Indian Hotels, EIH, lemon Tree others: Softer Q1 earnings expectations impacted by heat wave, Lok Sabha Elections

Stock Market today: Indian Hotels Company, EIH Ltd, Lemon Tree Hotels , Chalet Hotels share price have risen sharp 54-112% in a year benefitting from rising occupancy , average room rates leading to better revenue per available room (RevPar).  The tailwinds have remained strong post easing of COVID-19 pandemic, and there has been a sustained increase in travel demand, with India continuing to be a popular destination. Starting October significant events like the G-20 meeting, cricket world cup, followed by the holiday and wedding seasons, have occurred improving the earnings prospects of Indian Hotels Company, EIH Ltd, Lemon Tree Hotels , Chalet Hotels and others.  The same led to strong performance in the January to March quarter for Indian Hotels Company, EIH Ltd, Lemon Tree Hotels , Chalet Hotels and others with strong outperformance by likes of EIH, Indian Hotels as per analysts. 

Good Q4 performance

India's Hotel universe delivered strong more than 25% Ebitda (earnings before interest tax, depreciation and amortisation)  in 4Q with companies delivering record margins and a healthy RevPAR (average revenues per room) ranging  7-17% yoy, highlighted analysts at Jefferies India Pvt Ltd. Industry average room revenues grew at average 8-9% YoY in the March'2024 quarter, however slowing compared to nine month FY24 period highlighted Jefferies.

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While average room rent growth may be normalizing and most companies remain optimistic on  growth outlook, first Quarter FY25 nevertheless may be slightly soft.

Soft Q1 expectations impacted by heat wave, Elections

The April-June quarter 2024 may see softer performance by the Hotels impacted by severe heat wave conditions in the North and also the Lok Sabha Elections 2024. 

Analysts at Motilal Oswal Financial Services said that the key listed hotel companies witnessed healthy performance in 4Q, with EIH outperforming peers. Going ahead, they expect 1QFY25 to be relatively muted on account of elections and severe heatwaves in North India.

Even Analysts at Jefferies India Pvt Ltd said that Industry RevPAR growth has sustained strong trends in past 8 quarters but 1QFY25 could be relatively soft owing to impact of elections on occupancies and RevPAR.

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Recovery expected after Q1

Demand levers remain on strong macro and tourism outlook, which analysts at Jefferies believe could still drive steadier mid-to-high single-digit average revenues per room annual growth rate. They maintain Buy on IHCL on strong room pipeline and 17% Ebitda compounded annual growth rate expectations

Analysts at Motilal Oswal Financial Services say that long-term growth story remains intact and they expect the uptrend in the hotel industry to continue as demand for branded rooms rising 10.6% CAGR over FY24-27 is expected to outpace supply ( rising 8% CAGR), led by multiple industry tailwinds.

The brand owners (Indian Hotels, Lemon Tree, EIH and The Park) are much more focused on management hotels and revenue diversification, along with the addition of some owned hotels, said MOFSL analysts. They added that the asset owners (Chalet, Samhi and Juniper) are strongly focused on leveraging the growth by adding more owned keys.

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