Analysts bet on larger players in travel & tourism space post RBI's support

The Reserve Bank of India (RBI), on Friday, announced a Rs 15,000-crore liquidity window for sectors hit hard by the Covid-19 pandemic, especially in the second wave, including travel, tourism, hotel, aviation, and salons. The move, analysts say, could be the first among the many steps that the central bank may announce.

Following the development, shares of hotels, restaurants and its related business companies rallied up to 10 per cent on the BSE in intra-day trade.

Among individual stocks, Indian Hotels hit a fresh 52-week high of Rs 143.75, up 6 per cent on the BSE on the back of nearly two-fold jump in trading volumes. Royal Orchid Hotels, Taj GVK Hotels & Resorts, Lemon Tree Hotels, United Breweries, Globus Spirits, United Spirits and Radico Khaitan were among the other key gainers. READ ABOUT IT HERE

“The regulator has been announcing relief measures in phases; hence, this may be the first phase of announcement. Therefore, if required, the RBI may announce more support measures going forward,” says Deepak Jasani, head of retail research at HDFC Securities.

The intention, he says, is to support the sectors that are under severe stress but will benefit from the unlocking of the economy.

Concurring with the view, Gaurang Shah, head investment strategist at Geojit Financial Services says that the RBI has been providing support to sectors as and when needed, for instance the support to the pharmaceutical industry in May, which gives confidence that more could be in the offing.

In a bid to alleviate the adverse impact of the second wave of the pandemic on “contact-intensive sectors”, RBI governor Shaktikanta Das announced a separate liquidity window of Rs 15,000 crore, to be accessed till March 31, 2022, with tenors of up to three years at the repo rate.

“Under the scheme, banks can provide fresh lending support to hotels and restaurants; tourism – travel agents, tour operators and adventure / heritage facilities; aviation ancillary services – ground handling and supply chain; and other services that include private bus operators, car repair services, rent-a-car service providers, event/conference organizers, spa clinics, and beauty parlours/salons,” Das said.

Banks, he added, will be permitted to park their surplus liquidity up to the size of the loan book created under this scheme with the Reserve Bank under the reverse repo window at a rate which is 25 bps lower than the repo rate.

While the measure will provide much needed liquidity support to most of these sectors, as they have been facing servere liquidity crunch, Aishvarya Dadheech, fund manager at Ambit Asset Management, believes that some sort of interest subvention or even rationalizing of GST for some period of time could be some of the other measures that the RBI and the government may consider going ahead.

As per industry body CAPA, Indian airlines are expected to post a consolidated loss of $4.1 billion this fiscal, similar to what they are estimated to have incurred in 2020-21, taking the total losses of two years to around $8 billion. The Federation of Hotel & Restaurant Associations of India (FHRAI), meanwhile, has said the Indian hotel industry took a hit of over Rs 1.30 trillion in revenue in FY21.

The losses in the tourism industry, as per industry body CII’s estimates, could have been around Rs 5 trillion ($65.6 billion) in calendar year 2020 while losses for salons, spas, car rental companies, and bus operators remain uncalculated as the industries remain scattered and are not listed at the bourses.

That said, despite the RBI’s liquidity lifeline and hopes for more steps going-forward, analysts continue to remain skeptical on the sectors from an investment view point.

Shah of Geojit Financial Services, for instance, says investors with high risk appetite may choose to only look at strong companies within these sectors, betting on demand recovery happening over a period of time, as the sectors remain risky.

Kaustubh Pawaskar, deputy vice-president for research at Sharekhan prefers Indian Hotels Company in the hotel space due to its large room inventory and relatively stable balance sheet; and Jubilant Foodworks in QSR space due to its higher saliency to delivery business model and strong brand equity.

For Jasani, these sectors may see a sharp rebound once the Covid-19 concerns are addressed. “However, for now, losses are inevitable and the outlook remains weak,” he says.

Ajit Mishra, vice-president for research at Religare Broking, too, feels that the government's approach as regards rolling put policy measures would be gradual given that there are serious concerns over a possible third wave.

"It is better to stick with leaders in this space and one may consider stocks like Interglobe Aviation, Delta Corp, VIP Industries and IRCTC," he says.