After a prolonged period of pain due to the Covid pandemic, hotel stocks made an impressive comeback in 2022. Although 2022 began with concerns over Omicron Wave, a sharp revival in the latter months was aided by an increase in holiday and business-related travel. Last year, shares of leading listed hotel companies, such as The Indian Hotels Company Ltd., Lemon Tree Hotels Ltd., and Chalet Hotels Ltd. rallied 61-84%, outperforming the Nifty 500 index.
In some cases, apart from changes in investor sentiment towards the sector, company-specific factors may also have boosted the performance of stocks. For example, The Indian Hotels focused on growing high-margin businesses including Emma Stays and Cummins.
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During the December quarter of FY23, hotel companies are expected to post a strong performance owing to the wedding and holiday season. The recent demand trends are encouraging, given the severe impact of the pandemic on the sector’s revenues and businesses. “According to HVS Anarock, October-November 2022 industry revpar is 2% higher than October-November 2019 levels, with average room rates 9% higher,” analysts at ICICI Securities said in a report on December 29. room.
However, with hotels keeping rates high, occupancies are low and it may take some time to see a sustained rise from pre-Covid levels.
Nevertheless, there are expectations that due to supply constraints in the hotel sector, companies will enjoy better pricing power, at least for now. Besides, events like the G20-Summit and increase in the number of foreign travelers may help in maintaining the upbeat momentum.
Archana Gude, analyst at IDBI Capital Markets & Securities, said the rapid rally in hotel stocks in 2022 may not be repeated in 2023. “True, the demand outlook in leisure and corporate travel is strong, but these elements have already been factored into the current valuation. That would limit the substantial upside here,” he said.
Moreover, rising cases of the new Covid variant globally could spoil the game for the sector, as mask mandates could be seen as a deterrent to travel. However, the impact on operations is unlikely to be as severe as was seen in the first and second Covid waves, analysts said. Another major constraint is the high inflation level, which hurts the purchasing power of consumers, which could potentially reduce demand.
Furthermore, it remains to be seen whether the hotel industry manages to see a steady earnings recovery once the pent-up demand dissipates.
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