Hotel stocks rally up to 9% in weak market on hopes of strong earnings

Analysts at Emkay Global see the strength in hospitality industry sustaining in March (Q4)/June (Q1) quarter, based on their channel checks, with year-on-year (YoY) improvement in average room rates.

Shares of listed hotel companies rallied up to 9 per cent on the BSE in Tuesday’s intra-day trade in an otherwise weak market on expectation of strong earnings. 

Analysts at Emkay Global Financial Services see the strength in hospitality industry sustaining in March (Q4)/June (Q1) quarter, based on their channel checks, with year-on-year (YoY) improvement in average room rates (ARR), amid demand supported by MICE (Meetings, Incentives, Conferences and Exhibitions) events.

Among individual stocks, Chalet Hotels hit a new high of Rs 894.95, on rallying 9 per cent on the BSE in intra-day trade. The stock surpassed its previous high of Rs 890.70 touched on February 20.

With a strong pipeline for expansion, healthy operating performances and a team that continues to excel, the management of the company remains excited about the foreseeable future for the company.

Chalet Hotels is an owner, developer, asset manager, and operator of high-end hotels and resorts in India. The company's portfolio comprises ten operating hotels, including a hotel with a co-located serviced residence, which are situated across the markets of the Mumbai Metropolitan Region, National Capital Region, Hyderabad, Bengaluru, Lonavala and Pune.

The brokerage firm see Chalet charting revenue/EBITDA CAGR of 24 per cent/34 per cent over FY23-26E, and net debt reducing from FY25, as it initiates a slew of expansion projects, which would engender 11 per cent room-count CAGR over FY23-26E. The company’s strategically located hotels in key cities ensure high occupancy. Leasing of commercial assets provides a partial hedge against the cyclicality of the hospitality industry, it added.

Shares of EIH surged 6 per cent to Rs 448.25, while, EIH Associated Hotels soared 5 per cent to Rs 746.45 and Indian Hotels Company rallied 3 per cent to Rs 570.75. In comparison, the S&P BSE Sensex was down 0.6 per cent at 72,418 at 03:03 pm.

Management comments in the December quarter (Q3FY24) earnings call on demand and outlook was positive. January demand stood strong for Indian Hotels. Demand continued to be strong for Chalet Hotels. Lemon Tree also expects occupancy to improve as Aurika, Mumbai stabilizes. Companies will also benefit from an increase in ARR with renovation. 

MICE events are thriving in India, with an increasing number of events and conferences, and venues like Bharat Mandapam, Yashobhoomi in Delhi, and Jio World Convention Centre. These venues are expected to benefit related sectors, including hospitality, travel, and entertainment.

“We see average room rates peaking in December and coming down at the start of January. However, rates recovered in mid-January and in February. Rates are expected to moderate in March-end and recover from April for our sample set. Overall, the room rates are expected to be up YoY by 10 per cent-30 per cent for our sample set,” Emkay Global Financial Services said in the hotel sector update.