IGI Logo

With sustained momentum in demand, the hotel industry recorded a robust Feb’25 as panIndia RevPAR grew c.20% YoY to INR 7,446. Occupancy was up 200-400bps YoY to 72- 74%, while ARR grew c.15% YoY to INR 10,200 (source: HVS Anarock). As demand remains bouyant, we expect a strong quarter for our hospitality coverage universe led by low-to-mid double digit RevPAR growth and stable occupancies. We have marginally reduced estimates for IHCL to align them with our 4Q numbers, and for SAMHI we have cut our growth/margin assumptions. For our coverage companies, we expect core hospitality revenue in 4QFY25 to grow by c.15% YoY and forecast EBITDA growth of c. 23% YoY for the same period (ex- Taj SATS). Our preferred pick in the space is Lemon Tree Hotels. Any moderation in ARR growth (as rates are up 35-40% up from pre-Covid levels) and an unexpected sharp slowdown in the broader economy remain key risks to our call.

* Demand for rooms remains buoyant: According to HVS Anarock, pan-India occupancy rates witnessed steady year-on-year growth in Feb’25 across all major markets. Average daily room rates (ARR) crossed the INR 10,000 level and maintained their upward momentum to grow 14-16% YoY, highlighting the sector’s strong pricing power. In the previous month (Jan’25), pan-India RevPAR was up c.14% to INR 6,164, as occupancy moved up 200-400bps YoY to 66-68%, and ARR grew c.11% YoY to INR 9,200. In Feb’25, Mumbai recorded the highest occupancy at c.85%, followed by New Delhi at 83- 85%. These two markets also witnessed the highest ARR in the country supported by strong corporate, MICE and live events demand. ARR growth was led by Bengaluru (37- 39%), followed by the cities of New Delhi (25%-27%), and Gurgaon (22%-24%). Domestic air traffic also grew 11% YoY in Feb’25 to 14.0mn passengers (4% decline MoM).

* Strong quarter led by double-digit RevPAR growth: The sector has multiple tailwinds, namely, strong seasonality in 2H, increasingly higher contribution from weddings and MICE events, and growing preference for branded rooms, leading to robust domestic demand. As demand remains bouyant, we expect a strong quarter for our hospitality coverage universe led by low-to-mid double digit RevPAR growth and marginal uptick in occupancies. For our coverage companies, we expect core hospitality revenue to grow by c. 15% YoY with same-store RevPAR growth of 12-14% and higher contribution from F&B/MICE. Within our coverage universe, we expect Indian Hotels (IHCL) to deliver the highest YoY revenue growth of 30% (ex-Taj SATS: 20%) followed by Chalet Hotels (20%) and Lemon Tree Hotels (13%). Lemon Tree’s growth is expected to be led by better-than-expected performance of Aurika, MIAL while Chalet benefits from its presence in high-growth cities (Mumbai and Hyderabad).

* Higher RevPAR and cost rationalisation to drive margin: We expect our coverage universe to record c. 27% growth in reported EBITDA (LfL growth: 22%). In 4QFY24, Chalet had one-time expenses related to Dukes’ de-capitalisation, acquisition cost of Aravali Resort, and other costs related to the Bengaluru residential project. We expect margin to recover to 46% (+ c. 240 bps) in 4QFY25. The margin performance for Juniper Hotels, which was impacted in 9MFY25 due to the renovation work at Grand Hyatt, Mumbai, is expected to recover to the steady-state EBITDA margin of c. 40%. For Lemon Tree, we expect EBITDA margin to further improve to 53-54% led by MIAL Aurika ramp-up and higher fee income. SAMHI can deliver c. 600bps uptick in margin aided by better performance due to conversion of the ACIC portfolio to managed contracts and lower base (one-time ACIC integration costs in 4QFY24).

* Maintain a constructive outlook for the sector: We build in single-digit ARR growth (7- 8%) and 100bps improvement in occupancies each year over FY25E-27E for our coverage companies. Aided by brownfield expansions, greenfield developments in pipeline and growth in the fee business, we are forecasting 12-15% growth in revenue over FY25- FY27E. We estimate 18-22% EBITDA growth for coverage companies in the same period,building in improvement in margins led by increasing contribution of higher margin/asset light business and positive operating leverage. Our preferred pick in the space is Lemon Tree Hotels. While we also like the business model of Chalet and prefer to look at it from a 3-year view (when a large part of its pipeline would be commissioned). Juniper and SAMHI also offers a good risk-reward opportunity at CMP, but would need to demonstrate robust earnings growth for re-rating of multiples. Any moderation in ARR growth and unexpected sharp slowdown in the broader economy remain key risks to our call.

Please refer disclaimer at https://www.jmfl.com/disclaimer

SEBI Registration Number is INM000010361