The hotel sector is expected to remain strong in Q4 and Q1, according to a recent research report by domestic brokerage Emkay Global Financial Services. This is based on the brokerage’s channel controls, which indicate that average room rates (ARR) have improved year-on-year (YoY) due to demand from meetings, incentives, conferences and exhibitions (MICE) events.
“In India, MICE events are very popular. In just six major locations, we anticipate nearly 400 events in 2024 (Exhibit 5). While the Men’s Cricket World Cup and the G20 took place in 2023, events such as the Bharat Textile Expo, Miss World (Mumbai), and the Indian Premier League (IPL) (from March 22 to May 26, 2024) are expected in 2024, which could increase demand for hotels,” the brokerage said.
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Strong demand is driving the signing of new management contracts by companies such as Lemon Tree and Indian Hotels Company Ltd (IHCL), as well as Chalet’s acquisition of a resort in the NCR, according to the brokerage.
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The home brokerage maintained its target price for Chalet at ₹900 but raised it for IHCL and Lemon Tree to ₹575 and ₹150, respectively, as a result of factoring in new signings and advancing forecasts by a quarter to FY26. Strongly encouraging macros, the brokerage maintains ADD on all three stocks.
According to the brokerage, Q4FY24 average hotel rates are still high based on channel checks (for entry-level rooms with breakfast included). While rates for Lemon Tree and Chalet will continue to be high, Q1FY25 will mix with some moderation in rates on a QoQ basis for IHCL.
“In Q1FY25, average room rates (ARR) for our sample set are expected to increase by 10%-30% YoY. Based on our checks, the JW Mumbai Sahar City, Westin Mumbai, Westin Hyderabad Mindspace and Duke Resort led the way in the YoY improvement of Chalet rates in Q1FY25,” the brokerage said.
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Perspective positive; revenue will improve as signings continue in Q4; to support ADD
The brokerage claims that in Q4, management signings for Lemon Tree and Indian Hotels Company Ltd continue to be robust. Ten more hotels signed new license and franchise agreements with Lemon Tree, adding 478 keys (compared to 9 signings adding 621 keys in Q3). As they account for new signings, broker EBITDA for Lemon Tree is up 0.3% / 0.6% for FY25 / 26E.
At an enterprise value of ₹3.15 billion, Chalet bought “Courtyard” from Marriott Aravali Resort, NCR, suggesting 9x EV/EBITDA for FY26E, which appears to be value accretive. In their post-transaction note, the brokerage has already factored in the acquisition and carried it forward to FY26.
The management comments of Indian Hotels Company Ltd. about the outlook for demand in the third quarter were optimistic. Bookings for IHCL till the end of March show a continued demand trend which will be boosted by the IPL from the end of March onwards. IHCL secured seven new management contracts in Q4FY24, adding 1,307 keys.
“We maintain ADD on all 3 names, aided by supportive macros. We prefer Chalet Hotels with rev / EBITDA CAGR of 24% / 34% over FY23-26E,” the brokerage said.
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Disclaimer: The above views and recommendations are those of individual analysts, experts and trading companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.
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Published: 25 Mar 2024, 13:08 IST