01-01-1970 12:00 AM | Source: Motilal Oswal Financial Services Ltd
Hotel Sector Update - Recovery to be further aided by foreign tourists By Motilal Oswal
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Recovery to be further aided by foreign tourists

India to open up for foreign tourists

* As per a media article, Union Home Ministry officials are in talks with stakeholders for reopening the borders to foreign tourists, amid a steady decline in COVID-19 cases.

* This is in a bid to revive Tourism, Hospitality, and Aviation sectors in the country. The first five lakh foreign tourists are likely to be issued visas free of cost.

* A formal announcement is expected within the next 10 days.

 

FTA revival is one of the key factors driving occupancy

* India recorded Foreign Tourists Arrivals (FTA) of 10.9m in CY19, after growing at 8% CAGR over FY09-19.

* As per the Ministry of Tourism, the number of FTAs shrank by 97% YoY to 0.21m in Apr-Dec’20 v/s 7.75m in Apr-Dec’19.

* FTAs aid in increasing occupancy and yield higher ARRs, given their propensity to spend higher.

 

Impact on Hotel companies

* The second COVID wave delayed the recovery in the Hospitality sector by a couple of quarters. However, the impact this time around was less severe and the recovery has been quicker v/s last time.

* With a lot of large corporates having asked employees, who have completed their vaccinations, to return to office, domestic corporate travel is likely to return in a couple of quarters. With the government opening up travel, FTAs would provide an additional leg of demand.

* Recovery for the Hospitality industry would be aided by demand from domestic and international travelers. We expect pent up demand for business travel (domestic and international) since that has not happened for ~1.5 years.

* All of the above would lead to a demand revival, which would push up occupancies, leading to ARR growth

* While earnings were weak in FY21, we expect a gradual/sharp recovery in FY22E/FY23E on: a) a low base, b) improvement in ARRs once things normalize, c) improved occupancies, d) positivity in cost rationalization efforts in FY21, e) an increase in F&B income as banqueting/conferences resume, and f) higher income from management contracts.

* We have a Buy rating on Indian Hotels Company and Lemon Tree.

 

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