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Sharekhan maintains BUY on Indian Hotels

Sharekhan maintains BUY on Indian Hotels
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First Published: Tue, Mar 17 2009. 09 51 AM IST

Updated: Tue, Mar 17 2009. 09 51 AM IST
A significant slowdown in business and leisure travel has led the occupancies of the hotel industry to fall from 75% to 58% year-on-year (y-o-y) and the average room rate (ARR) decline by 17% y-o-y in January 2009.
Foreign tourist arrival has also weakened after terror attacks in Mumbai during November 2008. However, the rate of decline has eased in February 2009 (a month-on-month increase as compared to January 2009).
Hotel chains, airlines and travel agents along with the department of tourism of India have initiated a joint promotional campaign—Visit India 2009—to encourage tourism in India.
The campaign entails offering enticing schemes to prospective customers during the period April-December 2009. Though such initiatives are welcome, the coming lean season is expected to remain tough due to a higher base effect and continued bleak macro environment.
Outlook
As for the hotel industry, we believe the occupancies and ARRs of Indian Hotels will also remain under pressure in Q4FY2009 and FY2010, however the addition of new room inventory should help drive growth in FY2010.
While the business faces several challenges in the medium term, we believe the current valuations of 7.2x and 5.8x consolidated earnings per share (EPS) for FY2009E and FY2010E are at historic low levels.
We believe that this scenario provides a good entry point for long-term investment in the stock. We maintain our BUY recommendation on the stock with our price target of Rs82.
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First Published: Tue, Mar 17 2009. 09 51 AM IST
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