Indian Hotels Company has rallied 9% to Rs 147 on BSE in intra-day trade, gaining 12% in past six trading days, after the company reported 400 basis points (bps) Ebitda (earnings before interest, tax, depreciation and amortization) margin expansions at 10.3% in September quarter (Q2FY19). Indian Hotels is the largest player in the hospitality sector in India, with an inventory of 17,000+ rooms.
The market experts believe that the domestic hotel industry is expected to witness robust growth in the coming years led by higher occupancy, limited capacity addition and a rise in spending by domestic travellers.
“In recent few years, the industry has been witnessing some green shoots mainly led by a decline in room supply and increase in demand. The proposed supply of rooms has significantly reduced from 114,446 in FY08 to 47,067 in FY17 (source: HVS). This is further validated by the fact that demands growth (5.0% YoY) has outpaced supply growth (3.2% YoY) in FY18,” analysts at ICICI Securities said in result update.
The brokerage firm expects occupancy levels to improve further due to the rise in spending by domestic travellers. In addition, with the improved tourism measures by the government, we expect the sector to see a better growth trajectory and healthy pricing in the next three to four years.
Analysts at JP Morgan believe market demand-supply dynamics will be favorable for the hotel industry until 2021 and the hotel cycle will get into mid-cycle over FY19/20 indicating the scope for RevPAR (Revenue per Available Room) improvement across domestic markets. Given the imputed leverage both in operations and financials, consequent improvements in earnings could be significant.
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