Indian tourism is booming. Here are three top stocks for your watch list.

India is geographically and culturally diverse, making it a leading destination for international tourism. The country offers a diverse portfolio of niche tourism products such as cruises, adventure, medical and wellness, sports, film, rural, religious, and eco-tourism.

Travel and tourism are two of the largest industries in India, contributing a combined ₹16.6 trillion to the country’s GDP.

Also read: Tourism sector needs major revival, but receives no discernable benefits in budget

The government has taken steps to boost investments in spiritual tourism, with states such as Uttar Pradesh developing tourist circuits, and others such as Uttarakhand and West Bengal enhancing infrastructure for pilgrims.

In the interim budget in February, finance minister Nirmala Sitharaman allocated ₹24.4 billion to the tourism sector, a 44.7% increase from the previous financial year.

According to the World Travel and Tourism Council (WTTC), over the next decade, India’s travel & tourism market is expected to grow at 7.1% a year.

Let's find out which stocks in this flourishing sector are worth adding to your watchlist.

1. Indian Tourism Development Corporation Ltd

India Tourism Development Corporation is a government of India undertaking, established in October 1966.

It runs hotels and restaurants, provides transport facilities, produces, distributes and sells tourist literature, and provides entertainment and duty-free shopping to tourists.

It has diversified into new avenues such as money changing and engineering-related consultancy services. It also offers degrees and diplomas in hospitality, travel and tourism through the Ashok Institute of Hospitality and Tourism Management.

The company has won a contract for a new duty-free shop at the Visakhapatnam airport.

It has also ventured into cargo operations (sea, air and surface) of late.

Classified as a mid cap company, it has had a positive performance in the most recent quarter. Profit before tax came in at ₹287.8 million, up 52.6% year-on-year. Profit after tax grew 60.6% year-on-year to ₹160.9 m in this quarter, indicating a positive trend in the near term.  Operating profit came in at a five-quarter high of ₹324 million, as did the operating profit margin, at 21.9%.

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2. Praveg Ltd

The company offers exhibition management, advertising and promotion, publication, and tourism services in India. It has been promoting state and Indian tourism by offering solutions across media. It has also established itself in publishing with a travel trade magazine called ‘Praveg’s Tourism One’ that has a dedicated readership. 

The company entered the hospitality industry by operating and managing the White Rann Resort in Rann Utsav, Kutch, followed by Tent City Narmada at the Statue of Unity in Gujarat. Praveg has established itself as a trendsetter in the hospitality sector, efficiently handling multiple large-scale government and private projects.

Developments in FY24

The company commenced operations at Tent City in Light House Beach, Daman, in May 2023. On 10 May 2024, it announced the opening of Praveg Beach Resort at Nagoa Beach, Diu.

On 24 March 2024, Praveg said it received work orders from the tourism department of Lakshadweep to operate and maintain 350 tents at Bangaram and Thinnakara Islands. The company also started operations at Praveg Tent City Ayodhya on 14 February 2024.

Financials

Praveg has nine construction projects and five planning projects in the hospitality sector. It currently has 680 rooms and aims to increase this to 2,500 by 2028.

Net sales for the quarter were at ₹325.2 million, up 67.2% from the average net sales of the four previous quarters.  PBT for the quarter stood at ₹5.4 crore, up 23.6% from the average PBT of the four previous quarters. These numbers indicate a positive sales trend in the near term. 

However, Praveg's performance has not been as strong in other areas. Profit after tax for the quarter was ₹1.64 crore, 60.3% below the average PAT of the four previous quarters. The interest cost for the quarter was ₹1.66 crore, up significantly from the previous quarter, indicating increased borrowings. The company's ability to manage interest payments has also deteriorated, with the operating-profit-to-interest ratio coming in at its lowest in the past five quarters. The operating profit margin for the quarter was also its lowest in the past five quarters, indicating a decline in the company's efficiency.

Also read: Deep Kalra’s prescription for reviving Indian tourism faster includes a ₹2,000-cr annual bill

3. Lemon Tree Hotels 

Lemon Tree Hotels is India’s largest mid-priced hotel chain and the third-largest overall, with hotels in 50 locations. It plans to spend ₹1,006 crore to develop two properties – Aurika near Mumbai’s international airport (669 rooms) and Lemon Tree Mountain Resort in Shimla (69 rooms).

Financials

The company's operating-profit-to-interest ratio has improved to 3.2 in the past five quarters, showing its ability to manage interest payments has improved. Net profit for the quarter was up 52.3% year-on-year to ₹66.98 crore. This trend is expected to continue in the near term. Net sales was up 29.5% year-on-year to ₹320 crore in the quarter. Operating profit came in at ₹170 crore.

Earnings per share (EPS) came in at a record high of ₹0.85, but non-operating income was also its highest at ₹3.85 crore, which may not be sustainable in the long run.

Conclusion

In her budget speech, finance minister Nirmala Sitharaman underscored the government's focus on developing iconic tourist centers. This initiative, aligned with the vision of 'Viksit Bharat' (developed India) by 2047, aims to enhance India's global tourism appeal.

The country has seen dramatic growth in tourism over the past 25 years and the government’s efforts are expected to further boost revenues. There’s little doubt, then, that Indian tourism will be much stronger in 10 years.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. 

This article is syndicated from Equitymaster.com