In an investor meeting hosted by Jefferies India, the Indian Hotels’ management said occupancies in Q2FY23 are trending closer to Q1FY23. This is despite Q2FY23 being a seasonally weak quarter due to rains and reopening of schools. In the last quarter, the company’s domestic occupancy was 9% higher versus pre-covid levels (Q1FY20).
As such, room rates in Q2 are expected to be on the higher side when compared to pre-covid levels. What’s more, H2FY23 is likely to be boosted on account of the wedding season, corporate meetings and an increase in foreign travel led by vacation during Christmas or New Year.
Further, “India will assume the Presidency of the G20 (an intergovernmental forum) for one year from Dec-22 to Nov-23 and India is expected to host over 200 G20 meetings across the country as per the Ministry of External Affairs. This could fillip growth in the travel and hospitality segment during this period," said Jefferies report dated 26 September.
However, the pent-up component in leisure travel has largely ebbed. In view of this, the Indian Hotels’ management said ARR growth in this segment may be subdued hereon. But the rebound in business travel would lift the overall ARR.
“With improving visibility, we raise occupancy assumptions by 100-200 basis points for FY23-FY25, and ARR assumption by 8-10% — driving Ebitda upgrade of 14-19% for FY23-FY25," said analysts at Jefferies. One basis point is one-hundredth of a percentage point. Ebitda is earnings before interest, tax, depreciation and amortization.
Shares of Indian Hotels have rallied by nearly 80% in the past one year, while the Nifty500 index declined by 3%. Investors would do well to monitor the turnaround in international operations as well as the Sea Rock investment in India. In the Q1 earnings call, with respect to the latter, the management said it is working on designs and accelerating the approvals. To be sure, the sharp appreciation in Indian Hotels’ stock price suggests meaningful upsides could well be capped hereon.