Hotel stocks rally on heavy volumes; Chalet, Lemon Tree soar over 10%

While Q2FY22 witnessed a sharp rebound in revenues on a lower base, ICICI Securities expect a further recovery in revenues during Q3FY22E supported by healthy festive season travel demand.

Shares of hotel companies rallied up to 13 per cent on the BSE in Monday’s intra-day trade on back of heavy volumes on expectation of healthy earnings going forward as higher vaccination and lower hospitalization rates will lead to a much stronger rebound than the second wave.

Lemon Tree Hotels surged 13 per cent to Rs 54.65 on three-fold jump in trading volumes. A combined 12.68 million equity shares representing 1.6 per cent of total equity of the company changed hands on the NSE and BSE.

EIH Associated Hotels and Chalet Hotels rallied 13 per cent and 12 per cent, respectively. Advani Hotels & Resorts (India), Asian Hotels (North), Kamat Hotels (India), EIH, Taj GVK Hotels & Resorts and Indian Hotels were up 5 per cent to 10 per cent on the BSE. In comparison, the S&P BSE Sensex up 1.3 per cent at 57,957 as of 11:40 am.

The hotel sector reported a healthy improvement in occupancy post the second wave. While July-September quarter (Q2FY22) witnessed a sharp rebound in revenues (up 120.3 per cent QoQ) on a lower base, we expect a further recovery in revenues during October-December (Q3FY22E) supported by healthy festive season travel demand, according to analyst at ICICI Securities.

There has also been some cut down in discretionary business travel due to emergence of new Omicron variant. Leisure travel has largely remained unaffected till December 2021 and no major cancellations have been witnessed so far. However, the enquiries for the next few weeks have come down and negative Covid test requirements could disrupt the travel demand again in the Q4FY22E, the brokerage firm said in hotels & tourism sector update.

Shares of Indian Hotels Company were up 5 per cent at Rs 218.35 today, having rallied 21 per cent thus far in January. The stock had hit a record high of Rs 230.14 (adjusted to rights issue) on October 14, 2021.

Analyst at Motilal Oswal Financial Services believes Indian Hotels’ asset-light model as well as the new/reimagined revenue generating avenues with higher EBITDA margins bodes well for RoCE expansion.

The brokerage firm reiterate Indian Hotels as its top pick in the hospitality industry driven by its continuous focus on leveraging its brands, expanding its operations through management contracts, unlocking value by launching new/reimagined brands, creating a hospitality eco-system across the country, reducing costs sustainably, and deploying capital judiciously to improve return ratios.  It maintains ‘buy’ rating on the stock with target price of Rs 258 per share.