Top Hospitality Stocks: When the lockdowns opened you must have been shocked to see the videos showing the streets in Manali. Overcrowded with tourists and the massive traffic jams reported on the routes towards hill stations in Northern India were going viral all over social media platforms.

If this was not enough to make us jealous sitting at home there have been plenty of articles, reports and news coverage on the issue. Indians going on revenge travel and the concept of work from hills/ beaches is becoming the new trend or possibly a new norm.

These instances and events may partially explain the massive surge in stock prices of Hospitality stocks and investors flocking to them in the Indian Markets.

If you aren’t flocking to these places let us at least study means you benefit by investing in these stocks. In this article, we have a look at some of the top quality Hospitality stocks in India and understand more about their business.

Covid and its Effects on Indian Tourism and Hospitality

Travel before Covid-19 was considered an optional event. After almost 1.5 years of constant lockdowns and a complete stop on travel has definitely changed the mindset of Indians in respect to their travel choices.

As per multiple reports, the average number of trips Indians took after the pandemic has increased from the pre-covid era.

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Secondly, the average amount spent by an Indian on their vacations and trips has also increased after the pandemic. This is because Indians are placing travel as a priority to cope up with stress, mental health and breakdown.

Thirdly the average duration of travel has also been on the rise thanks to companies providing work from home options.

Additionally, with the majority of the foreign destinations still closed, Indians are primarily travelling within India. This is bringing in huge revenue for the Hotels & Travel companies.

Top Hospitality Stocks in the Indian Stock Market

These factors as discussed above makes the future of travel look exciting in India. So apart from indulging in travelling let’s take a look at some of our chosen hospitality stocks. We feel these will particularly benefit from this change in the approach of Indians towards travel.

Mahindra Holidays & Resorts Limited (MHRIL)

Mahindra Holidays Hotel

Mahindra Holidays is a hotel company with a unique business model. It offers a timeshare vacation membership for 5-25 year periods. 

It has 100+ 4-5 star category resorts across major tourist destinations in India with a room inventory of close to 4000 rooms.

One of their biggest advantages is their subscriber base of 2.5 lakh members. In addition to this, they have managed to maintain 75-80% room occupancy levels throughout the year.

Mahindra Holidays is also India’s largest timesharing holiday company. A typical membership gives you 7 days of holidays at any of their resorts across India and abroad each year for 25 years.

During the covid period, it was the only company to still maintain high occupancy levels of about 70%. This was while the rest of the hotel companies languished at 20-25% occupancy.

Its 3-tier revenue stream and subscription model gives the company consistent income to cover its fixed costs. This prevents it from going into losses even in adverse conditions like Covid-19 lockdowns.

The three major sources of revenues for Mahindra Holidays are: 

  • One-time lump sum membership fees which are between 4-8 lakhs INR depending on the type and category of membership.
  •  Annual maintenance charges. 
  • Resort income generated from food & resort activities.
Resort

Reasons to Have this Stock in Your Portfolio 

  • Club Mahindra Holidays is a cash cow with cash reserves of 2000 cr. in its books with a Mcap of just 4500 cr.
  • It is a debt free company on a standalone basis with almost 5000 cr. of assets in its balance sheet.
  • Its unique business model which provides recurring and fixed revenue acts as a cushion to the company.
  • Its growing member base which is expanding by 5000-8000 members each year is a strong plus for the company.
  • The resorts are located at 5-6 hour driving distance from the Tier-1 cities of India. This ensures that guests/members can reach the resort in adequate time.

Overall considering the points discussed above, we believe Mahindra Holidays is best in line to profit from the growing demand for domestic tourism in India.

Indian Hotels

IHCL

Indian Hotels, the Tata-backed group, owns and operates 165 Hotels in India. It is primarily engaged in the business of owning, operating & managing hotels. 

IHCL owns several iconic hotel brands which include TAJ, Vivanta, Ginger, Seleqtions, Expressions and several other brands.

The brand TAJ has been declared as the strongest Brand in India for the year 2020 by Brand Finance. This shows the strong reputation & dedication of IHCL towards its business & customers.

Taj Hotel

Reasons to Have This Stock in Your Portfolio 

  • Having one of the strongest brand presence in the 5-star Hotel category compared to others gives this company an edge. This allows it to gain from the surge in demand for domestic travel within India.
  • The future plans of this company to shift its business models entirely to managing hotels through management contracts will save a massive amount of capital for the company.
  • This company belong to the Luxury Hospitality segment. According to several reports, the luxury category accommodation has gathered more pace after the second covid wave. It is expected to revive the quickest in comparison to low and mid budget hotel chains.
  • The ability to charge premium pricing by leveraging its brand value and quality will give it an edge over other players in the long run.
  • Being a market leader in this segment along with an ability to raise additional funds at ease gives IHCL an edge over its competitors

High demand for domestic travel and revenge tourism will lead to the growth of Hotel companies in India. Travellers will choose hotels keeping quality and hygiene in mind. Therefore Indian Hotels is a great bet on the revival of Indian Travel.

Lemon Tree 

Lemon Tree Hotels

Lemon Tree is India’s largest hotel chain in the mid-priced segment. It started its business in 2004 and currently has an inventory of over 8000 rooms with 87 hotels in 54 destinations in India.

Lemon Tree’s average room rate per night is in the range of 3000- 4500 INR. This price range is the most preferred price point for India’s middle and upper-middle-class working population.

