Unlock theme stocks may see good times once 'business as usual' revives

Most of the signals are positive, and if sustained, many businesses could see a big rebound

Higher vaccination rates, a relatively mild Omicron wave and the gradual revival of “business as usual” norms could make for a rebound in the hospitality industry, and in some segments of the entertainment industry. Balanced against that, high fuel costs are likely to feed in higher ticket costs which could inhibit some discretionary travel and leisure activity.

Hotels, multiplexes, restaurants and associated sectors have been among the hardest hit by the pandemic and two years of social distancing. Discretionary spending has also dropped because of widespread unemployment.

However, there are signs that hotel occupancy is rising and one silver lining for hotels is that they appear to have gone through an enforced reduction of costs. In the case of listed hotels like Indian Hotels (IHCL), East India Hotels (EIH) and Lemon Tree these savings are likely to be permanent since the companies have redeployed their workforce to newly commissioned properties. There’s a huge pipeline of rooms which are due to be commissioned or under-utilised however, and we would have to wait for further normalisation before the topline fully recovers.

Nonetheless, there has been strong revenue recovery for hotels. Assuming fast recovery continues, hotels should see comfortable double-digit growth in EBITDA through the next two fiscals based on both a low base effect as well as significant cost-savings, which should be permanent in nature.

The key risks against a fast recovery would include long delays in business travel resumption, delays in commissioning, etc. Specifically for EIH and Chalet, there is a concentration on Mumbai properties where the bulk of revenue is garnered by could lead to an additional risk.  

The multiplexes such as PVR and Inox have also seen rising footfalls and Q1 is expected to see footfalls that recover to around pre-Covid levels or even more. Average spends per capita have improved and advertising income has also improved. Both PVR and Inox have decent balance sheets with low Debt, which gives them headroom to expand or to tide over a couple of bad quarters even after the stress of the last two years.

The signals out of IRCTC indicate that rail passenger travel volumes have also picked up though they are still well below 2019-20. Stores and fast-food chains (Jubilant, Sapphire Foods, Westlife) also show better volumes and there have been net store additions. Titan’s volume data also shows consistent sales recovery since Q2, 2021-22. Commercial rentals may also be improving with Phoenix Mills showing QoQ pickup in the last two quarters after a second wave dip in Q1, 2021-22.

The unlock theme is still obviously speculative in that it is difficult to definitively say it is happening. But most of the signals seem to be positive. If it is indeed a reality and it is sustained, there could be a variety of hard-hit businesses which are due for outperformance and a big rebound.

Lemon Tree hit a 52-week high on Friday as did Chalet Hotels, Indian Hotels and EIH gained 7 per cent. So, there’s obviously a strong move in terms of sentiment for the sector. PVR and Inox also hit 52-week highs. So did luggage-maker VIP Industries. This sort of concerted move is hard to ignore – there appears to be consensus that these stocks are all set for a good time.