Hotel stocks are on the rise despite surge in covid cases

Despite the second wave of the pandemic in the country, stocks of hotel companies are at their weekly highs. While the Tata group-owned Indian Hotels Corporation Ltd, which runs the flagship brand Taj Hotels, has seen its stock surge 19%, Kamat Hotel's stock went up by 5%, Royal Orchid by 7%, Specialty Restaurants by 4%, Chalet Hotel 8% and EIH Associated Hotel 6%.

Analysts explain that the visibility of vaccinating more people could be a key reason behind this rally, among other aspects.

"It seems investors are seeing the recent surge in the covid cases as a temporary setback and expect gradual recovery across the sectors including hospitality, citing the efforts taken by the government to increase vaccine reach. Amid all, we feel the investors shouldn’t go overboard in these businesses and accumulate selectively only on correction with the long-term view", said Ajit Mishra, VP- Research, Religare Broking.

Mishra added that the rebound could also be attributed to the permission to continue with their home delivery business, which would restrict the impact of the lockdown. "Besides, the restrictions are not as severe as they were last time and vary from state to state providing some comfort to these players", he said.

Added to this is the occupancy levels at many hotels which are being driven by people who wish to isolate themselves as well as covid-19 patients who are pre-symptomatic, have very mild symptoms, and are either positive or suspected of having the disease.

Hospitals have also tied up with hotels, directing patients to these hotels to quarantine themselves. For instance, in Navi Mumbai, Apollo Hospitals has tied up with Mago Suites to introduce its hotel Isolation services, under medical supervision, following stringent sanitizing protocols.

In Mumbai and its suburban areas, over 200 hotels have turned quarantine centres.

Analysts also said that the drop in the number of cases in a few states is adding to the optimism for these hotel group stocks boosting investor sentiments.

"Indian hotels and restaurants have been struggling since the covid impacted the Indian subcontinent, however, in the recent week, we have seen a surge in prices of the restaurants and hotel stocks mainly on the back of the market expecting that from May 1st the vaccine will be available for all above the age category of 18", said Mohit Nigam Head PMS, Hem Securities.

Faster vaccination may soon return economic life back to normal all over India, analysts expect.

"As we know the market always works based on the future therefore, it is considering the current surge in covid cases and lockdowns as temporary. These are however risky bets", Nigam added.

To be sure, while several local bodies have converted hotels into quarantine centers, the room tariff is regulated and hence abnormal profits are completely denied, analysts said.