Hotels Sector Analysis Report 

• Supply
• The hotel sector (branded category) in the major markets is expected to fall short of meeting the long term demands of a growing economy
• Demand
• Largely depends on business travelers but tourist traffic has been on the rise. Demand for hotel rooms normally spurts in the peak season between November and March. There is also an increasing demand due to medical tourism.
• Barriers to entry
• Economic risks, high capital costs, competition in the industry, poor infrastructure facilities and scarcity of land.
• Bargaining power of suppliers
• Limited due to higher competition, especially in metros.
• Bargaining power of customers
• Higher in metros due to increasing room supply.
• Competition
• Intense in metros, slowly picking up in tier-2 and tier-3 cities. Competition has picked up due to the entry of foreign hotel chains.
• Threat of Substitutes
• Low, but could increase in the future as there is increasing competition from startups/hotel aggregators due to the higher penetration of the internet.

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• FY23 continued to be a year of strong recovery in the Indian travel and tourism industry. Restrictions on flights were relaxed in most countries into and from India. Travel restrictions, documentation and certifications were also progressively relaxed for travel within India.
• Consequently, demand for accommodation grew significantly, mainly arising from domestic leisure travel, weddings, social events, conferences, and resumption of business travel within the country.
• Foreign tourist arrivals were 6.2 million for the calendar year 2022 in comparison with 1.5 million in 2021. This constituted 57% of 2019 foreign tourist arrivals at 10.9 million (Government of India, Ministry of Tourism Annual Report – 2022-23). Domestic air traffic passengers for 2022 were at 123 million, growing by 47% over 2021 to 85% of pre-pandemic levels.
• As per Horwath HTL’s India Hotel Market Review 2022, calendar year occupancy for 2022 was 59.8% in comparison with 43.5% in 2021. The average daily rate (ADR) for 2022 was Rs 6,103 and revenue per available room (RevPAR) was Rs 3,648 as against Rs 4,429 and Rs 1,924 respectively for 2021. Like-for-like hotels reported an occupancy of 67.8% and an ADR of Rs 6,498 during 2022.
• During FY23, RevPAR of all destinations surpassed pre-pandemic levels of FY20 with growth ranging from 15% to 54%. Similarly, occupancies of all destinations except Gurugram exceeded that of FY20. Mumbai registered the highest RevPAR and occupancy at Rs 7,532 and 78%. Goa registered the highest growth in RevPAR of 54% to Rs 7,049, also the second highest RevPAR among all destinations.
• The Indian government’s permission for 100% Foreign Direct Investment (FDI) in the hotel and tourism industry attracted substantial investments, reflecting its significance in the economy. From April 2000 to September 2022, the hospitality sector accounted for 2.6% of total investments in India, highlighting its contribution.
• Under Budget 2023-24, the Government has allocated US$ 30.25 million for the development of tourist circuits under PRASHAD. Since its launch in January 2015 and Ministry has sanctioned 37 projects in 24 states with estimated expenditure of US$ 146.4 million and a cumulative amount of US$ 91.6 million has been released for these projects. 68 destinations/sites have been identified in 30 States/UTs for development under the PRASHAD Scheme as on March 2022.

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• The potential for development of hotels in rural India is high as most of the population resides in rural areas. This can benefit the local community economically and socially and facilitate interaction between tourists and locals for a mutually enriching experience.
• There is a shortage in the budget hotels and the mid-market hotels segment as travelers look for safe and affordable accommodation.
• Several niche offerings such as medical tourism and eco-tourism are expected to create more demand for the hotel sector.
• Hospitality majors can enter partnerships to improve their reach and market share by launching loyalty programs aimed at integrating and rewarding customers of both hotels.
• Growth in low cost airlines is expected to lower tourism cost and increase domestic spending on hotels. Low cost flights are expected to connect underserved regions in the country and promote domestic tourism.
• National Mission on Pilgrimage Rejuvenation & Spiritual Augmentation implemented by the Ministry for enhancing the facilities and infrastructure provided at pilgrimage centers across the country also bodes well for the sector. Under Budget 2020-21, the Government has allocated Rs 2 billion (US$ 29.7 million) for the development of tourist circuits at sites of pilgrimages.
• The government has also allotted Rs 12 billion (US$ 171.7 million) for the development of tourist circuits under Swadesh Darshan for the entire North East.

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When is a good time to invest in the hotel sector?

The hotel industry is highly cyclical in nature, linked to economic growth. The pandemic and its impact on the sector reflect the fragility of the industry to external developments.

There is a further element of demand and supply that could affect the viability of running a hotel at a particular place. Unlike commodities or fast-moving consumer goods that could be moved around for consumption at any place, the demand for hotel is based on location.

Considering these factors, the decision to invest in the hotel sector should be based on a combination of top down (starting from macroeconomic perspective) and bottom up approach (focusing on company and stock specific fundamentals and valuations).

Where can I find a list of hotel stocks?

The details of listed hotel companies can be found on the NSE and BSE website. However, the overload of financial information on these websites can be overwhelming.

For a more direct and concise view of this information, you can check out our list of hotel stocks.

Which hotel stocks were the top performers over the last 5 years?

Lemon Tree Hotels, Indian Hotels, and Taj GVK, were the top hotel performers over the last 5 years in terms of sales and profit growth.

The growth of Lemon Tree Hotels was aided by strong demand and sustained cost control measures whereas the growth of Indian Hotels can be attributed to the vast experience of its promoters and its established market presence in the Indian hospitality sector.

Taj GVK's performance can be attributed to its considerable operational flexibility with Indian Hotels Company (IHCL) as the hotel operator and also having access to the established premium brands of the latter.

To know which other companies performed well over the last 5 years, check out our entire list of top performers.

What kind of dividend yields do hotel stocks offer?

There is no consistent trend of dividends across the industry, with different companies having different dividend policies.

That said, you can check out our list of top hotel stocks offering high dividend yields here.

Which are the hotel stocks with the highest returns on capital employed (RoCE)?

RoCE is an important tool to assess a company's potential to be a quality investment by determining how well the management is able to allocate capital for future growth. A RoCE of above 15% is considered decent for companies that are in an expansionary phase.

Advani Hotels, EIH and Taj GVK are the top hotel stocks right now on the Return on Capital Employed (RoCE) parameter.

To know which other hotel stocks offer great return on capital employed, you can check out the top hotel stocks offering the best RoCE here.

Which are the best hotel stocks to invest in currently?

Investing in stocks requires careful analysis of financial and qualitative data to find out a company's true worth. These parameters include management quality, debt to equity ratio, profitability and return ratios. However, an easier way to find out about a company's performance is to look at its financial ratios.

Two commonly used financial ratios used in the valuation of stocks are -

• Price to Earnings Ratio (P/E) - It compares the company's stock price with its earnings per share. The higher the P/E ratio, the more expensive the stock.

  To find stocks with favorable P/E Ratios, check out our list of hotel stocks according to their P/E Ratios

• Price to Book Value Ratio (P/BV) - It compares a firm's market capitalization to its book value. A high P/BV indicates markets believe the company's assets to be undervalued and vice versa.

  To find stocks with favorable P/BV Ratios, check out our list of hotel stocks according to their P/BV Ratios