An impressive recovery in the domestic travel and tourism business after the pandemic lull has brightened prospects of related stocks, which remain good bets ahead of the summer holiday season, as per analysts.
They suggest investors keep a selective ‘buy on dips’ strategy on the space entailing hotels, airlines, travel agents, ticket booking players, and luggage makers.
“Growth momentum in the travel industry will continue ahead owing to the sugar rush in leisure and corporate travel, upcoming holidays, wedding season, the G20 summit, and boost from international travel. The occupancy picture, especially, for hotels and flights appears very promising. Investors should keep a longer time horizon and add quality stocks where multiples have room to expand,” said Parul Rao, Research Analyst, Samco Securities.
Rao suggests buying the stocks on declines and her top picks include Indian Hotels, IndiGo, and Mahindra Holiday Resorts.
Backing this view, analysts at Jefferies in a recent note said that even after a sharp jump in EBITDA (4 times) in FY23 on post-Covid normalization, the hotel sector would continue to benefit over FY23-25 from cyclical recovery and demand growth beating supply. Investors who seek to play on higher growth in the near term and ride the cyclical upturn can prefer these stocks, they say.
As per industry estimates, hotels' revenue per available room (RevPAR) has been up 10 per cent over pre-Covid levels during April 2022-February 2023.
Meanwhile, the domestic airline passenger traffic, a proxy for travel demand, recorded a 51.7 per cent year-on-year (YoY) jump to 3.75 crore between January-March 2023.
“Incumbents in the airline sector are expected to benefit the most from the paucity in capacity as they have a larger share of the market and are able to meet the supply-demand imbalance. With few airlines operating in the market, there is less competition allowing incumbents to charge higher prices and improve profitability,” said Vinit Bolinjkar, Head of Research, Ventura Securities.
The upsurge in travel has also led to a rise in ticket booking, experts say. For FY23, leading domestic travel operators like Thomas Cook, MakeMyTrip, Yatra, and EaseMyTrip are likely to report operating profits after two straight fiscals of losses, CRISIL Ratings said in a report last month. It expects their operating margins to sustain around 6-7 per cent in FY24 with revenues expected to pass pre-pandemic levels.
Given this, Bolinjkar is bullish on IRCTC (target: Rs 770) as it has diversified its offerings beyond online ticketing to tour and travel package services, which are seeing firm demand. Indian Hotels (TP: Rs 460), Easemytrip (TP: Rs 53), and Thomas Cook (TP: Rs 80) are his other preferred picks.
Similarly, the long-term outlook for the luggage sector remains robust amid a travel rebound and a shift in consumer preference from non-branded to branded products, said analysts at Anand Rathi.
The brokerage recently initiated coverage on VIP and Safari Industries, with ‘buy’ ratings and 12-month TPs of Rs 850 and Rs 2,750, respectively, valuing both at 34 times FY25 earnings.
"While VIP has underperformed, we believe it should catch up and can offer better returns than Safari since its renewed focus on the mass category, doubling of its international business, further growth from Caprese, and self-sufficiency in its own manufacturing would boost its revenue growth and margins," it said.
At the bourses, share performance across the space has been mixed over the last two quarters. Safari Ind, Rategain Travels, IndiGo, Mahindra Holidays have gained 7-36 per cent, while IRCTC, Easy Trip Planners, SpiceJet, Thomas Cook and VIP have lost 4-22 per cent as compared to a 5 per cent gain in the BSE Sensex.
 "IHCL, IndiGo, IRCTC: Analysts bet on travel stocks ahead of holiday season")
