Hotels was one of the worst hit sectors during the pandemic.
With lockdown restrictions, all kinds of movement came to a standstill.
As a result, people stayed at home and travelling was completely out of the picture. This affected the hotel industry's revenue as the occupancy rate dropped from a high of 70%.
However, after the second wave, as lockdown restrictions eased, the demand for travel picked up again. As a result, the occupancy rate also improved, and the hotel industry recovered at a quick pace.
As different states entirely remove all restrictions, the industry is now all set to bounce back to pre-Covid-19 levels.
With this in mind, we have shortlisted five hotel companies that might benefit from this growing demand.
#1 Indian Hotels Company
First on our list is Indian Hotels which is a part of the prestigious Tata Group.
With a legacy of 116 years, the company owns and operates several iconic hotels in India, such as TAJ, Ginger, Vivanta, and Seleqtions.
It has a portfolio of 200 hotels, 27,000 rooms, 400 restaurants, and 70 spas across economy, upscale, and luxury segments.
It has a strong domestic presence with hotels in over 97 locations and an international presence in 10 countries.
During Covid, the company's operational performance deteriorated, leading to a decline in occupancy rate and average room rate (ARR).
However, it could recover a part of the lost revenue through initiatives like Qmin and hospitality at home by delivering its signature dishes to people's homes.
In the last three years, the company's revenue has declined by an average of 27% per annum. It's net profit has also declined drastically due to high expenses. The books saw a net loss of Rs 700 crore in the financial year 2021.
However, the situation has improved over the past few quarters as demand has picked up.
The revenue of the company grew by 85% year-on-year (YoY) in the recent quarterly results. The company also reported a profit after consistently reporting losses in the previous quarters.
Going forward, Indian Hotels has planned to expand and capitalise on the rising demand. In the year 2021, it signed 17 deals to open hotels in 16 cities.
It also has a strong pipeline of 60 hotels, with over 95% in India, adding close to 8,000 rooms to its inventory.
#2 Lemon Tree Hotels
The next stock on our list of top hotels is Lemon Tree Hotels, India's largest mid-priced hotel chain.
It operates in upscale, midscale, and economy segments through a network of over 87 hotels across 57 locations with an inventory of 8,500 rooms.
Some of its key brands include Aurika, Lemon Tree Premier, Red Fox, and Keys.
The company currently has an international presence through two hotels in Dubai and Bhutan. It's also expanding to Nepal by opening two hotels in prime locations.
In the last three years, the Lemon Tree saw its revenue decline by an average rate of 21% per annum. It also reported a loss of Rs 180 crore in the financial year 2021 due to lower occupancy.
However, in the recent quarterly results, the revenue grew by 110% YoY with increased occupancy and ARR. Though the company reported a loss during the quarter, the losses were reduced by 88.6% YoY, indicating an improvement in operational performance.
Going forward, the company expects to increase its market share to 22% from the current 17% by increasing its network to over 100 hotels and 10,000 rooms by the end of 2022.
#3 Mahindra Holidays & Resorts
The third stock on our list is Mahindra Holidays and Resorts, a market leader in the family vacation business.
It's in the business of offering family holidays through vacation ownership membership.
As a part of the Mahindra Group, the company has a strong brand reputation and has a member base of over 250,000 members.
Through its products 'Club Mahindra' and 'Club M Select', it provides its members access to over 100 resorts in India, Europe, Asia, and USA.
It's also the largest operator of leisure hotels in Finland and is the largest vacation ownership company in Europe.
In the last three years, the company's revenue has fallen by 7%. It also reported a net loss of Rs 14.04 crore in the financial year 2021.
However, the company's performance in the recent quarter has surpassed the pre-pandemic levels.
The revenue increased 17% YoY, and member acquisitions increased by 13% (YoY).
Going forward, the company has a capex expansion plan of Rs 1,200 crore to expand its resort network.
#4 EIH Limited
Next on our list is EIH Limited which is a part of the Oberoi Group – a pioneer in the Indian hospitality sector.
The company has been in the Indian luxury hospitality business for the past six decades through brands such as Oberoi, Trident, and Maidens.
It's also in the business of managing airport restaurants, flight catering, and project management.
EIH has a network of 33 hotels and resorts with 4,935 rooms in over fifteen locations across seven countries.
The company follows an asset-light model and owns only 10 out of the 33 hotels, while the rest are under management contracts aiding the company with its low debt levels.
In the last three years, the company's revenue has fallen by an average of 33% per annum, mainly due to lower income from the corporate segment.
In the recent quarterly results, the company's revenue increased 93.6% YoY. Its profit also grew to Rs 32.18 crore from a net loss of Rs 40.84 crore in the same period a year ago.
As the economy returns to normalcy, the company expects its revenue to go up, driven by weddings and leisure travels. However, the corporate demand will take a longer time to recover.
#5 Chalet Hotels
The last stock on our list is Chalet Hotels, part of the K Raheja Group.
It's engaged in the business of operating and managing high-end hotels in India's gateway cities. The company is also into real estate development with around 30 years of legacy.
Chalet Hotels has a network of seven hotels with 2,554 rooms inventory in the mainstream and luxury segment.
It has a strategic partnership with Marriot and Accor, which manage the seven hotels owned by the company.
In the last three years, the company's revenue has fallen by 33.2% per annum, led by a sharp drop in the hotel business. Its profit has also reduced drastically. It reported a net loss of Rs 140 crore in the financial year 2021.
In the recent quarterly, the company's revenue grew by 89% YoY, led by growth in the hospitality business.
Going forward, the company is undertaking commercial and residential real estate and hospitality projects to expand its asset base and revenues in the next financial year.
Should you invest in hotel stocks?
The hotel industry is all set to return to pre-Covid levels as pent-up demand from the lockdown is kicking in.
After the second wave and vaccination drive, people engaged in ‘revenge travel'. The demand was majorly driven by staycations, weddings, and leisure travels. Business travel also contributed a small share to the rising demand.
A new travel trend combining business and vacation also emerged, and it was called biscations, where people started working from resorts.
All this shows a ray of hope for what people considered a deteriorating industry.
However, this doesn't mean the industry will kick off immediately. The demand recovery pattern will be very different.
Staycations, leisure travels, and weddings will be the main segments to drive revenue for the hotels, while business travel and foreign tourists will take more time to recover to pre-Covid levels.
Though the prospects look bright for the entire industry, one should be wary of the possibility of new variants of Covid and probable lockdowns that can change the situation overnight.
Hence it is advised to practice caution when adding the hotel industry stocks to your watchlist.
Happy Investing!
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
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