Indian Hotels, Lemon Tree, Chalet Hotels, SAMHI: Which hotel stock should you buy?

Demand for the hotel sector sustained in August, with some estimates suggesting revenue per available room (RevPAR) growing 11 per cent YoY for the month against 15 per cent in July and a tepid 4–5 per cent YoY growth in April–June period. Average room rate for the hotel sector grew 6–8 per cent to Rs 7,000 in August, while occupancies for the month rose 1–3 per cent YoY. Taking cues, analysts see strong results for the hotel sector in the September quarter. Chalet Hotels is their preferred hotel pick.

"We believe pent-up demand, more wedding days and MICE activity, especially in markets like Mumbai where rates in Jul’24 were up over 10 per cent YoY, have driven demand recovery. Heading into the festive season, from Sep’24, a key monitorable would be sustenance of demand growth from H2FY24's high base, which we expect to be in high single digits (RevPAR growth of 7–8 per cent)," ICICI Securities said.

Various estimates peg FY24–28 industry supply CAGR at 5–6 per cent against a demand CAGR of 10 per cent. ICICI Securities said it sees high single digit ARR CAGR of 6–8 per cent across hotels over FY24–26. It retained 'ADD' on Indian Hotels Co Ltd and 'Buy' on Lemon Tree Hotels and Chalet Hotels.

Antique Stock Broking said it sees a bounce back in Q2 with strong numbers due to the strong wedding business in Mumbai and release of pent-up demand impacted by the elections and weather disruptions in Q1.

In FY24, the industry witnessed a rate growth of 20 per cent for large hotel chains such as IHCL, Marriott, and EIH in India. The momentum is expected to remain solid on the rates front in FY25 as well, Antique said.

"Overall, we project 12 per cent and 8 per cent ADR growth in FY25 and FY26, respectively, after which we expect rates to slow down to mid-single digits in FY27, largely due to the base effect. We remain constructive on Chalet Hotels due to strong Ebitda accretion helped by commercial portfolio addition while maintaining a HOLD rating on Indian Hotels due to the relatively expensive valuation," the brokerage said.

Antique said Chalet Hotels remained its top pick as it increased its target price to Rs 1,000 from Rs 980. For Indian  Hotels, it maintained HOLD rating but increase the target price to Rs 640 against Rs 575 earlier.

"We have increased the target prices of both Chalet and IHCL in-line with the Ebitda increase as we increase our ADR assumption by 2-3 per cent. IHCL’s Ebitda has received a boost following the consolidation of TajSATS," it said.

JM Financial said it expects room demand to improve from Q2FY25, as its channel checks indicated robust business growth in August.

"With various industry estimates estimating industry supply CAGR of 5-6 per cent over FY24-28E vs demand CAGR of 9 per cent, we expect high single digit ARR growth and 200-250bps improvement in occupancies over FY25E-27E. Our preferred picks in the space are Chalet and SAMHI. Any further moderation in ARR growth and unexpected sharp slowdown in the broader economy remain key risks to our call," it said.