Hotel Stocks Dish Out Steady Fare
Even as key index stocks came under selling pressure at the bourses on fears of rupee devaluation, hotel stocks have managed to stay unscathed.
Analysts said that hotel scrips are expected to make significant gains from the depreciation of the rupee. They also feel that some foreign funds may have used hotel shares as a hedge against any erosion in their portfolio due to the rupee fall.
While the Sensex fell by nearly 187 points in just the last three trading sessions ending Friday, hotel stocks have managed to remain rock steady. East India Hotels (EIH), Indian Hotels and Orient Hotels even posted moderate gains.
On the Bombay Stock Exchange (BSE), the EIH scrip ended the week at Rs 385.50, a gain of Rs 4.75 over the last three trading sessions, Indian Hotels edged up by Rs 3 to close at Rs 630.75, Orient Hotels gained Rs 12.25 to close at Rs 305.50 while Hotel Leela remained unchanged at Rs 76.75.
Pradeep Rao, analyst, Kotak Securities, said about 55-60 per cent of the guests in large-cap hotels comprise foreigners. Most of these hotels have a dual tariff card whereby foreign guests are charged in dollar terms which is usually higher than the rate charged for Indian guests. Under such circumstances, the hotel sector would be the first beneficiary of a depreciation in the rupee. Sensitivity analysis show that hotels stand to gain 3.5 per cent to 4 per cent year-on-year (YOY) on net profits if the average rate of rupee against the dollar remains at 36.25 throughout the year.
However, other analysts and broking circles feel that the current gain in scrip prices on rupee depreciation fears is a temporary phenomenon. They opine that hotel stocks, which are quoting at a premium currently, will not be able to command the same price in the long run.
Says S Gopalakrishnan, vice-president, equities, UTI Securities: In the event of a rupee depreciation, hotel stocks are an ideal hedge. Thats why there has been some FII activity in key hotel stocks, mainly EIH and Indian Hotels, in the past week.Hotel stocks have been in the limelight over the past three years mainly because of rupee depreciation.
Moreover, five-stars hotels have been consistently increasing their tariff rates over the past three years. Thus most of the growth in net profits have been through increased rates and not through capacity expansion, he said. According to him, currently, Indian hotels are among the most expensive in Asia. With tourist inflow projected to be lower than last year, hotels will find it difficult to increase the tariff rates.
This could have a significant impact on their bottomlines, Gopalakrishnan said.
Another reason for hotel scrips remaining steady in falling markets, according to marketmen, is that there was no heavy selling in these stocks as was the case in index stocks and MNC stocks.
FIIs are now holding on to these stocks till matters stabilise on the rupee-dollar front, said a dealer at an institutional brokerage.