Hotels make for a happy home for investors, stocks return over 50% in less than six months

Hotels make for a happy home for investors, stocks return over 50% in less than six months
  • The hospitality industry has bounced back to pre-Covid levels.
  • India witnessed a 244% demand increase in hotels across six major cities — Delhi, Bengaluru, Chennai, Goa, Hyderabad and Mumbai in the second quarter of 2022.
  • Hotel stocks have delivered returns of over 50% in the last 12 months.
  • Hotel companies Chalet Hotels and Indian Hotels Company have doubled investors’ money in the last one year.
After two erratic years, travel is back in vogue. Hotel operators are seeing a surge in occupancies as all forms of travel are back – be it vacations, weddings, conferences, exhibitions or business travel.

The hospitality industry, which was brutalized by the pandemic, has bounced back to its pre-Covid levels, according to a report by HVS Anarock. In the June quarter of 2022, there has been a 244% increase in demand for hotels across six major cities — Delhi, Bengaluru, Chennai, Goa, Hyderabad and Mumbai, according to Hotel Momentum India Report 2022.

The beneficiaries of this pick up are the listed hospitality players. Over the last one year, most hotel stocks have given returns between 50-100%. “Large-scale infrastructure push by the government in the budget, revival of domestic and international tourism, resumption of international flights, improving leisure and wedding demand are strong drivers,” said a report by Ventura Research.

Luxury hotels like Indian Hotels Company, EIH Hotels, Lemon Tree are also set to gain from the G20 Summit 2023 that India will host in Kashmir. The event will be attended by 6,000 delegates.

Investors had spotted the travel theme this January, which is reflected in the shares of these hotel companies. Chalet Hotels and Indian Hotels Company doubled investors’ money in the last one year.
Hotel company stocks Last six months 2022 so farLast one year
EIH Hotel25%26%50%
EIH Associated Hotels25%26%48%
Chalet Hotels35%52%104%
Lemon Tree Hotels49%41%76%
Indian Hotels Company 40%47%101%


Indian Hotels - a multibagger with an app-advantage
Some of the rally in the shares of Tata-owned Indian Hotels Company also has to do with its latest strategy ‘AHVAAN 2025’ which is a roadmap for profitable growth by FY25-26. Under the new strategy the hotel chain aims to build a portfolio of 300 hotels and clock operating margin of 33% by FY26 from 25% at present.

Indian Hotels is debt-free and has generated positive cash flows of ₹115 crore in FY22, due to pick up in business and working capital management. The company’s management said their second quarter is generally the weakest.

“However, this year, 2Q FY23 estimate doesn’t seem to be that weak, according to the current visibility. For FY24 estimate, while we (and consensus) forecast 12% YoY revenue growth, profitability should improve faster due to cost efficiency gains,” said the management.

Integration within the Tata group, and the creation of the Tata Neu super app may also offer a significant upside to revenue. Tata Neu cuts across the many offerings of the group be it travel, shopping, travel bookings, financial services and also provides exclusive offers.

IHCL had 2 million loyalty members of its own, but the app helped push this membership base to 3 million.

“Revenue from loyalty members has increased from 12-13% of overall revenue pre-Covid to 18% this year. In addition, synergies with Tata’s aviation business has yet to show results,” said a report by HSBC Global Research.

Chalet Hotels gets an airport boost
Another multibagger stock in the hotel industry -- Chalet Hotels also had a good run up in its share price. Recently, Delhi International Airport asked the company to develop a hotel at the T3 Terminal of Indira Gandhi International Airport (IGIA).

With this, CHL which runs JW Marriott Mumbai Sahar, Four Points by Sheraton Navi Mumbai and several others, will enter the north India market. It will have around 350-400 rooms positioned in the 5-star deluxe space.

The emerging tide of travel post-Covid is reflected in the company’s financials as it made a profit of ₹286 crore in April-June quarter of FY23 against a loss in the previous quarter and corresponding quarter last year. In fact, it was the best first quarter result delivered by the company supported by strong recovery in business travel and IPL season.

However, the company highlighted in its latest June quarter results that only 56% of the foreign travel business is back. Its MD & CEO Sanjay Sethi quoted several reasons for it including difficulty to get the visas and Russia Ukraine war.

Boost in business trips highly beneficial to Lemon Tree Hotels, say analysts

While it’s not a multibagger, the stock of Lemon Tree also went up by 76% in the last one year. It’s one of the largest hotel chains in the mid-priced segment in India.

“With revival of demand in corporate travel, large events and conferences, Lemon Tree with 86% of its hotels at business destinations, is set to benefit,” said Shobit Singhal, research analyst at Anand Rathi.

The brokerage says that it will also benefit from its brand building exercises, cost efficiency, geographic expansion and a mix in price points. “Its strategy of vigorous expansion and its asset-light model augurs well for the long term,” said Singhal.

The company plans to add 738 rooms in Mumbai and Shimla in the next two years with an investment of ₹1,006 crore.

$LEMONTREE.NSE looks very good. The whole hotel industry has rebounded sharply and a little scuttlebutt (even without looking at charts) would have nudged you in the direction to picking up these stocks. Travel is back big time as work from home becomes the new normal. Lemon Tree Hotel looks really good currently on weekly after having broken out of a crucial resistance. Keep a SL at 66 (weekly decisive closing) and go long here. First target would be the old ATH and from there on we can track further.

— (@thebullofdalalstreet) August 25, 2022

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