Hotel industry to see sustained growth: Report

Hotel industry outlook: The hospitality industry is projected to sustain its strength through the fourth quarter of fiscal year 2024 and into the first quarter of fiscal year 2025 on the back of year-on-year improvement in average room rates (ARR) and robust demand driven by meetings, incentives, conferences, and exhibitions (MICE) events, the Mumbai-based brokerage firm Emkay said.

According to Emkay's channel checks, there has been an increase in average room rates across the industry. The growth trend is expected to continue, with the first quarter of fiscal year 2025 showing a mixed performance across different hotel chains. While there may be some moderation in rates for certain companies on a quarter-on-quarter basis, rates are expected to remain elevated overall, particularly for companies like Lemon Tree and Chalet.

The MICE segment is identified as a key driver of demand for hotels in India. Emkay's research indicates that over 400 MICE events are expected to take place in six major cities in 2024 alone. Events such as the Bharat Textile Expo, Miss World pageant in Mumbai, and the Indian Premier League (IPL) are anticipated to further boost demand for accommodation. With the availability of modern venues like Bharat Mandapam, Yashobhoomi in Delhi, and Jio World Convention Centre in Mumbai, the country is poised to attract more international events, thereby supporting hotel demand.

Emkay's report highlights the signing of new management contracts by prominent players in the hospitality sector, such as Lemon Tree and Indian Hotels Company Limited (IHCL). Lemon Tree's recent agreements for 10 new hotels and IHCL's addition of 1,307 keys through seven new management contracts in the fourth quarter of fiscal year 2024 reinforce the industry's growth trajectory. Additionally, Chalet Hotels' acquisition of 'Courtyard' by Marriott Aravali Resort in the National Capital Region (NCR) is viewed as value accretive and indicative of the company's strategic expansion efforts.

Emkay has adjusted its target prices (TP) for Lemon Tree, IHCL, and Chalet Hotels, reflecting the positive outlook for these companies. Lemon Tree's TP has been revised to Rs 150 per share, IHCL's to Rs 575 per share, and Chalet Hotels' to Rs 900 per share. The firm maintains an "Add" rating on all three stocks, citing supportive macroeconomic factors and favourable industry dynamics.