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Published on 1/10/2022 10:36:20 AM | Source: ICICI Securities

Hotels Sector Update: Aug`22 industry RevPAR 9% above pre-Covid levels -

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

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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. This momentum carried forward into Apr’22 with occupancies reaching ~65% (same as Apr’19) of pre-Covid levels and Apr’22 RevPAR at Rs3,803 or 103% of Apr’19 levels. May’22 industry RevPAR of Rs3,744 was 10% higher than May’19 (pre-Covid levels) while Jun’22 industry RevPAR of Rs3,803 was 12% higher than Jun’19 levels. In Aug’22, while industry ARRs were 9% higher than Aug’19 levels at Rs5,850, overall occupancy remained flat at 61% in Aug’22 compared to Jul’19 levels resulting in Aug’22 industry RevPAR of Rs3,539 or 109% of Aug’19 levels (Jul’22 industry RevPAR was 105% of Jul’19 levels).

As per our channel checks, hotels are now consciously looking to keep rates higher even in the seasonally weakest quarter of the year (Jul-Sep’22 period) and sacrifice a bit of occupancy in preparation for a strong demand surge in H2FY23. With continued improvement in physical office footfalls, continued demand for MICE segment, festive season demand kicking in and expected recovery in inbound travel, we anticipate a strong H2FY23. Assuming no further Covid induced disruptions and countries easing international travel restrictions, we believe that inbound travel demand can surprise on the upside. We reiterate our BUY ratings on Indian Hotels Co. Ltd. (IHCL) and Lemon Tree Hotels (LTH).

* Aug’22 industry RevPAR 9% above pre-Covid levels: In Aug’22, while industry ARRs were 9% higher than Aug’19 levels at Rs5,850, overall occupancy remained flat at 61% in Aug’22 compared to Jul’19 levels resulting in Aug’22 industry RevPAR of Rs3,539 or 109% of Aug’19 levels. In Aug’22, Mumbai recorded the highest occupancy rate among cities at 74%, followed by New Delhi at 70% and Hyderabad at 69%. MICE destinations such as Goa and Chandigarh are continuing to show strong growth in average rates, helping the India average. While the Apr-Jun’22 period was a blowout quarter for the hotel industry, the clear trend is that hotels are holding on to higher rates in anticipation of a strong H2FY23.

* Leisure segment demand contingent on a number of variables: With a number of long-haul international destinations from India such as Europe/USA/Canada now open for travel, there has been a surge in enquiries from Apr’22 owing to pent up demand after a two-year hiatus. However, soaring international airfares and longer waiting times for travel approvals amid rising inflation may lead to Indians continuing to prefer domestic leisure destinations (staycations/workcations/weddings) and short-haul international routes (South East Asia/Middle East) in FY23E. Further, inbound travel to India in H2FY23 may see a surge owing to pent-up demand and a weak currency.

* Business travel continues to see improvement: While rising costs remain a key monitorable for Indian and global corporates, with physical occupancy in offices across India’s Tier I cities continuing to rise every month and virtual events return to physical mode, we believe that the MICE segment will ensure robust demand in H2FY23.

* 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.

 

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