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Q2 Result Review: Hotel sector maintains momentum in Q2FY24 with strong RevPar growth, says Nuvama; Lemon Tree top pick


The hotel industry maintained its momentum in Q2FY24, despite a high base, domestic brokerage Nuvama Institutional Equites said in its Q2 Result review report on Leisure & Hotels. The four majors – Indian Hotels Company Limited (IHCL), Lemon Tree, Chalet Hotels, and EIH – 15%-plus growth per available room (RevPar) of 15%-plus year-on-year (YoY) (about 45 % higher than Q2FY20).

“Despite a high Q2FY23 base, the sector maintained its momentum with RevPar growth of 28%/23%/16%/25% YoY with IHCL/EIH/Lemon Tree/Chalet clocking growth of 28%/23%/16% /25% YoY,” the brokerage said in its report.

The premium companies targeting segments, IHCL, EIH, and Chalet, outperformed the sector, the domestic brokerage pointed out. Second, revenue growth drove improved margins despite rising costs, and third, Delhi outperformed other cities due to the G20 kicker.

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Especially in the Mumbai market, Chalet’s performance was better than ever. With a 4-year compound annual growth rate (CAGR) of 12%, IHCL has recorded the highest RevPar growth thanks to its premium brand and larger leisure portfolio share. The Delhi G20 Kicker also benefited from these two companies. However, this stunted the growth of the lemon tree. Unlike Q1FY24, EBITDA margins increased YoY due to strong top line growth.

Lemon Tree stood out as an exception, with margins declining by 280 basis points year over year due to higher fixed costs and refurbishment expenses.

The brokerage expects rate momentum to continue to be strong, but not strong enough to support upgrades.

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The brokerage maintains a “HOLD” position on IHCL due to its premium valuation and a “Buy” rating on Lemon Tree as it expects traction when its tracking performance improves and the valuation provides comfort.

Lemon Tree is the preferred brokerage over IHCL, as stated in its report.

“Lemon Tree is our best choice for the likely traction we will have in the business area and the beginning of the debt paying phase. In addition, valuations are still lower than pre-covid – 14.5x H1FY26E EV / EBITDA compared to a pre-covid average of 18x,” the brokerage said.

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The brokerage believes that IHCL’s strong performance in India is likely to continue in Q3FY24 as well. The brokerage also raised FY24E EBITDA by 2%. However, Nuvama’s target price was revised modestly 422 (from 417 earlier) given its forecast that FY25E will see normalized growth.

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Disclaimer: The above opinions and recommendations are the opinions and recommendations of individual analysts, experts and brokerage firms, not of Mint. We encourage investors to check with certified experts before making any investment decisions.

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Updated: 21 November 2023, 12:15 PM IST

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