Unlock 1.0: Hotel stks rally up to 19% as operations to resume from June 8

Share of hotel companies rallied up to 19 per cent on the BSE on Monday in the early morning deals as government on Saturday said that restaurants, hotels, and other hospitality services would be allowed to function from June 8, along with shopping malls and complexes, as part of 'Unlock 1.0' strategy to resume economic activity.

Indian Hotels, Chalet Hotels, EIH, TajGVK Hotels & Resorts, EIH Associated Hotels and Shopper Stop were up in the range of 10 per cent to 19 per cent on the BSE in the intra-day trade. In comparison, the S&P BSE Sensex was up 2.3 per cent at 33,163 level at 9:25 am.

As part of its exit strategy, the Centre has outlined a plan to reopen nearly all activities outside of containment zones starting Monday. Places of worship, hotels, restaurants and malls can resume business by June 8, it has said. Coinciding with this, lockdown would continue in containment zones till June 30. CLICK HERE TO READ FULL REPORT

Most of the hotels stock have underperformed the market during lockdown period. Despite run-up in the past couple of days, these stocks have fallen in the range of 40 per cent to 50 per cent over the past three months, as against a 13 per cent decline in the benchmark Sensex.

While certain demand is expected to be impacted on account of the ongoing Covid-19 concern, India is also expected to benefit from it as demand for MICE from other Asian countries is expected to be diverted to India to some extent, benefits of which will be seen only be seen post FY21.

On back of marginally positive sentiments for the domestic tourism and meetings, incentives, conferences and exhibitions (MICE) led by social and industrial activities, CARE Ratings expect the momentum to pick up going forward and the industry to register a growth of about 3-5% in revenues for FY20-FY21.

“The expected future inventory in 11 major markets (across categories - only branded) is lower at around 50,170 rooms for the next 5 years (FY19 to FY24). Therefore, with increasing demand on back of improvement in economic activities and lower room additions, we expect the major markets in the industry to sustain the average room rates (ARRs) going forward and grow at an average of 3.5-4.5 per cent per annum. Also, we expect the occupancy to inch up to an average of about 68-70 per cent by the end of FY22 compared with 66.7% in FY19,” the rating agency said in sector update.

Accordingly, the hotels industry is expected to see an increase in room revenue at the rate of about 6-8 per cent CAGR over the next 3 years, it added.