With the Covid-19 pandemic ebbing down, demand recovery is expected to show a positive momentum in the hospitality sector and leisure demand will continue to drive growth in the Indian hospitality sector which had taken a severe hit with the multiple waves of the pandemic.
As per the latest report by Motilal Oswal, based on the recent quarterly results (Q3) results of a few players in the hospitality segment—Indian Hotels (IH), Lemon Tree Hotels (LEMONTRE), Chalet Hotels and EIH (EIH Limited is the flagship company of the Oberoi Group)—the aggregate revenue was up 101 per cent YoY (Year on Year) and 51 per cent QoQ (quarter on quarter). EIH reported great performance with 59 per cent QoQ revenue growth, followed by IH (more than 53 per cent), LEMONTRE (more than 48 per cent) and CHALET (more than 28 per cent).
The Indian Hotels shone on RevPAR (revenue per available room) performance. For other players as well, RevPAR grew sequentially, backed by an improvement in occupancy and ARR (Average Room Rate). Indian Hotels outperformed its peers on RevPAR growth front. The highest sequential improvement in RevPAR was witnessed in Indian Hotels (60 per cent for its domestic network and 62 per cent for its standalone operations).
As per the management commentaries from these hotels, as captured by the Motilal Oswal report, demand-supply gap is expected to lead to better realizations in the long run. As per the hotel industry wide views rates have largely been firm across hotel chains and few of the project-based business travels have started picking up. At the same time, it is expected that some of the cost rationalization measures are here to stay even after the pandemic ends, and leisure and holiday travels would continue to propel growth in FY 2023. The demand versus supply gap would intensify in the next five years leading to better realizations.
Healthy momentum was also seen in many of the Indian Hotels. The RevPAR in Delhi, Mumbai and Bangalore remained at 75 per cent and the RevPAR reached 89 per cent of pre-Covid level, against industry rate of 79 per cent. Recovery was strongly supported by demand and occupancy revival in leisure and business. In Indian Hotels, the revenue for Ginger reached 93 per cent of pre-Covid level and the operating margin expanded 600bp from the pre-Covid level due to a shift towards the ‘Lean Lux’ model.
On the other hand, for the hotel group Lemon Tree the debt stood at Rs 16.8 billion as of December 2021, in line with March 2021 and September 2021 levels. The management of this hotel chain aims to be debt free over the next five years. The hotel chain saw a rapid recovery in demand to 3,000 rooms per day in 3Q FY22. The same dropped to 1,700 rooms a day in January 2022, but rose to 2,500 rooms per day in February 2022. It currently stands at 3,000 rooms per day.
As per the Motilal report, though the ongoing third Covid wave poses a threat to near-term sector earnings, higher vaccination and lower hospitalisation rates will lead to a much stronger rebound than the second wave. It is expected that there would be further ARR improvement, once the economic activities normalize and improved occupancies will be driven by business travel as well as leisure segment, cost rationalization efforts, and an increase in F&B income as banqueting and conferences resume.
