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Data released by HVS Anarock for October 2023 indicates a pick-up in occupancy of +6 percentage points (pp) YoY and +2pp MoM, aided by the Cricket World Cup. New Delhi, Mumbai, Pune, and Hyderabad witnessed over 20% YoY improvement in ADR along with increased occupancy of over +5pp YoY. A similar strength in trend was observed in domestic air travel passengers in India, which was up 11% YoY in Oct-23. Foreign Tourist Arrival (FTA) was up 18% YoY in Sep-23, though it is still below pre-COVID levels by ~16% YTDCY23, indicating scope for further improvement. We see continued strength in average hotel rates in Q3/Q4FY24 for three hotel companies under our coverage. Given favorable demand-supply dynamics over the long term, we reiterate our ADD rating on our hotel names, i.e., Indian Hotels Co. Ltd. (IHCL), Lemon Tree Hotels (LTH), and Chalet Hotels.

Upward trajectory in average rates continues amid strength in demand

HVS Anarock has released its Oct-23 data for hospitality. The occupancy rate has further increased +6pp YoY and +2pp MoM. National hotel occupancy rates for October 2023 exceeded pre-pandemic levels by 1-3pp, aided by ICC Men's Cricket World Cup. The Cricket World Cup, in particular, improved hotel occupancy in various markets hosting the matches. Occupancy was up 10-15pp YoY in Kolkata and New Delhi. Average rates in key markets hosting the cricket matches witnessed a YoY increase ranging from 15% to 33%. New Delhi, Mumbai, Pune, and Hyderabad witnessed an improvement of over 20% YoY in ADR along with increased occupancy of over +5pp YoY. Goa witnessed a YoY increase in average rates by 1-3% only due to the Cricket World Cup. ADR grew 15% YoY in Oct-2023 (+8% MoM) on average, indicating continued strong demand in the sector. As a result, RevPAR was up 27% YoY in Oct-2023 (+12% MoM) on average. We expect this trend to continue in H2FY24, aided by high seasonal demand and marriages.

FTA picking up from below pre-COVID levels; domestic demand stays strong

Domestic air travel passengers in India were up 11% YoY in Oct-2023 at 12.6mn, 3% above pre-pandemic Oct-2019 numbers, which is positive for the hospitality sector. FTA is picking up on a YoY basis. FTA increased 18% YoY in Sep-2023 and rose 23% YoY in Aug-2023. However, FTA in India, as of YTDCY23, still stands below pre-COVID levels by ~16%. Even though FTA has lagged pre-COVID levels, strength in domestic demand (aided by rising spending on leisure and weddings) has helped the hotels maintain elevated occupancy over the past two years in India. We see continued strength in average hotel rates in Q3/Q4FY24 for three hotel companies under our coverage, as per the room rates available on company websites. We expect room rates to pick up further in Q4FY24 for most hotels, as business-related occupancy picks up. Chalet is witnessing an uptick in ARR for Mumbai in Q3 and the trend will continue in Q4.

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