Mumbai: Shares of hotel companies gained up to 20 per cent on Tuesday amid expectations of the holiday season bringing in robust demand, which will result in higher room rates and increased occupancy.
“Hotel industry occupancy levels and average room rate (ARR) are showing upward trends due to a demand-supply gap. We expect these trends to continue in the near to medium term due to low visibility on room supply,” said Shaleen Kumar, analyst, UBS Securities. “We expect a steep increase in ARR in key markets as occupancy levels reach an inflection point similar to the last upcycle of FY03-08.”
According to a report by Elara Capital, revenue per available room across premium hotels jumped by 5 per cent year-on-year to Rs 7,400 in February 2018, led by strong growth in demand and higher room rates.
Revenue per available room across business destinations like Hyderabad (5 per cent YoY), Delhi & NCR (7 per cent YoY) and Pune (7 per cent YoY) saw strong improvement, backed by strong demand from meetings, incentives, conferences and exhibitions (MICE) segment and increasing number of corporate travellers, said the report.
Among hotel stocks, analysts prefer Indian Hotels as it is a key beneficiary of the hotel sectors upcycle while its brand pull could also support higher average room rates according to analysts.
“We think Indian Hotels is best placed to ride the upcycle as a sizeable portion of its portfolio is in the luxury segment and cities that could see lower supply over the medium term,” said Shaleen Kumar of UBS. “We like the new managements strategies that include margin improvements driven by cost optimisation and ARR increases and rationalising its plans for renovation capex with a focus on ROCE”.