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Monsoon blues hit travel sector

2QFY26E is expected to reflect the impact of monsoon-led demand weakness - most notably in hospitality and aviation sectors. Pan India hotel RevPAR’s were adversely affected rising only ~2% in Jul&Aug’25 due to extended monsoons. The aviation sector also witnessed a notable slowdown in traffic growth with two months of back-to-back decline in domestic passenger traffic to 12.6mn/12.9mn in Jul’25/Aug’25 respectively. As for the luggage sector, demand remained muted in offline channel while the e-commerce channel performed relatively better aided by pre-festive stocking during the quarter. Within our hospitality coverage universe, we expect RevPAR growth of 5%/8%/10% for CHALET IN, LEMONTRE IN and SAMHI IN respectively. As for INDIGO IN, we expect yields to remain flat on YoY basis with a top-line of Rs182bn and EBITDAR margin of 17.6% (excluding FX loss/gain).

Top pick: SAMHI IN is our top pick in the travel & tourism space. Following fund infusion by GIC and sale of Caspia, Delhi, net debt has reduced to Rs13.7bn (net debt to EBITDA is set to decline from 5.1x in FY25 to 1.8x in FY27E). SAMHI IN trades at EV/EBITDA multiple of 14.1x/11.6x our FY26E/FY27E estimates (after adjusting for the minority interest factor in JV platform formed with GIC) and now has valuation as well as BS comfort. Retain BUY with a TP of Rs313 (14x Sep-27E).

Luggage – Weak demand environment: We expect VIP IN/SII IN to report revenue of Rs4.9bn (down 10% YoY)/Rs5.1bn (up 12.0% YoY) respectively amid weak offline demand. VIP is expected to report GM of 46.0% while Safari’s GM is expected to be at 45.7% supported by higher capacity utilization at Jaipur.

For VIP IN, we cut our adjusted PAT estimates for FY26E/FY27E by 53%/10% as we fine-tune our to-line growth assumptions. We retain HOLD on the stock with a TP of Rs474 (earlier Rs455) as we roll forward our valuation to Sep-27E (P/E of 40x; no change in target multiple). For SII IN, we retain our estimates and maintain ‘BUY’ on the stock with a revised TP of Rs2,583 (earlier Rs2,434) but cut our target multiple to 45x (earlier 47x) as we roll forward our valuation to Sep-27E.

Hotels – Occupancies take a hit, but pricing shows resilience: For CHALET IN, we expect ARR’s to increase 15.5% YoY to Rs12,164 with an occupancy of 67.0%. A 700-bps YoY dip in occupancy is anticipated due to slow uptick at hotels in Bangalore (extended new inventory) and Rishikesh coupled with some monsoonled demand weakness. Overall, we expect CHALET IN to report 21.7% YoY growth in revenue with an EBITDA margin of 40.8%. Revenue recognition from real estate project at Koramangala is expected in this quarter. We maintain ‘BUY’ with an SOTP-based TP of Rs1,188 as we roll-forward to Sep-27E (hotel business valued at 24x Sep-27E EBITDA; no change in target multiple).

For LEMONTRE IN, we expect ARR’s to increase 7.5% YoY to Rs6,345 with an occupancy of 69%. We expect revenue growth of 8.4% YoY with an EBITDA margin of 45.1% in 2QFY26E. We expect Aurika, NCR with 500 keys to debut in FY30E and have re-aligned our capex and debt assumptions accordingly over the next 3 years. Given sharp appreciation in stock price; we downgrade LEMONTRE IN to ‘HOLD’ with a SOTP-based TP of Rs177 valuing the stock at an EV/EBITDA multiple of 24x over Sep-27E (no change in target multiple).

For SAMHI IN, we expect ARR’s to increase 13.0% YoY to Rs6,658 with an occupancy of 73%, and an overall revenue growth of 9.4% for the quarter. We expect EBITDA margin of 34.7% in 2QFY26E. We expect SAMHI IN’s mid-scale hotel in Hyderabad to debut in FY30E and have re-aligned our capex and debt assumptions accordingly over the next 3 years. We maintain ‘BUY’ on the stock with a revised TP of Rs313 (earlier 300) valuing the stock at an EV/EBITDA multiple of 14.0x over Sep-27E (earlier 15.5x). We have revised our multiple downwards as we roll forward our valuation to Sep-27E.

Aviation – Yields to remain flat on YoY basis: We expect INDIGO IN to report a load factor of 83.2% as domestic pax growth has declined for two consecutive months in this quarter, reflecting an unfavourable demand environment, further marred by heavy monsoons. We expect PRASK of Rs3.78 and consequently a yield of Rs4.54 (flat on YoY basis). We expect ASKM/RPKM to increase by 8.0%/8.6% YoY to 41.3bn/34.3bn respectively. We expect RASK of Rs4.41 and gross spread (RASK less fuel CASK) of Rs2.93.

INDIGO IN is expected to report revenues of Rs182bn (up 7.2% YoY) with an EBITDAR margin of 17.6% (excluding FX adjustments). However, given sharp rupee depreciation we expect the quarter to be marred by FX losses. While we do not project FX gain or loss explicitly; for every 1% movement in INR versus USD the MTM FX impact for Indigo is to the tune of ~Rs7,000-8,000mn. We retain ‘BUY’ with a revised TP of Rs6,644 (EV/EBITDA multiple of 11x) as we roll forward our valuation to FY27E.

IRCTC – Ticketing volumes to be ~139mn: We expect online ticketing volumes of ~139mn resulting in convenience fee revenue of Rs2.6bn in 2QFY26E. Catering revenue is expected to increase 10.0% YoY to Rs5.3bn as new Amrit Bharat trains have been launched while tourism business is expected to grow by 15.0% YoY to Rs1.4bn. Overall, we expect IRCTC IN’s revenue to increase by 9.4% YoY to Rs11.6bn with an EBITDA margin of 36.4%. We maintain BUY with a TP of Rs850 (44x FY27E; no change in target multiple).

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