Q3 Results Preview: Demand for hotels expected to blossom, says Prabhudas Lilladher; Lemon Tree remains top pick

As per the Q3FY24 earnings preview report on Travel & Tourism, brokerage house Prabhudas Lilladher believes that while demand for luggage is tepid, it is for hotels to blossom. In its report, the brokerage reviewed the travel industry as well as hotels and airlines. In the travel and tourism industry, Lemon Tree continues to be the brokerage's top choice because of its newly launched crown jewel asset, Aurika, Mumbai. The brokerage believes that Safari Industries offers a good starting point in the luggage space, especially with the recent correction.

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Hotel Sector

The brokerage expects Chalet and Lemon Tree to report average room rates (ARR) of ₹11,185 and ₹6,406, respectively, for hotels, noting that it is a seasonally strong quarter. The opening of 669 rooms at Aurika, Mumbai, would improve Lemon Tree's performance, while Chalet would gain from the operationalisation of 88 rooms at Novotel, Pune.

In general, the brokerage anticipates that Chalet and Lemon Tree will report top-line growth of 22.6%/19.6% and 43.4%/47.9% EBITDA margins, respectively.

"We maintain our positive bias on Chalet and retain ‘BUY’ rating with an SOTP based TP of ₹753 (earlier ₹650), as we roll forward our valuation to FY26E.

For Lemon Tree, we expect blended ARR (including Aurika, Mumbai) to increase 11.6% YoY to ₹6,406 with an occupancy of 67%. Overall, we expect Lemon Tree to report 19.6% YoY growth in revenue with EBITDA margin of 47.9%. We have marginally cut our EPS estimates by 1.5-2% over FY24E-FY26E as we have realigned our employee cost assumptions (staff to room ratio) but maintain ‘BUY’ rating on the stock with SOTP based TP of ₹141," the brokerage said.

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Luggage sector

In the Luggage space, the brokerage's inquiries indicated a weak demand climate in the traditional dealer-distribution channel, but there has been a positive uptick in the online format.

The brokerage anticipates that VIP and Safari will report a 5%–25% increase in top-line revenue, driven by festivities and seasonality (weddings and travel). Furthermore, the benefit of benign RM prices is likely to be offset by competitive pricing, resulting in GM of 52%/45% for VIP/Safari.

"For our luggage universe, we foresee modest performance in 3QFY24. We expect VIP/Safari to report revenues of ₹550 crore (up 5.0% YoY) and ₹380 crore (up 25.0% YoY) respectively. Further, we expect GM of 52.0%/45.0% for VIP/Safari as benefit of benign RM prices is expected to be offset by competitive pricing.

For VIP we cut our FY24E/FY25E EPS estimates by 10%/2%, as we realign our indirect cost assumptions. Consequently, our target price stands revised to ₹674 (earlier ₹689). Retain ‘HOLD’ rating on the stock. In case of Safari, we maintain our positive bias with a target price (TP) of ₹2,375 (bonus adjusted) and retain ‘BUY’ rating," the brokerage said.

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Aviation Sector

With a load factor of 85.1% and a yield of ₹5.3, the brokerage anticipates that Indigo will report revenues of ₹18,100 crore. According to the brokerage house, ASKM/RPKM will increase by 2.0%–4.3% on a quarterly basis, or 3,600 crore–3,060 crore, respectively. For IRCTC, the top line should increase. The brokerage anticipates 11.09 crore online ticket bookings in 3QFY24, translating into ticketing revenue (including non-convenience fee) of ₹320 crore.

"Overall, we expect IRCTC’s revenues to increase 12.9% YoY to ₹10.3bn with EBITDA margin of 36.0%. Retain ‘HOLD’ rating on IRCTC with revised TP of ₹749 (earlier ₹709), as we roll forward our valuation to FY26E," the brokerage said.

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Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.