Oriental Hotels hits new high; up 27% in 1 week on hopes of strong earnings

Share of Oriental Hotels Limited (OHL) continued their upward movement, hitting a new high of Rs 109.80, up nearly 4 per cent on the BSE in Wednesday’s intra-day trade on hopes of strong earnings. In past one week, the stock has surged 27 per cent, as compared to 1.4 per cent rise in the S&P BSE Sensex.

OHL is part of the ‘Taj Hotels Resorts and Palaces’, the umbrella brand for the Tata group company, ‘The Indian Hotels Company Limited’ (IHCL), its subsidiaries and associates. IHCL and its associates hold 39.09 per cent equity stake in OHL.

The board of directors of OHL are scheduled to meet on Monday, October 16, 2023 to consider the unaudited financial results of the company for the quarter ended September 30, 2023.

According to OHL, the outlook for Indian hospitality industry during 2023 remains positive. The upsides working in favour ofthe hospitality industry in India are good macro economic environment evidenced by 6 per cent plus GDP growth, superior performance by the services sector of the Indian economy, abating COVID-19 fears, continuing infrastructure development projects within the country, growth in air and railway passenger traffic and growth in demand for branded rooms outpacing a tepid growth in supply of those rooms to provide long-term sustainable demand.

Growth in the industry is largely expected from domestic demand which is expected to remain strong through FY24 even as international travel has shown green shoots of recovery and provides scope for further growth in demand. Additionally, the India’s G20 Presidency and an opportunity to host international events, including the ICC Men’s World Cup, is expected to increase demand for hotels in the cities hosting the events. Growth in India’s service sector and higher disposable income of people working in it, referred to in HSBC’s report.

OHL has a portfolio of 7 hotels which includes 3 owned properties with the rest being leased and licensed properties. The strategy and operations of the company are guided and spearheaded by IHCL, its major promoter shareholder and operator.

Meanwhile, CARE Ratings reaffirmed the ratings on the bank loan facilities of OHL. The outlook is ‘Stable’ indicates stability in the scale of operations of the company benefitting from its continued association with the strong brands derived from IHCL. No new hotel addition is expected over the medium term in OHL’s portfolio, the rating agency said in rationale.

The company recovered strongly post uplifting of COVID-19 restrictions and posted record high revenue and profits. The industry overall is benefitting from low new supply of hotels against robust demand which is expected to continue over the next 2-3 fiscal years. Over the medium term, operating profitability is expected to be in the range of 27 per cent-29 per cent over the medium term, CARE Ratings said.

Despite the possibility of inflation putting pressure on the growth rate in FY24, the average room rate (ARR) has already recovered above the prepandemic level indexed at 105-107 when compared to FY19 levels. Leveraging India's G-20 presidency, the ICC Cricket World Cup, and the resumption of foreign inbound travel, along with robust domestic leisure travel, the sector's ARR should continue to inch higher in FY24, boosting RevPAR.

CareEdge estimates that RevPAR should grow 3-5 per cent over FY23 levels. All key performance indicators such as RevPAR, ARR, and occupancy rate are ahead of pre-pandemic levels, and the industry is on its way back to profitability. Domestic hotel players are now in a favourable position to resume pending projects and undertake new ones, given the improved revenues and enhanced accruals cushioned by the realignment of the cost structure by the players. This, in turn, will boost the sector's supply.