What India Hotels Q2 earnings indicate about the revival of the hospitality sector

Analysts say the revenue growth was mainly on account of improvement in demand, especially in the leisure segment, lodging, Badla Yatra and pre-bookings for the wedding season. The easing of mobility restrictions also improved occupancy and average room rate (ARR).

In a post-earnings conference call, management said occupancy in the leisure segment increased from 20% in 1QFY22 to 51% in 2QFY22, and the non-holiday segment grew from 30% to 57% in 1QFY22. Similarly, the ARR for the holiday segment has improved ₹from 10,305 ₹9,098, and rose from ARR for non-holiday ₹from 4,530 ₹5,697 on a sequential basis in Q2FY22, management added.

The management said that the company’s all-India Revenue Per Available Rooms (RevPAR) has also improved significantly and has reached 82% of pre-COVID levels as compared to industry’s recovery rate of 73%. Management said the recovery in RevPAR was supported by improved demand in major cities of Goa, Rajasthan, Chennai, Hyderabad and Kolkata.

As far as operating performance is concerned, its Ebitda has been low ₹72 crore as against Ebitda loss in Q2FY22 ₹148 cr in 1QFY22. Ebitda is short for earnings before interest, taxes, depreciation and amortization. Management highlighted that corporate overheads of Rs 112 crore in 1HFY22 have declined by 25% as compared to 1HFY20.

Also, the total fixed cost/month fell 21% in 1HFY22 against 1HFY20. The company has taken various cost-saving initiatives during the pandemic, including manpower rationalisation.

Going forward, the leisure travel demand trajectory is expected to continue, the management said, although the improvement in leisure demand in India is still lower than in other countries. According to the management, the company has seen a steady recovery in the September quarter as compared to the same quarter pre-Covid. The management said that revenue realization in 2QFY22 for domestic hotels was 86% of 2QFY20, while for international recovery it was 62% of pre-covid levels.

“IHCL’s 2QFY22 results clearly supported our views of a V shaped recovery in the hospitality sector,” analysts at Nirmal Bang Securities Ltd said in a report on October 22. In the case of a V-shaped recovery, an economy faces a sharp decline. For a short period and then a sharp rise to its previous position.

Clearly, the uptrend in the stock reflects this revival hope. Over the past six months, the company’s shares have risen 109%, outpacing the sectoral index, which has gained 28% in the same period.

Shares of other listed hotel companies such as Lemon Tree Hotels Ltd., EIH Ltd. and Chalet Hotels have gained nearly 70% in the said period. Analysts said improvement in travel demand bodes well for these stocks and should boost earnings in the coming quarters.