Hotels, tourism firms likely to have seen sharp recovery in April-June quarter; check top stocks to buy

The hotels and tourism sector has gone through a lot over the last few years since covid took the world by storm. Now, after passing through various hiccups, the industry is likely to have witnessed a sharp recovery in April-June quarter aided by leisure/transient travel, wedding season and strong revival from the business segment, said ICICI Direct in a note. “Hotel booking data also suggests strong buoyancy in the demand with hotel booking for March-June crossing pre-pandemic levels led by wedding seasons, vacations and IPL matches. Hence, from a Q1FY23 perspective, we expect occupancy levels to improve to ~75% while average room rates are likely to remain higher by 10% QoQ to Rs 8300/room for the premium segment,” the brokerage firm said.

Analysts at ICICI Direct also expect reduced fixed overhead costs to aid in margin expansion. During the pandemic, hotels structurally realigned their cost base to become leaner in terms of cost. “Hence, we expect over 9% reduction in operating costs from pre-Covid levels during Q1FY23E, which would help the companies to improve margins,” they added. ICICI Direct said it expects revenue of our coverage universe to increase ~224% YoY, 20% QoQ. While EBITDA margin of 24.4% is expected against the loss reported last year. 

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Indian Hotels: Buy
Target price: Rs 290

Analysts are predicting a strong recovery in revenue from the domestic leisure hotel business on an on-year basis. “Occupancy levels and ARRs in the domestic segment to improve to 76% and Rs  8750/room against 67% and Rs 8250/room reported in Q4FY22,” they said. Revenue of Indian Hotels is expected to increase 19.3% on quarter and EBITDA of Rs 257.7 crore. Analysts, however, said net profit growth would be lower sequentially due to tax adjustments and exceptional income. The stock has gained 33% in 2022. 

East India Hotels: Buy
Target price: Rs 185

In terms of revenue, EIH is expected to post growth of close to 300% YoY, 19.4% QoQ led by strong revival in the business locations aided by IPL matches and MICE segment. “We expect the company to report an EBITDA margin of over 20% due to strong growth in the revenues. PAT is expected at Rs 25.4 crore,” ICICI Direct said. EIH shares are up 7% so far this year to now trade at Rs 134 per share.

Lemon Tree Hotels: Buy
Target price: Rs 78

Shares of Lemon Tree Hotels are up a massive 36% so far in 2022, sharply outperforming the benchmark indices. The company is expected to post the highest on-quarter revenue growth of 27.3% in the April-June quarter, according to ICICI Direct. “Expect an EBITDA margin of over 37% (highest among peers) due to stringent cost controls. Net losses to narrow down sharply to Rs 6.3 crore vs net loss of Rs 39.4 crore last quarter,” the brokerage firm said.