Hotel shares in demand; TajGVK, Lemon Tree, Oriental Hotel rally up to 9%

Occupancy rate is expected to improve further from the pre-pandemic levels, on the back of strong demand drivers including resumption in foreign inbound travel, says analyst at Motilal Oswal.

Shares of hotel companies were in demand in Wednesday's intra-day trades, with select stock rallying up to 9 per cent on the BSE amid heavy volumes in an otherwise range-bound market. The buying at these counter can be attributed to expectations of strong earnings growth going forward.

TajGVK Hotels & Resorts, Lemon Tree Hotels and Oriental Hotels have surged in the range of 7 per cent to 9 per cent on the BSE. Indian Hotels Company, EIH Hotel, Mahindra Holidays & Resorts India were up 2 per cent - 3 per cent. In comparison, the S&P BSE Sensex was up 0.12 per cent at 62,757 at 12:43 PM.

Although July-September quarter (Q2FY23) is seasonally weak for the tourism sector due to monsoon, revenues for the sector were higher by 23 per cent from pre-Covid levels vs expected growth of around 17 per cent. However, there was a marginal dip in revenues sequentially (down 0.9 per cent) due to monsoons.

Occupancy rate (OR) is expected to improve further from the pre-pandemic levels, on the back of strong demand drivers such as wedding season, G20 summit meetings, and resumption in foreign inbound travel. Average Room Rent (ARR) is expected continue inching higher, thereby boosting Revenue per available room (RevPAR), Motilal Oswal Financial Services said in its hotel sector update.

The brokerage firm anticipate the robust growth across hotels to sustain in FY23/FY24 based on an increase in ARR across hotels on the back of improved occupancies, operating leverage coupled with cost rationalization across hotels to maintain higher margins v/s pre-pandemic levels, and strong demand drivers in place driving occupancies.

While Q2FY23 remained a little softer, ICICI Securities expect next 12 months to stay strong for the sector supported by full resumption of the economy. Further, revival in foreign tourist arrivals, wedding season, G20 summit 2023 are expected to provide a further fillip to leisure and business hotel room demand, going forward.

In terms of rooms supply, the brokerage firm expect the launch of new hotel projects to get delayed due to higher land and input costs, auguring well for existing branded players. Further, hotel players are now leaner in terms of costs that are sustainable in nature. This would aid in healthy margin expansion, analyst said in Q2 earnings wrap.