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Optimistic outlook continues with healthy 1Q performance

The hotel industry witnessed healthy performance in 1QFY24, mainly led by a continued rise in average room rate (ARR). In this report, we present the current demand scenario and key insights based on 1QFY24 results and the management commentaries of major hospitality players – Indian Hotels (IH), Lemon Tree Hotels (LEMONTRE), Chalet Hotels (CHALET), EIH, Oberoi Realty (OBER), Brigade Enterprises (BRGD), and ITC.

* As per HVS Anarock, the Industry RevPAR in 1QFY24 grew 15% YoY on the back of a strong ARR growth (up 18% YoY to INR6,900). OR stood at ~63% (down 260bp YoY) on the back of higher base.

* The hospitality basket reported healthy financial performance as Revenue/EBITDA grew ~16%/17% YoY, with EIH leading the pack (up 26%/56% YoY).

* Within the basket, all the companies registered ARR growth (~9-38%) as compared to last year, with CHALET leading the pack at 38% YoY. LEMONTRE/IH standalone witnessed 510bp/430bp YoY growth in Occupancies, with the rest witnessing flattish to negative change.

* Going ahead, OR is likely to improve in the near term, led by favorable demand-supply dynamics and demand drivers such as the B20 and G20 Summit meetings, the ICC ODI Cricket World Cup, and the resumption of foreign inbound travel. ARR should continue to inch higher, thereby boosting RevPAR.

Rising ARR offsets muted occupancy in 1QFY24

* As per HVS Anarock, in 1QFY24, industry RevPAR grew 15% YoY to INR4,348, led by strong growth in ARR (up ~18% YoY to INR6,900).

* The industry OR declined 200bp YoY to ~63%, on the back of a strong base (~65% in 1QFY23 vs. 63% in 1QFY20; pre-covid levels) and companies focus on increasing the ARR.

* ARR grew 23%/16%/15% YoY in Apr/May/Jun’23 to ~INR7,200/INR6,800/ INR6,700, while OR was down 200bp/200bp/100bp YoY to ~63%/62%/64%.

* In Jul’23, Industry RevPAR grew 9% YoY, led by a 13% rise in ARR, which was partly offset by a 200bp decline in OR. However, with key events such as B20 and G20 taking place in Aug/Sep’23, we expect the company to report better OR in 2QFY24 than in 1QFY24.

* For 1QFY24, the number of domestic air passengers grew 19% YoY to 38.6m (recorded the highest ever passenger traffic in May’23 at 13.2m). In July’23, domestic passenger traffic stood at ~12.1m, continuing its strong growth momentum (up 25% YoY).

* Foreign Tourist Arrival (FTA) grew 54%/41%/24% YoY to ~0.60m/0.59m/0.65m in Apr/May/Jun’23. However, it was still ~22%/3%/11% below pre-covid levels (Apr/May/Jun’19). FTA is also likely to inch up from its current levels, driven by a further rebound in inbound tourism.

* The improving travel trends coupled with multiple large global events such as G20, B20, and ICC Cricket Men’s World Cup is expected to push the demand higher in the upcoming quarters.

* As a result, we expect that increased occupancy, combined with sustained momentum in ARR growth, will contribute to a strong performance for the majority of the hotel companies in FY24.

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