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Published on 30/05/2022 11:46:35 AM | Source: ICICI Securities Ltd

Hotels Sector Update - April 2022 industry occupancy breaches the 65% mark By ICICI Securities

Posted in Broking Firm Views - Sector Report| #Hotel sector #Sector Report #ICICI Securities

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April 2022 industry occupancy breaches the 65% mark

As per HVS Anarock, industry occupancies fell below 50% in Jan’22 owing to Omicron impact before recovering to ~55% in Feb’22 and 61% in Mar’22 and was the first month that industry level occupancy crossed the 60% threshold since the onset of the Covid pandemic in Mar’20. This momentum has carried forward into Apr’22 with industry level occupancies reaching ~65% and industry level ARRs of ~Rs5,850 that are at 88% of Feb’20 levels with Apr’22 RevPAR at Rs3,803 or 78% of Feb’20 levels. Compared to Apr’19 levels, Apr’22 ARRs are 2-4% higher with industry RevPARs also higher at a similar level. Based on industry level commentary and channel checks, May’22 has seen further MoM improvement in industry occupancies and ARRs. We reiterate our BUY ratings on Indian Hotels Co. Ltd. (IHCL) and Lemon Tree Hotels (LTH). For IHCL, we have a target price of Rs292/share, valuing the stock at 22x Mar’24E EV/EBITDA. For LTH, we have a target price of Rs80/share, valuing the stock at 20x Mar’24E EV/EBITDA.

Sharp bounce back in demand continues in Apr’22: In Q3FY22 (Oct’21-Dec’21 period), ARRs in leisure hotels across India recovered to pre-Covid levels along with occupancies while business hotels continued to lag. While the onset of the Omicron wave globally and in India from Dec’21 raised fresh concerns, the relatively milder impact of the Omicron wave with a decline in Covid cases in India has led to a revival of sentiment in the hospitality sector. As per HVS Anarock, industry occupancies fell below 50% in Jan’22 owing to Omicron impact before recovering to ~55% in Feb’22 and 61% in Mar’22 and was the first month that industry level occupancy crossed the 60% threshold since the onset of the Covid pandemic in Mar’20. This momentum has carried forward into Apr’22 with industry level occupancies reaching ~65% and industry level ARRs of ~Rs5,850 that are at 88% of Feb’20 levels with Apr’22 RevPAR at Rs3,803 or 78% of Feb’20 levels. Compared to Apr’19 levels, Apr’22 ARRs are 2-4% higher with industry RevPARs also higher at a similar level. In Apr’22, the city of Mumbai remained the market leader with record high occupancy of over 80% owing to the IPL and large ticket conferences. In Apr’22, the industry has seen 12 new branded hotels opening across 912 keys while 14 new branded hotels were signed across 1,224 keys (including conversions/greenfield properties).

Momentum remains strong in May-June’22 as well: Based on industry level commentary from listed/unlisted players and our channel checks, May-Jun’22 has seen further MoM improvement in occupancies and rates with domestic corporate travel demand, resumption of international flights and rise in physical occupancies across cities driving incremental demand, especially in the MICE segment. While a marginal rise in Covid cases across India in May’22 is a key monitorable, the industry is moving ahead with cautious optimism with Q1FY23 set to be a strong quarter for the hotel industry.

Industry RevPARs expected to cross pre-Covid levels in FY23E: According to the India Hospitality Industry Overview 2021 by HVS Anarock, industry level occupancies are expected to touch pre-Covid levels of 66% sometime in CY22E/FY23E and reach 70% in CY24E. With the expected ramp-up in occupancies, ARRs are expected to touch pre-Covid levels sometime in CY22E/FY23E. While incremental room supply CAGR is currently estimated at 5-6% over FY22-26E, the actual supply addition may be in the range of 2-3% over this period with demand expected to grow 15% in FY23E and at 10% CAGR over FY23-26E. In our view, this will translate to ramp up in industry RevPARs from FY24E as demand outpaces supply.

 

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