IHCL checks into growth mode
₹436.45 apiece, and have gained 34% so far in 2023, sharply outperforming the nearly 9% rise in the Nifty 50 index. Recall that the stock had already seen a strong rally in 2022. In the June quarter (Q1FY24), IHCL’s occupancy and ARR for its domestic business stood at 67.1% and ₹9,128, respectively.
ICICI Securities’ channel checks for the industry’s forward hotel rates for October to November 2023 compared to same period last year, indicate that hotels continue to follow a strategy of keeping rates at least 10% higher than previous year levels. Further, foreign tourist arrivals are still below the pre-pandemic levels. As foreign arrivals start to improve, it may propel IHCL’s earnings growth.
In general, vacationing trends are going through a structural shift. “The focus is now more on experience—consumers are willing to switch brands and pay related premium. Vacations are more frequent through a mix of short (weekend getaways, road trips) and long trips," points out a report by Elara Securities (India).
While these factors augur well, there is also worry about the hotel industry’s growth prospects beyond the near term. On a high base of FY24, earnings growth could look muted in FY25. Analysts at Jefferies India expect IHCL’s consolidated revenue to rise by 19% in FY24 and at a relatively slower pace of 9.7% in FY25.
Here, it helps that the demand supply dynamics are expected to be favourable. “According to various industry estimates, with incremental room supply CAGR expected to range between 5-6% over CY22-26, medium-term demand supply dynamics remain healthy for the Indian hotel sector," said ICICI Securities. IHCL noted that hotel demand grew by 8% in Q1 versus FY20 while room supply increased by only 6.7%.IHCL’s
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