Lemon Tree To IHCL: Hospitality Firms Expect Growth Despite Q1 Disappointment
Extreme heatwaves led to either the leisure group deferring their trips or travelling abroad, Nuvama said.
Shares of Indian Hotels Co., Lemon Tree Hotels Ltd., Chalet Hotels Ltd. and EIH Ltd. have been under pressure in the past month. This comes after the companies posted weak first quarter earnings, with revenue growing in the range of 6-20%, against 16-26% last year.
Growth took a back step this quarter owing to multiple momentary industry headwinds, according to Nuvama Research. "Extreme heatwaves led to either the leisure group deferring their trips or travelling abroad."
Fewer wedding days during the quarter, which is seasonally strong for weddings, hit the MICE (Meetings, Incentives, Conferences, and Exhibitions) segment, it said. These two factors, combined with elections, led to softness in the growth for the sector.
Revenue Growth Slowed in Q1 FY25 On Temporary Headwinds
Margins either contracted or were flat for most companies due to lower productivity in Q1 FY25, the research firm noted.
Lemon Tree’s margin contracted 5% YoY, due to increased spending toward renovation, in line with its guidance, it said.
Occupancy Trends
Occupancies also took a hit in the April-June period, owing to the impact of severe heatwaves, fewer wedding days and softer MICE related business, and the influence of union elections, Nuvama said.
Lemon Tree Hotels witnessed a fall in its occupancy levels during the quarter, as around 25% of the company's total Keys portfolio was shut for renovation, the research firm said.
Average Room Rates
Overall growth rates for these hotel chains varied significantly in the first quarter of fiscal 2025, compared to the same period last year. Some chains, like Lemon Tree Hotels, showed strong growth, while others, like Chalet Hotels, experienced a mere 1% increase in room rates.
Chalet saw slower growth in its room rates on account of 16-17% drop in Pune market, with new capacity additions in Novotel Pune. The company expects this to normalise October onwards.
In Mumbai, the Vashi hotel saw a 7% decline in revenue per available room, due to significant increase in room supply in hotels in Navi Mumbai.
Despite a muted first quarter performance, most players are optimistic about growth in the second half of the year.
Here is a look what managements have to say.
IHCL
After a subdued Q1, July has seen bookings grow 20% YoY, while August is also seeing a good trend.
Indian weddings are expected to make a strong comeback in the coming period, with 12 more auspicious dates as compared to last year.
Second quarter is expected to be stronger than Q1, despite it being seasonally the weakest, it said.
Expects recovery in foreign tourist arrivals from October onwards.
Lemon Tree Hotels
Around 50% of the margin decline attributed to one-off increases in investments in renovation and digital transformation.
Post-renovation, management anticipates a significant increase in Ebitda, particularly from the Keys portfolio.
Management maintains double-digit RevPAR guidance for FY25 and FY26.
Chalet Hotels
Growth in July bounced back sharply, with better occupancies and rates.
Hotel inventory expansion at Marriott Bengaluru of 130 rooms and The Dukes Retreat, Lonavala of 70 rooms remain on schedule with completion expected in the third quarter.
Management remains confident that long term sector tailwinds remain intact.
EIH
Delay in renovations of Nariman Point properties (Oberoi and Trident) and weak performance of select international properties impacted the overall growth, along with heat wave impact.
Management expects margins to stabilise, as higher labour costs are expected to normalise over the year.
