Why Ambit prefers hotel stocks over aviation and luggage? Leela top bet

The brokerage preference remains hotels over aviation and luggage within the travel and related consumption basket, reflecting stronger earnings visibility in hotels

The hospitality sector's growth remained resilient in the December quarter (Q3FY26), with most hotel companies delivering results broadly in line with expectations, owing to healthy room-rate momentum, while aviation and luggage players missed estimates due to disruption-led pressures and rising costs, according to Ambit Institutional Equities. The brokerage preference remains hotels over aviation and luggage within the travel and related consumption basket, citing stronger earnings visibility in hotels against near-term margin headwinds elsewhere.

Hotels:

Hotel Industry's revenue per available room (RevPAR) grew 12 per cent in Q3, with ITC Hotels, Samhi Hotels and Chalet largely tracking the sector trend. Leela Palaces Hotel continued to outperform, delivering around 20 per cent RevPAR growth, aided by a sharper luxury upcycle. In contrast, Lemon Tree and Indian Hotels (IHCL) underperformed with about 7 per cent and 9 per cent growth, respectively against the sector’s 12 per cent, which the brokerage attributed to a weaker portfolio mix in Lemon Tree.

 

 

However, the report flagged margin pressure for some operators as goods and services (GST)-led Earnings before interest, tax, depreciation and amortisation margin (Ebitdam) compression hit Samhi and Lemon Tree the most, resulting in an estimated 200 basis points (bps) reduction in long-term margins. Despite this, the outlook remains positive as supply additions are expected to stay muted—FY26 supply compound annual growth rate (CAGR) is estimated at 5 per cent for Tier-I cities, well below demand CAGR of 7–8 per cent, with the mismatch even more pronounced in the luxury segment. On this backdrop, Ambit maintained a bullish stance on the luxury theme, naming Leela Palaces as the “Top Buy.” 

 

For the broader coverage universe, it expects 7–11 per cent RevPAR growth in FY27/FY28, lower than the 11 per cent seen in 9MFY26 but still supportive.

 

In the past three months, Leela Palaces shares rose 2 per cent, however, Lemon Tree fell 19 per cent, ITC Hotels tanked 12.5 per cent, Samhi Hotels slipped 12 per cent, and IHCL was down 3 per cent. In comparison, the BSE Sensex was down 1.4 per cent around the same time.

Aviation: 

For airlines, the report said disruptions “spoilt the party” for InterGlobe Aviation (IndiGo), with earnings expected to compress amid higher costs and lower available seat kilometre (ASK) growth. That said, it expects market share to remain intact, as IndiGo is seen as the only player with meaningful capacity additions in the near term. In the past three months, IndiGo shares have tumbled 13 per cent.

Luggage: 

In the luggage segment, Ambit expects higher discounting to pressure profitability next year, although increased sales via quick commerce could provide a growth tailwind. In the past three months, Safari Industries shares fell 20 per cent and VIP Industries was down 2 per cent.  Disclaimer: View and outlook shared belong to the respective brokerages/analysts and are not endorsed by Business Standard. Readers discretion is advised.