Why ICICI Securities is bullish on Indian Hotels, Lemon Tree Hotels stocks despite rising covid cases globally
By The livemint
While December 2022 has been another strong month for the hotel industry, rising Covid cases globally threaten to spoil the party from January 2023.
However, with the hotel industry having already borne the brunt of three Covid waves over FY21-22 with demand bouncing back stronger and quicker each time, domestic brokerage and research firm ICICI Securities expects the hotel industry to ride the wave yet again and emerge stronger from any potential Covid led demand disruption.
“In terms of incremental demand-supply, while incremental room supply CAGR is currently estimated at 5-6% over FY22-26E, the actual supply addition may be in the range of 2-3% over this period with demand expected to grow 15% in FY23E and at 10% CAGR over FY23-26E,” the note stated.
The brokerage house has reiterated its ADD rating on hotel stocks Indian Hotels Co. Ltd. (IHCL) and Buy rating on Lemon Tree Hotels (LTH).
As per the brokerage’s channel checks and commentary from listed hotel companies, hotels continue to follow a strategy of keeping rates higher and sacrifice a bit of occupancy in preparation for a strong ‘wave’ of demand in H2FY23 and demand continues to remain buoyant primarily driven by leisure, MICE and weddings with in-bound business travel yet to fully kick into top gear.
This comes on the back of a blowout quarter in Q1FY23 (Apr-June 2022), driven by strong pent-up demand and while there were concerns over the initial demand surge fizzling out from Q2FY23, the Jul-Sep’22 (Q2FY23) period has seen ARRs being 8% higher than Jul-Sep’19 (pre-Covid) levels, with RevPAR being 6% higher over the same period,” ICICI Securities highlighted.
Rising Covid cases globally threaten to upset the proverbial applecart for the hotel industry with Government advisories on international and domestic travel and mask mandates acting as deterrents.
However, with the hotel industry having already borne the brunt of three Covid waves over FY21-22, the brokerage believes that hotel operators have been already following a “hope for the best, plan for the worst” scenario and have focused on reducing fixed costs along with long term demand-supply dynamics remaining favourable for the Indian hotel industry.
