A year after, hotel stocks back in flavour

The share prices of companies owning five-star hotels, which had bore the burnt of the 26/11 terrorist attack on Mumbai, have witnessed a strong bounce-back.

However, market analysts say that after the attacks, hotels have been operating by reducing their average room rates.

The shares of the Tatas-promoted Indian Hotel Company, the owner of the Taj Mahal hotel at Apollo Bunder, and East India Hotel, which owns the Trident at Nariman Point in Mumbai, which were targeted by the terrorists, have risen 147 and 202 per cent, respectively, from the time markets started rising this year.

The rise is significant from March 2009, after which the Sensex, the equity benchmark index of the Bombay Stock Exchange (BSE), has risen 111 per cent from its all-time low.

Just a day before the first anniversary of the attacks, Indian Hotels shares closed at Rs 86, while EIH was quoted at Rs 132.60 on BSE. The shares of both had fallen nearly 30 per cent in a few days of the siege on their premises ending. They fell further when the broader markets went into a free fall.

Market analysts say post 26/11, business has come at high a cost. According to Amol Rao, a hospitality sector analyst at Mumbai’s Antique Stock Broking, while the fall in stock prices was mainly due to the attack, the rise had been partly due to a recovery in markets. “The entire hotel industry had been bogged down for several months after the attacks. Post 26/11, the average rate per room in the hotel industry has decreased by nearly 40 per cent. Even though the occupancy has gone up by nearly 60 per cent, the overall impact on net profit will be very less,” said Rao. Rao says hotel stocks look expensive as a huge supply of shares is expected due to delayed projects.

“From security point of view, both hotels seem to have taken precautions, so tourists would want to go, even while there may be some who may not want to return due to bad memories. But institutional investors had not sold these stocks as a keen-jerk reaction after the attacks. They are still watching the space as economic recovery keeps action going,” said Kashmira Mehta, institutional dealer at CD Equisearch.

Other top hotels whose stocks have done well include Taj GVK Hotels, based mainly in South India. Its shares have risen 270 per cent from their low in March this year. Tulip Star Hotel has risen 149 per cent during the period. Hotel Leela Venture is up 140 per cent, Asian Hotels is up 112 per cent while Royal Orchids has gained over 80 per cent during the period.