AgenciesET Intelligence Group: The Nifty50 index has dropped close to 3% year-to-date, while the ET Hospitality Index, which comprises most prominent listed hotels companies, has gained 12.2%.
The optimism among investors towards the hospitality sector is largely because of two reasons. One is improving business in the hotel industry after the third wave of the pandemic, while the other is analyst forecasts of a pickup in industry occupancy rates.
According to various analyst estimates, occupancy rates are expected to touch pre-Covid levels in the first-half of the current fiscal year. In interactions with industry experts, ICICI Securities found that the industry's occupancy rates, which recovered in February 2022 to 55% after falling to 50% the previous month, would improve to 70% in the April-September 2022 period. This occupancy level is similar to what the industry recorded before the pandemic disrupted the business.
According to industry estimates, room addition is expected to post a compounded annual growth rate of 3-5% over the next three years. In the same period, demand for rooms is likely to grow in the range of 10-12%. In the ongoing FY23 itself, analysts expect growth in the range of 12-15% as the economy reopens further and travel (both leisure and corporate) and events pick up.
An analysis by domestic brokerage firm Nirmal Bang shows that the replacement cost - the price a company pays to replace an existing asset at current market price with a similar asset - of hotel rooms varies in the range of ₹1.75-2.5 crore per room in upper upscale category and ₹40-60 lakh for relatively lower-end properties. Most hotel stocks are trading higher than their replacement costs due to improvement in demand and earnings in recent months.
Analysts estimate that there is further scope for growth in replacement of hotels as demand in the near future remains strong. Among the hotels stocks, analysts estimate Indian Hotels and Lemon Tree Hotels to gain from further improvement in demand.
The optimism among investors towards the hospitality sector is largely because of two reasons. One is improving business in the hotel industry after the third wave of the pandemic, while the other is analyst forecasts of a pickup in industry occupancy rates.
According to various analyst estimates, occupancy rates are expected to touch pre-Covid levels in the first-half of the current fiscal year. In interactions with industry experts, ICICI Securities found that the industry's occupancy rates, which recovered in February 2022 to 55% after falling to 50% the previous month, would improve to 70% in the April-September 2022 period. This occupancy level is similar to what the industry recorded before the pandemic disrupted the business.
According to industry estimates, room addition is expected to post a compounded annual growth rate of 3-5% over the next three years. In the same period, demand for rooms is likely to grow in the range of 10-12%. In the ongoing FY23 itself, analysts expect growth in the range of 12-15% as the economy reopens further and travel (both leisure and corporate) and events pick up.
An analysis by domestic brokerage firm Nirmal Bang shows that the replacement cost - the price a company pays to replace an existing asset at current market price with a similar asset - of hotel rooms varies in the range of ₹1.75-2.5 crore per room in upper upscale category and ₹40-60 lakh for relatively lower-end properties. Most hotel stocks are trading higher than their replacement costs due to improvement in demand and earnings in recent months.
Analysts estimate that there is further scope for growth in replacement of hotels as demand in the near future remains strong. Among the hotels stocks, analysts estimate Indian Hotels and Lemon Tree Hotels to gain from further improvement in demand.
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