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Hotel stocks are shining bright on the stock market as they reach new highs, driven by upcoming events like the G20 Summit, ICC Men's Cricket World Cup, and the wedding season. Despite a weak second quarter due to the monsoon, experts believe that the outlook for these stocks remains strong. Analysts predict that the recovery in international tourist arrivals to pre-COVID levels will significantly boost demand for hotels.
Some notable players in the hotel industry, including Indian Hotels, EIH Ltd, Lemon Tree Hotels Ltd, and Chalet Hotels Ltd, have been trading near their 52-week highs, with many hotel stocks experiencing gains ranging from 13% to 50% in the past six months. As we head into the festive season, analysts at JM Financials Institutional Securities anticipate a robust demand for chain-affiliated hotels. They attribute this strength to buoyant domestic demand, a substantial influx of foreign tourists due to the G20 Summit and ICC World Cup, and the upcoming wedding season.
Hotel businesses have seen a remarkable recovery in their earnings over the past year as COVID-19 concerns have eased. The first quarter showed strong performance, with the hospitality industry reporting a 16% revenue growth and a 17% increase in earnings before interest, taxes, depreciation, and amortization compared to the previous year. EIH led the way with an impressive 26% and 56% year-on-year growth in revenue and earnings, respectively.
This robust financial performance was supported by an average room rate (ARR) growth of 9% to 38% compared to the previous year, with Chalet Hotels taking the lead. Analysts at Motilal Oswal predict that occupancy rates are likely to improve in the near term due to favourable supply-demand dynamics and other demand drivers. They expect ARR to continue its upward trend, thus boosting revenue per available room (RevPAR).
Although there might be a slight softening in performance during the seasonally weak September quarter, experts anticipate an improvement afterward. Forward hotel room rates for October-November are expected to be at least 10% higher than the previous year, according to analysts at ICICI Securities LTD. While the July-September period is typically the weakest quarter due to the monsoon, demand drivers remain strong for the second half of FY24. Events like the G20 Summit, Cricket World Cup, wedding season, and the recovery of international tourist arrivals to pre-COVID levels are expected to drive demand.
In August, hotel rates consistently remained above 2019 levels, even though occupancy rates dipped slightly. The metric used to measure performance in the hospitality sector, RevPAR, also indicated a healthy performance. Analysts at ICICI Securities project that industry-level occupancies, which recovered to 60% in 2022, will reach 66% in 2023, 68% in 2024, and 70% in 2025. Meanwhile, industry ARR is expected to increase from Rs.6,100 in 2022 to Rs.7,106 in 2023, Rs.7,639 in 2024, and Rs.7,983 in 2025. They anticipate a 15.8% compound annual growth rate for industry RevPAR from 2022 to 2025.
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