Hotel Stocks On Downturn As Tourist Traffic Slackens

After the bull run witnessed in the second half of the previous fiscal, large-cap hotel stocks suddenly seem to have lost favour with the investor community. Sector heavyweight scrips like Indian Hotels, East India Hotels, Asian Hotels and ITC Hotels have been witnessing lateral-to-downward movement since the past two months.

The market perception is the stocks in this sector will continue to face rough weather for the next three months, before witnessing a slight change in trend.

According to industry analysts, a sharp decline in the foreign traveller traffic due to uncertain political conditions has squeezed the margins of major hotels. Consequently, the scrips have taken a tumble at the major bourses.

 

Neepa Meswani, analyst at BSE brokerage house Mafatlal Securities, said: "The bottomline of the hotels is linked to the room occupancy rate. The hotel industry was going through a boom phase till two years back when the demand for five-star accommodation far outstretched supply. But after the parliamentary elections in March and the formation of a coalition government at the Centre, there has been a marked decline in the business traveller traffic which has led to a fall in the occupancy rates. This affected the September 1996 results of all the major hotels which showed a decrease in net profit."

Said a dealer at a corporate broking house: "Till a few years back, FIIs were very bullish about this sector as it was growing at a tremendous pace. But of late, the growth rate has started tapering which has led to the FIIs adopting a neutral stand on this sector."

Says Prathith Bhobe, analyst at a research outfit, Consolidated Securities: " Most of the major hotels have lined up ambitious expansion plans. This will lead to a diversion of the funds to finance the projects . Also, since hotel projects have gestation periods as long as five years, it will be some time before the returns start flowing in."

The Asian Hotel scrip, however has been performing well at the major bourses since the past two days on expectations of good results.

The scrip hit the upper end of the circuit filter at Rs 235.85 on the NSE yesterday. At the BSE, the scrip closed at Rs 239.75, a gain of Rs 36.75 in the past two trading sessions.

Said an analyst: "The March results of all the leading hotels will show a growth of 10-12 per cent at the most. But from now on, the growth in this sector will be more tempered."