Hotel stocks fall despite expectation of better performance in FY19

Hotel stocks have declined despite ICRA, a rating agency is expecting that operating margin of industry will improve by approximately 150 basis point to 21- 21.5% during FY2019

Hotel Leela Venture is currently trading at Rs. 11.50, down by 0.12 points or 1.03% from its previous closing of Rs. 11.62 on the BSE. The scrip opened at Rs. 11.64 and has touched a high and low of Rs. 11.64 and Rs. 11.29 respectively. So far 43335 shares were traded on the counter.

The Indian Hotels Company is currently trading at Rs. 150.45, down by 0.80 points or 0.53% from its previous closing of Rs. 151.25 on the BSE. The scrip opened at Rs. 151.55 and has touched a high and low of Rs. 151.60 and Rs. 150.00 respectively. So far 5498 shares were traded on the counter.

Mahindra Holidays & Resorts India is currently trading at Rs. 245.45, down by 0.40 points or 0.16% from its previous closing of Rs. 245.85 on the BSE. The scrip opened at Rs. 250.00 and has touched a high and low of Rs. 250.00 and Rs. 243.95 respectively. So far 1181 shares were traded on the counter.

ICRA, a rating agency, has said it is expecting that the domestic hotel industry would register a top line growth of 10-11% in current financial year (FY19) than the earlier expectation of 8.5%. The rating agency mentioned that the demand for room is expected to continue to grow by about 8-9% year-on-year over the medium term, on account of increasing domestic travel, buoyant meetings, incentives, conferencing and exhibitions (MICE) activity and higher FTAs, despite immediate headwinds from global geopolitical concerns and increasing local airfare.

The agency further highlighted that the demand in Mumbai would drive average room rates (ARRs). Healthy demand and limited supply in Delhi (which has about 75% of the NCR inventory) is expected to drive ARRs in the region, while Gurugram would continue to struggle in the immediate term because of the DIAL Aerocity supply. Hyderabad and Pune are expected to be strong growth markets over the next two years while healthy demand will support Bengaluru, despite heavy supply addition.

Besides, ICRA is expecting that operating margin of industry will improve by approximately 150 basis point to 21- 21.5% during FY2019. Margins are expected to continue the growth trajectory during the next few years to hit a high of approximately 26% during FY2023.