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Q2 Result Review: Hotel sector maintains momentum in Q2FY24 with strong RevPar growth, says Nuvama; Lemon Tree top pick


The hotel industry maintained its momentum in Q2FY24, despite a high base, said domestic brokerage Nuvama Institutional Equites in its Q2 Result review report on Leisure & Hotels. All four major companies—Indian Hotels Company Limited (IHCL), Lemon Tree, Chalet Hotels, and EIH—clocked revenue per available room (RevPar) growth of 15%-plus year-on-year (YoY) (roughly 45% higher than Q2FY20).

“Despite Q2FY23’s high base, the sector sustained its momentum with IHCL/EIH/Lemon Tree/Chalet clocking RevPar growth of 28%/23%/16%/25% YoY,” the brokerage said in its report.

The premium segment-focused companies, IHCL, EIH, and Chalet, outperformed the sector, as highlighted by the domestic brokerage. Secondly, revenue growth drove improved margins despite rising costs, and thirdly, Delhi outperformed other cities due to the G20 kicker.

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Especially in the Mumbai market, Chalet’s outperformance was more of a catch-up. With a 4 year compound annual growth rate (CAGR) of 12%, IHCL has recorded the highest RevPar growth thanks to its premium brand and larger leisure portfolio share. The Delhi G20 Kicker benefited both of these companies as well. However, this hindered the growth of the lemon tree. Unlike Q1FY24, EBITDA margins increased YoY due to robust top-line growth. 

Lemon Tree stood out as an exception, with margins declining 280 basis points year over year due to higher fixed costs and renovation expenditures.

The brokerage anticipates that the rate momentum will continue to be strong, but not strong enough to support upgrades.

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The brokerage retains a “HOLD” stance on IHCL because of its premium valuation and a “BUY” rating on Lemon Tree because it expects traction when its trailing performance improves and the valuation provides comfort.

Lemon Tree is the brokerage’s preferred pick over IHCL, as stated in its report.

“Lemon Tree is our top pick on the back of likely traction in the business segment and commencement of debt pay-down phase. Furthermore, valuations are still lower than pre-covid—14.5x H1FY26E EV/EBITDA versus pre-covid average of 18x,” the brokerage said.

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The brokerage believes that IHCL’s strong performance in India will likely continue in Q3FY24 as well. The brokerage has also raised FY24E EBITDA by 2%. Nonetheless, Nuvama’s target price has been moderately revised to 422 (from 417 earlier) in light of their forecast that FY25E will see normalised growth.

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Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.

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Updated: 21 Nov 2023, 12:15 PM IST

Joanna Swanson

Joanna Swanson is Europe correspondent at the Thomson Reuters Foundation based in Brussels covering politics, culture, business, climate change, society, economies and inclusive tech. With specific focus in breaking news, she has covered some of the world's most significant stories.