The concept of work from home and revenge based travel has been noticed to be picking up. This will lead to the recovery in the hotel space, and with attractive pricing of its rooms, Lemon Tree should lead the way of recovery.

Lemon Tree Hotel

Reasons to Have This Stock in Your Portfolio

  • Lemon Tree has all its properties at strategic locations, close to business hubs making it an excellent choice for both business travellers and the middle class.
  • Lemon Tree has further plans to add close to 2000 rooms to its inventory with a planned capex of 1000 cr which was put on hold due to the advent of Covid.
  • Attractive price point and its strong presence of budget hotels across India will aid its growth. 
  • Revival of business/corporate travel which is a key contributor to Lemon Tree revenues will be an upward trigger.

An increase in the vaccination drive in India, with already over 80 cr. individuals vaccinated, will also improve the occupancy rates in the hotel leading to growth in earnings.

As the economy improves and business travel starts getting back on its feet, Lemon Tree is the most favoured company to gain from this uptick.

EIH  

EIH Limited

EIH comprises the Oberoi & Trident Hotel Group. Oberoi & Trident Hotels have 30 hotels under the inventory of 4567 rooms. 

Almost all the hotels in the Oberoi brand have been awarded in the Best hotel & Food categories by Conde Nast Traveller, Forbes, Trip Advisor & Travel+Leisure.

Reasons to Have This Stock in Your Portfolio

  • An ultra luxurious stay and exceptional service from the staff at this Hotel Group Company has led to the group getting a staggering 67% repeat customers.
  • The company has one of the lowest debt to equity ratio among its peers. Its current debt to equity ratio stands at 0.11.
  • The company has also been successful in raising capital during the outbreak of covid-19. The company managed to raise 350 cr. through rights issues.
  • The rights issue was oversubscribed by 1.6x times. This showcases the capital raising ability of the company.
  • The company is trading at a discount to its peers, in terms of relative valuation.
  • EIH has hotels spread across the world, with 30% of its hotels located in tourist hotspots locations in Bali,Dubai, Mauritius,Morocco and Egypt,etc.This removes the seasonality effect, which is common in Hospitality stocks.

EIH operates in the ultra-luxurious and 7-star category resort hotels segments. This category is the least affected. Also with luxury travel expected to bounce back sharply, EIH is a good bet on luxury hospitality stocks.

Chalet hotels

Chalet Hotels

Chalet Hotels is a consortium of 7 Hotels and 4 commercial properties. It currently has 2554 rooms under its inventory. Chalet Hotel’s promoter & founder is Raheja Group.

5 of the 7 Hotels under the group are all managed by Marriott, which qualify under the premium 5-star category.

The hotels are located in Mumbai, Bangalore, Hyderabad and Pune.

The company also owns 4 commercial assets including shopping malls, commercial space for outlets.

The company derives 87% of revenues from the hotel segment and 13% from the commercial and real estate venture.

The commercial assets are developed close to the hotel locations of the company. This is done to take advantage of synergies between the two. 

Reasons to Have This Stock in Your Portfolio

  • The hotels are present within the business districts of the city where there are high barriers to entry for any other player due to land constraints.
  • The constant & fixed income from the commercial & real estate venture allows the company to absorb any costs from its hospitality business.
  • It has tied up with Marriott to open 6 new hotels in the future.

Firstly tie-ups with top global hospitality partners, secondly a meticulously curated portfolio of hotels and finally the best in class asset management capability Chalet Hotels are poised for exponential growth in the upcoming future.

Royal Orchid Hotels  

Royal Orchid Hotels

Royal Orchid Hotels is again a unique company in the Hospitality & hotel space. It currently has 11 leased/owned hotels & 59 managed franchisee hotels under its belt.

Royal Orchid has hotels across India with the company currently managing 70 properties in 44 locations across India.

Generally, hotels invest huge sums of cash in creating properties and thus managing them. This limits the company’s growth & expansion possibilities due to the need for further funds for more expansion. 

Reasons to Have This Stock on Your Portfolio

  • Royal Orchid neither owns or leases its hotels, it just manages them.This must be sounding new to you right.
  •  The company ties up with standalone hotel companies, gives its own brand name to the hotel, refurbishes the room by improving the room quality.
  • The company employs its in-house trained staff in the hotels it manages. The staff members are trained under the company’s own Hotel Management Institute. This in turn leads to better quality hiring and internal promotions which is good in the long run.

Royal Orchid is a great play in the hotel management business. A strong management team led by an ex-IIM promoter with 20 years plus experience in the hotel business makes it a great bet on the hospitality stocks.

In Closing

In 2020, the travel & tourism industry’s contribution to the GDP was US$ 121.9 billion. This data is expected to reach US$ 512 billion by 2028. The hospitality stocks will be a direct beneficiary of this huge growth.

The companies discussed above stand to benefit from the growth and revival of domestic tourism in India.

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Covid 19 has shown that India does not have to depend on foreign tourists for the sustainability and growth of tourism in the country.

Hotel companies have also shifted to digital modes in operations and marketing segments. This has led to cost-cutting and improved efficiency.

As per the Federation of Hotel & Restaurant Associations of India (FHRAI), in FY21, the Indian hotel industry had taken a hit of approx Rs. 1.30 lakh crore (US$ 17.81 billion) in revenue due to the impact of the COVID-19 pandemic.