After 2 years, hotel sector breaches 65% occupancy mark in April; ICICI Securities picks Indian Hotels, Lemon Tree as best bet, see 24% upside

With unlocking theme now settling in, the hotel industry has breached around 65 per cent occupancy mark in April since the onset of the Covid pandemic in March 2020, ICICI Securities said. The domestic brokerage firm remains bullish on the sector and picks Indian Hotels and Lemon Tree its best bets.  

The industry occupancies fell below 50 per cent in January 2022 owing to the Omicron impact, while it recovered to 55 and 61 per cent in February & March 2022. As the growth momentum continued, April became the first month to hit the 65 per cent occupancy threshold, ICICI Securities further said. 

Similarly, the growth momentum is likely to continue further in May-June 2022 month-on-month improvement is being witnessed in hotel occupancy and rates with the resumption of domestic corporate travel, and international flights across cities. it added.  

According to the India Hospitality Industry Overview 2021 by HVS Anarock, industry level occupancies are expected to touch pre-Covid levels of 66 per cent sometime in CY22E/FY23E and reach 70 per cent in CY24E.  

While incremental room supply CAGR is currently estimated at 5-6 per cent over FY22-26E, the actual supply addition may be in the range of 2-3 per cent over this period with demand expected to grow 15 per cent in FY23E and at 10 per cent CAGR over FY23-26E, ICICI Securities said. 

The brokerage said that this will translate to ramp up in industry RevPARs (Revenue per available room) from FY24E as demand outpaces supply. 

ICICI Securities reiterate BUY ratings on Indian Hotels and Lemon Tree Hotels. For IHCL, it has a target price of Rs 292 per share (upside 24%), valuing the stock at 22x Mar’24E EV/EBITDA. For LTH, it has a target price of Rs 80 a share (upside 24%), valuing the stock at 20x Mar’24E EV/EBITDA. 

The shares of India Hotels closed over 1 per cent lower to Rs 235 per share, while Lemon Tree shares jumped over 8 per cent to Rs 64.6 per share at the close, as compared to 0.64 per cent fall in the S&P BSE Sensex on Tuesday.