Hotels Sector Update : Strong show continues By JM Financial Services
The hotel industry continued its strong performance in Jan’25 with pan-India RevPAR growing c.14% to INR 6,160 with both occupancy and ARR rising on a YoY basis (Source: HVS Anarock). Among key markets, Mumbai continues to outperform (with highest occupancy and ARR) on all parameters followed by Delhi and Bengaluru. In-line with the industry trends, our coverage universe reported an encouraging performance in 3QFY25 with Revenue/EBITDA/PAT YoY growth of 24%/27%/61% respectively. Going forward, our room rate tracker and channel checks are indicating that demand momentum has continued in 4QFY25 as well. We remain constructive on the sector and expect demand to grow at 8-10% over medium term. We build in high single digit ARR growth (7-8%) and c.100bps improvement in occupancy each year over FY25-27E for our coverage companies. Re-iterate BUY on Chalet, Lemon Tree, Samhi and Juniper Hotels. Any moderation in ARR growth and unexpected sharp slowdown in the broader economy remain key risks to our call
* RevPAR growth sustains in Jan’25: According to HVS Anarock, the pan-India occupancy rates increased by 2-4pps in Jan’25 to come in at 66%-68%. Average Room Rates (ARR) maintained their upward momentum and grew 10-12% on a YoY basis, led by Mumbai with YoY growth of 21%-23%, while Kolkata and Bengaluru also recorded ARR growth of 18%-20%. Aided by favourable seasonality, the industry has clocked double digit RevPAR growth for the 3 rd consecutive month. Domestic air traffic also grew 11% YoY in Jan’25 to 14.6mn passengers (2% decline MoM).
* Trends across key Indian markets: Mumbai continued to record the highest occupancy at 82-84%, while New Delhi and Bengaluru led the YoY growth with an impressive increase of 6-8pps. On the other hand, Chandigarh and Hyderabad were the only markets that saw marginal year-on-year declines in occupancy rates in the range of 2-5pps. Mumbai recorded highest average rate in the country (above INR 14,000) while also delivering highest growth of c.22% which can be partly attributed to the sharp spike in room rates during the Coldplay concert. Bengaluru and Kolkata also reported robust growth of 18%- 20% in ARR.
* Healthy show in 3QFY25: Our coverage universe reported an encouraging performance in 3QFY25 backed by a strong wedding and holiday season. The coverage universe has delivered a Revenue/EBITDA/PAT growth of 24%/27%/61% YoY respectively. Among all the companies, IHCL has witnessed earnings upgrade from the street given the consistent performance of core portfolio and rapid growth in new business verticals (Ginger, Ama and SATS). Estimates for Chalet and Lemon tree are largely maintained while there were earnings cut (3-5%) in Juniper (due to rationalisation of margins) and SAMHI (delayed ramp-up in ACIC portfolio).
* Maintain a constructive view on the sector: The Indian hospitality sector continues to witness strong demand trends and is expected to grow at 9-11% over medium term driven by the general economic growth, strong propensity for travel and potential recovery in FTA. While we have seen some increased activity in new signings (2x jump since CY22), the planned supply should take anywhere between 3-4 years to be commissioned. As per Hotelivate, the total room addition is estimated to be ~52k rooms over FY24-29E, which implies a 5-year CAGR of 6%. We expect the upcoming supply to be absorbed with minimal impact in occupancies.
* Sector looks attractive after the recent correction: We build in high single digit ARR growth (7-8%) and 100bps improvement in occupancy each year over FY25-27E for our coverage companies. Aided by growth in room inventory, robust MICE revenues and growth in fee business (for owner-operators), we are building 12-15% growth in revenue over FY25-FY27E and 18-22% EBITDA growth, as margins should improve led by increasing contribution of higher margin/asset light business and positive operating leverage. Re-iterate BUY on Chalet, Lemon Tree, Samhi and Juniper Hotels.
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