Ventive's IPO announcement was timed perfectly. But not for investors.

Industry experts and analysts said that as tailwinds in the hotel industry are starting to slow down, Ventive’s promoters have found the perfect opportunity to cash out while the exuberance in the stock market is still high.

A cutback in urban spending and a moderation in occupancy rates at hotels in FY24 are early signs that the upcycle in the hotel industry is reaching its peak, according to analysts. Major listed hotel companies saw only a 1% on-year rise in their average occupancy rate at 75% in FY24, according to Ventive’s draft red herring prospectus. The occupancy rate at the peak of the previous upcycle in FY06-FY07 was around 71-72%, according to Statista.

There's room at the top

However, demand for premium properties still has more room to run. Aspirational spending on lifestyle and experiences by Millennials and Gen Z-ers, the rise of spiritual tourism, and a lucrative domestic wedding industry will continue to generate healthy demand for premium hotels in the near term, analysts said.

An IDBI Capital report noted, “In a boost for the Indian hospitality industry, 2,706 new rooms were added in the upscale and premium segment in the first half of this year… amid a notable growth in infrastructure development. Of these, 994 rooms (37%) were upscale while the remaining (63%) consisted of premium inventories."

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This seems to put Ventive, which operates in the premium segment, in a sweet spot. However, its key performance indicators paint a mixed picture of its prospects. While it boasted a profit margin of 34% for FY24, the highest among its peers, it also had the lowest occupancy rate at 56% during the same period, according to its draft red herring prospectus.

Interestingly, while most of its peers saw marginal on-year growth in occupancy rates in FY24, Ventive’s fell almost 7%. As a result, even though its average room rate was ₹12,690.40, second only to that of India Hotels Company, its revenue grew the slowest at 11% on-year to ₹478 crore in FY24. It reported 27% on-year growth in net profit at ₹166 crore during the same period.

The company, a joint venture between Panchshil group and Blackstone, has 11 luxury properties in India and the Maldives. These are either operated by or franchised from global operators such as Marriott, Hilton, Minor and Atmosphere. The company has three more properties under construction in India and Sri Lanka, according to its draft red herring prospectus.

Has the post-covid boom peaked?

Hotel companies have been building their inventory steadily over the past couple of years to cater to the post-pandemic surge in “revenge" travel and spending that jump-started the upcycle in the hospitality industry. As occupancy rates in hotels soared amid robust demand over the last couple of years, these companies’ stocks underwent a major re-rating.

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Stocks of the top listed hotel companies – Indian Hotels Company, EIH, Chalet Hotels, Samhi Hotels and Lemon Tree Hotels – have returned an average of 35% so far in 2024. Only Juniper Hotels and Apeejay Surrendra Park Hotels – which were listed just this February – are down 10% on average over the same period.

According to industry experts, the stocks of these companies have limited room to grow from here on as the industry’s upcycle is nearing its peak. “The industry is not in the early years of its upcycle – it is moving towards the peak. Existing investors have already enjoyed the benefits of the re-rating (of these companies)," said a fund manager at a large mutual fund house, who did not wish to be named. “Anyone who is planning to make a fresh entry into the industry (through Ventive) must keep this in mind."

Also read: Indian hotel industry saw a tepid Q1. Will the next quarter bring cheer?