have seen a decline of nearly 2% when compared to pre-Covid levels.

The room supply has increased by 3.5% in 9MFY23 over pre-Covid levels, but demand growth has been higher over the same period (growth of 5.4%), which would aid in keeping average room rates at a healthy level, the brokerage noted.

Looking ahead, ICICI Direct expects FY24 to stay strong for the sector, supported by the full resumption of the economy, India’s G20 presidency in 2023, the ICC Men’s World Cup, and the easing of E-visa rules.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.

 

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First Published: 12 Apr 2023, 02:04 PM IST