Stocks Profiting from the Surge in Travel Spending in India

Recently I visited Mussoorie on a family holiday during off season. I could not help but notice the long queues at the airport from check-in counter to the security check as well as lounge access.

People had to wait in these queues for more than an hour at each counter and there was some bit of chaos as well.

In 2022 when travel was booming across India, I was of the opinion that it is revenge travel. I believed that it was a one-time phenomenon and would taper off as time passes by.

As I keep reading about the domestic passenger air traffic and hotel occupancy rates continued to stay at elevated levels, I stand corrected.

I have not seen such a strong rush sustain continuously especially during off season times. Flights are fully booked, hotels do not have many empty rooms, and airport lounges look like railway platforms.

It got me thinking about the sectors and companies that could benefit from this structural trend. In this editorial, I'll share my thoughts on this.

Keep these stocks on your watchlist.

Aviation

Interglobe Aviation (Indigo)

Indigo is India's only listed and largest passenger airline and operates as a low-cost carrier.

It serves 86 domestic destinations and 32 international destinations with its fleet of 358 aircraft.

Indigo commands 60.2% market share in the Indian aviation space. After ruling the Indian skies, Indigo is dreaming to make a mark globally with non-stop long flights from India.

Company recently placed an order for 30 wide body aircraft from Airbus. Deliveries will start from 2027 onwards.

The government's focus on improving airport Infrastructure across India shall also help Indigo gaining majority of the new passenger traffic.

Travel Booking Platforms

#1 Indian Railway Catering and Tourism Corporation (IRCTC)

IRCTC is a railway ticket booking platform. It provides services such as online train ticket booking, food services during the journey, and selling bottled water on stations and trains.

Its catering services include e-catering and stationary shops like food plazas and refreshment rooms. IRCTC derives roughly 54% revenue from online ticketing and 27% of its revenue from the catering business.

IRCTC has achieved an 80% penetration in E-booking of tickets which is expected to increase.

Going ahead, company is planning to build a chain of hotels. Currently 3 hotels are under construction at Lucknow, Khajuraho, and Kevadia.

#2 Ease Trip Planners Ltd (Easemytrip)

Easy Trip Planners offers reservation and booking services for travel and tourism. It operates in segments like air packages, hotel packages, and other services.

It's air passage system enables customers to book international and domestic flights through online platforms, mobile apps, and call centres. The hotel packages provide hotel bookings, holiday packages, and cruise packages.

Additionally, it offers services like charters, booking rail, and bus tickets, taxi rentals, as well as value added services like travel insurance and visa processing.

The company has the largest travel agent network of 60,000 across India. More than 90% of its business is B2C at present while the rest comprises either travel agents or corporate businesses.

Hotels

#1 Indian Hotels Company Ltd (IHCL)

IHCL is one of India's leading hospitality companies. Indian Hotels operates a diverse portfolio of hotels and resorts across luxury, upscale, and midscale segments.

Company has a portfolio of 300+ hotels with 1 new signing every week in FY24. In FY24, IHCL achieved sales growth of 17% YoY to Rs 69.52 billion (bn) and an industry leading operating margin of 33.7%.

Indian Hotels commands a 65% premium pricing compared to the industry.

Company is moving towards a capital light business model. It is expanding its room inventory by entering into management contracts to operate already existing hotels instead of building new ones.

Currently 60% of the operational portfolio is in the capital light business. Company projects to take the share to 72% in the near future.

This strategy has led to a sharp jump in the return ratios for the company. Return on equity for FY24 was at 14% versus only 2% in FY18.

Going ahead, management has guided to achieve consistent double digit revenue growth. IHCL is considering turning existing loss-making hotels into profitable ones.

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#2 EIH Ltd

EIH Ltd is primarily engaged in owning and managing premium luxury hotels and cruises under the brand name of Oberoi, Trident and Maidens.

EIH is the flagship company of the Oberoi group. It has been in the luxury hospitality business for more than decades in India.

The Oberoi group owns and manages 4,269 hotel rooms of which 497 are international.

EIH's expansion plans include adding 50 new hotels by 2030 with a focus on leisure destinations. The company is confident that it can achieve double digit revenue growth and sustain its operating margins.

Airport Lounge Access

DreamFolks Services Ltd

DreamFolks facilitates access to the following airport related services (i) lounges, (ii) food and beverage, (iii) spa and wellness, (iv) airport transfer, (v) transit hotels, and (vi) E-sim.

The company is the market leader in the airport lounge aggregation in India. It integrates global credit and debit card networks operating in India with various airport lounge operators and other airport related service providers.

DreamFolks covers roughly 500 cities across 120+ countries. The company has achieved lounge coverage of 100% across Indian airports.

DreamFolks commands almost 95% market share of card-based lounge access in India.

Recently, company has collaborated with VFS global, world's largest visa facilitator to offer services like premium lounge access at VFS visa centres and visa processing.

The company has guided for revenue growth of more than 40% in FY24 with gross margins in the range of 11-13%.

Visa Processing Services

BLS International Services

BLS International is engaged in providing tech-based visa services across the globe. It facilitates international travel documentation.

The company is the 2^nd largest visa processing service provider in India after VFS Global.

As of FY23, BLS group has presence in over 66 countries having 45-50 government clients and 50,000 application centres worldwide.

86% of company's revenue comes from International operations and balance 14% from India.

In January 2024, company announced acquisition of 100% stake in iDATA, a Turkey based Visa services company for a purchase consideration of Rs 4.5 bn.

The company is looking to grow its business in a profitable manner by means of organic and inorganic growth. BLS is guiding to maintain operating margins above 20% in the future.

Please note that these are some of the examples of companies that gain out of the structural demand for travel in the country.

There are many other companies and sectors that benefit out of the travel and tourism theme which can be added to your watchlist.

The companies discussed in the article are not recommendations.

Happy travels and happy Investing!

Warm regards,


Bhavin Dedhia
Research Analyst, Hidden Treasure
Equitymaster Agora Research Private Limited (Research Analyst)