Top 5 hotel stocks to watch as revenge travel gathers pace

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The hospitality industry has been one of the hardest hit sectors during the pandemic.

With the lockdown restrictions, all sorts of movement has come to a halt.

As a result, people were staying home and traveling was completely irrelevant. This affected hospitality industry revenues, with occupancy falling from a peak of 70%.

However, after the second wave, as lockdown restrictions eased, travel demand picked up. As a result, the occupancy rate has also improved and the hotel industry has recovered at a rapid pace.

As different states remove all restrictions entirely, the industry is now poised to bounce back to pre-Covid-19 levels.

With this in mind, we have selected five hotel companies likely to benefit from this growing demand.

#1 Indian Hotel Company

First on our list is Indian Hotels, part of the prestigious Tata group.

With a 116-year heritage, 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 in the economy, upscale and luxury segments.

It has a strong national presence with hotels in over 97 locations and an international presence in 10 countries.

During Covid, the company’s operational performance deteriorated, leading to lower occupancy and average room rate (ARR).

However, he could recoup some of the revenue lost through initiatives such as Qmin and home hospitality by delivering his signature dishes to homes.

Over the past three years, the company’s turnover has decreased by an average of 27% per year. Its net profit also decreased drastically due to high expenses. The books recorded a net loss of Rs 700 crore in the financial year 2021.

However, the situation has improved in recent quarters with the recovery in demand.

The company’s revenue grew 85% year-over-year (YoY) in recent quarterly results. The company also reported a profit after consistently reporting losses in previous quarters.

Going forward, Indian Hotels plans to expand and capitalize on growing demand. In 2021, it signed 17 agreements to open hotels in 16 cities.

It also has a strong pipeline of 60 hotels, over 95% of which are in India, adding nearly 8,000 rooms to its inventory.

#2 Hotels in Lemon Tree

The next stock on our list of best hotels is Lemon Tree Hotels, India’s largest mid-priced hotel chain.

It operates in the upscale, midscale and economy segments through a network of more than 87 hotels across 57 sites 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 is also expanding into Nepal by opening two hotels in prime locations.

Over the past three years, the Lemon Tree has seen its revenue decline by an average rate of 21% per year. It also reported a loss of Rs 180 crore in the 2021 financial year due to a decline in occupancy.

However, in recent quarterly results, revenue grew 110% year-over-year with an increase in occupancy and ARR. Although the company posted a loss in the quarter, losses were reduced by 88.6% year-on-year, indicating improved operating performance.

Going forward, the company plans to increase its market share to 22% from the current 17% by expanding its network to over 100 hotels and 10,000 rooms by the end of 2022.

#3 Mahindra Holidays & Resorts

The third title on our list is Mahindra Holidays and Resorts, a market leader in family vacations.

It’s about providing family vacations through Vacation Ownership Membership.

As a member of the Mahindra Group, the company enjoys a strong brand reputation and has over 250,000 members.

Through its “Club Mahindra” and “Club M Select” products, it offers its members access to more than 100 resorts in India, Europe, Asia and the United States.

It is also the largest leisure hotel operator in Finland and the largest vacation rental company in Europe.

Over the past three years, the company’s turnover 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 over the past quarter exceeded pre-pandemic levels.

Revenue increased 17% YoY and Member Acquisitions increased 13% YoY.

Going forward, the company has an investment expansion plan of Rs 1,200 crore to extend its resort network.

#4 EIH Limited

Next on our list is EIH Limited, part of the Oberoi Group, a pioneer in the hospitality industry in India.

The company has been in the Indian luxury hospitality industry for six decades through brands such as Oberoi, Trident and Maidens.

It is also in the field of airport restaurant management, flight catering and project management.

EIH has a network of 33 hotels and resorts with 4,935 rooms across more than fifteen locations in seven countries.

The company follows an asset-light model and only owns 10 of the 33 hotels, while the rest are under management contracts, which helps the company reduce its debt.

Over the past three years, the company’s revenue has fallen by an average of 33% per year, mainly due to declining revenue from the enterprise segment.

In recent quarterly results, the company’s revenue grew 93.6% year-on-year. Its profit also increased 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 normal, society expects its income to rise, driven by weddings and leisure travel. However, business demand will take longer to recover.

#5 Chalet Hotels

The last stock on our list is Chalet Hotels, part of the K Raheja Group.

It is engaged in the operation and management of premium hotels in hub cities of India. The company is also in real estate development with around 30 years of heritage.

Chalet Hotels has a network of seven hotels with 2,554 rooms in the general public and luxury segment.

It has a strategic partnership with Marriot and Accor, which manage the seven hotels owned by the company.

Over the past three years, the company’s revenue has fallen 33.2% annually, driven by a sharp drop in hotel business. Its profit also fell significantly. It reported a net loss of Rs 140 crore in the financial year 2021.

In the last quarter, the company’s revenue increased 89% year-on-year, driven by growth in the hospitality industry.

Going forward, the company will undertake commercial and residential real estate and hotel projects to expand its asset base and revenues in the next fiscal year.

Should you invest in hotel stocks?

The hospitality industry is poised to return to pre-Covid levels as pent-up demand due to lockdown kicks in.

After the second wave and the vaccination campaign, people went on “revenge trips”. Demand was driven primarily by vacations, weddings and leisure travel. Business travel also contributed a small share to the increase in demand.

A new travel trend combining business and vacation also emerged, and it was called biscations, where people started working in resorts.

All of this shows a ray of hope for what people saw as a deteriorating industry.

However, this does not mean that the industry will start immediately. The pattern of demand recovery will be very different.

Staycations, leisure travel and weddings will be the main segments generating revenue for hotels, while business travel and foreign tourists will take longer to recover to pre-Covid levels.

Although the outlook looks bright for the industry as a whole, one should be wary of the possibility of new Covid variants and probable lockdowns which can change the situation overnight.

It is therefore advisable to exercise caution when adding hospitality industry stocks to your watchlist.

Good investment!

Warning: This article is for information only. This is not a stock recommendation and should not be treated as such.

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