Hotel stocks likely to rebound amid sustained strong growth rates

Hotel stocks have seen a correction underperforming the BSE MidCap by 10 per cent despite strong third quarter (Q3) results and commentary. ADR (Average Daily Rate) growth may slow down in the second half of calendar year 2025 (H2CY25), in part due to base effects. But management commentary suggests demand will remain strong. India has 270 rooms per million. The global average is 6,900. So, there is headroom for growth.

 

During Q3, hotels reported strong pricing growth across key markets. Revenue growth is expected to remain strong in Q4. Indian Hotels reiterated double-digit revenue growth guidance for financial year 2025 (FY25). Chalet Hotels expects Q4 to be better than Q3.

 

However, channel checks suggest rates may moderate in H2CY25, with pricing growth down to single-digit growth.

 

Operating profit margins improved slightly in Q3 aided by operational efficiencies. Most companies are moving towards the asset-light model.

 

Domestic travel continues to be the key driver with large-scale events, concerts, conferences, and weddings. A few industry experts have cautioned about an economic slowdown.

 

The long-term demand outlook looks favourable given demand-supply imbalance, opportunities for expansion in Tier II and Tier III cities, MICE (meetings, incentives, conference and events), spiritual tourism, recovery of foreign tourist arrivals, and weddings.

 

Most hotels currently operate near all-time high occupancy levels and occupancy may remain within a range of 70 per cent-75 per cent. Large urban markets will continue to have a higher occupancy rate. But key leisure markets like Goa experienced marginal occupancy growth Y-o-Y while holding higher than average room rate or ARR. 

 

Hospitality players may see 12-14 per cent Y-o-Y revenue per available room or RevPAR growth in Q4 (similar to Q3FY25), driven by growth in ARR (11-13 per cent).

 

Jan and Feb’25 maintained high occupancy rates with double-digit ARR growth (11-13 per cent). Spiritual tourism saw traction, with the Maha Kumbh delivering over a 300 per cent bump in bookings worth ₹2,800 crore for the regional industry.

 

Coldplay’s India tour in Jan’25 led to a surge in hotel rates and occupancy in Mumbai and Ahmedabad. These concerts highlighted untapped potential.

 

The central government announced the development of 50 Indian tourist spots, with focus on spiritual and medical tourism in the Budget. There will be streamlining of the e-visa process for foreign tourist groups, accelerating foreign tourist arrivals, which have yet to reach the pre-pandemic levels (9.2 million in CY23 vs 10.9 million in CY19). Currency devaluation can also make India a cheaper destination.

 

Sports is also a driver with India hosting the 2025 Asia Cup in October 2025, the IPL and the FIH Hockey Junior World Cup.

 

Indian Hotels which already has a strong presence in 60 locations across 50 spiritual cities (majorly through management contracts), plans to open over 2,800 rooms across brands in locations such as Ayodhya, Hampi, Vrindavan, Ujjain, Prayagraj, and Makkah in the next three to five years.

 

HVS Anarock claims industry RevPAR rose 6 per cent Y-o-Y to ₹4,920 in 9MFY25, as the ARR growth (up 6 per cent Y-o-Y to ₹7,733) was supported by a marginal increase in occupancy (up 10 basis points Y-o-Y to 63.2 per cent).

 

In Q3FY25, aggregate revenue for the hospitality basket (including Indian Hotels, Lemon Tree, EIH, Chalet, Samhi, Juniper, Park, Oberoi, Brigade, The Phoenix Mills, and ITC) grew 17 per cent Y-o-Y to ₹6,100 crore while operating profit grew 21 per cent Y-o-Y to ₹2,460 crore.

 

In the first nine months of financial year 2025 (9MFY25), aggregate revenue for the same basket grew 17 per cent to ₹15,090 crore while operating profit grew 19 per cent Y-o-Y to ₹5,310 crore.

 

Lemon Tree and Samhi outpaced peers with the highest revenue growth in 9MFY25 (up 23 per cent and up 20 per cent Y-o-Y). Samhi recorded an operating profit growth of 57 per cent Y-o-Y, followed by Indian Hotels (up 28 per cent Y-o-Y) in 9MFY25. There’s consensus that ARR will continue to see healthy growth while occupancy may be range bound at a higher range through till FY27.