Indian Hotels, EIH Ltd, Samhi Hotels: What's happening in hotel sector, and what lies ahead

India's economic growth, infrastructure development, and a rising middle class are aiding the long-term growth of the sector.

The Indian hotel industry is displaying strong financial performance in 2024, driven by increased travel, tourism, and economic recovery. With impressive YTD returns and a sharp rise in occupancy rates and Average Room Rates (ARRs), the sector is outperforming broader market benchmarks. Here’s a closer look at how the top players in the sector have performed financially and in terms of share price.

Hotel Sector

YTD Performance

The hotel sector has shown strong performance in 2024, outperforming the Nifty 50's YTD return of 13.88%. Among the mentioned hotel companies, seven stocks have delivered returns exceeding the Nifty 50 benchmark, indicating robust performance within the sector. These outperformers include Indian Hotels Co (94.24%), EIH (67.11%), Chalet Hotels (43.23%), Samhi Hotels (24.67%), Oriental Hotels (54.43%), EIH Associated Hotels (78.65%), and TajGVK Hotels (68.46%).

On average, the YTD return across the sector is approximately 41.04%, showcasing an impressive recovery post-pandemic, driven by increased travel, tourism, and occupancy rates.

Q2 FY25 Performance

In Q2 FY25, the hotel sector demonstrated growth, marked by increased Average Room Rates (ARRs) and higher occupancy rates. Top metro cities such as Delhi, Hyderabad, Bangalore, and Mumbai, which account for 30% of branded hotel inventory, performed well, although broader markets experienced some slowdown.

Revenue Per Available Room (RevPAR) increased by 7% year-on-year (YoY), supported by a 5% rise in ARRs and a 2% improvement in occupancy. Most listed hotel companies achieved double-digit revenue growth, driven by inventory expansion and higher RevPAR. Margins have also improved due to increased productivity from higher occupancy and ARRs. However, long-term growth of 7–8% could limit significant gains in operating leverage.

For the hotels sector, growth in financial metrics was evident across players in Q2 FY25, thanks to strong occupancies and improved ARRs. While the short-term outlook for the sector is positive, the medium- to long-term like-for-like growth assumption of 7–8% may constrain further operating leverage benefits.

(Source: Nuvama Institutional Equities)

What lies ahead for Hotels?

Traditionally, the hotel industry has been cyclical, but it might see a major shift from its cyclical nature to steady growth if the Indian economy continues to grow at 6–7% annually. Top-level management of Lemon Tree Hotels, Chalet Hotels, and IHCL are confident about the long-term future of the industry.

India’s economic growth, along with infrastructure development of highways, railways, and plans for 300 airports by 2047, is creating demand for hotels. Rising income levels and a growing middle class (expected to rise from 5 million to 30 million households) are boosting discretionary spending.

Currently, demand is outpacing supply due to delays in hotel construction during the pandemic. IHCL’s CEO expects this demand-supply mismatch to last 3–4 years until new supply catches up. Meanwhile, strong leisure and business travel, including weddings and corporate events, is driving short-term growth.

Despite regulatory challenges and supply bottlenecks, top-level management of listed hotel companies believe that this is the beginning of a good journey, and the long-term potential of the sector looks bright.