Weak urban consumption a likely party pooper for Indian Hotels

A sharp recovery in domestic leisure and corporate travel along with MICE events, were the drivers, leading to an improved occupancy levels and higher average room rates during the quarter. Consequently, consolidated revenue at ₹1,690 crore was ahead of analysts’ estimates. The management’s upbeat commentary on demand provided a further boost to investor sentiment.

In an earnings call, the management said occupancy and room rates seen in January and forward bookings for February-March indicate that RevPAR (revenue per available room) is growing at double digits versus the similar period seen in Q4FY19.

A crucial metric for the hotel industry, IHCL’s standalone RevPAR rose 23% in Q3FY23 versus Q3FY20. Large events such as the G20 summit and ICC ODI World Cup cricket, among others, would buoy demand. Further, with demand expected to outpace supply, the company’s strategy will continue to be focused on higher room rates versus occupancy in India. For international business as well, a similar strategy is being employed, the management said.

In effect, Jefferies India Pvt. Ltd has upgraded its FY23 Ebitda estimate by 8%. Domestic brokerage house ICICI Securities Ltd has also raised its FY23-25 consolidated revenue estimates by 7% and FY23/24/25 Ebitda estimates by 14/17/9% respectively.

To increase its footprint, the company signed 11 deals in Q3FY23. Remember, the company has laid out its expansion plans under the “AHVAAN 2025″ strategy. According to analysts, one of the key triggers for the stock’s performance will be achieving targets set under this plan, especially on operating margin.

Meanwhile, in the last one year stock has rallied nearly 45%, massively outperforming the Nifty 500 index. But investors should not get carried away. A  near-term downside risk to the stock’s performance could emerge from subdued discretionary spends hurting urban consumption. Also, a fresh covid wave could be a potential dampener.