Graphic: Naveen Kumar Saini/Mint
Graphic: Naveen Kumar Saini/Mint

Travel and leisure stocks feel the demonetisation heat

With the withdrawal of old currency notes and the resultant liquidity squeeze, investors are worried about a hit on discretionary spending on travel and leisure

The government’s demonetisation move has led to a sharp correction in travel and leisure stocks. Shares of Thomas Cook (India) Ltd, Cox and Kings Ltd and Wonderla Holidays Ltd have fallen between 11% and 24% since the 8 November announcement.

With the withdrawal of old currency notes and the resultant liquidity squeeze, investors are worried about a hit on discretionary spending. This is particularly true for Wonderla Holidays, which operates amusement parks. According to analysts at Sharekhan Ltd, the liquidity squeeze can hit footfalls at these parks and dent service revenues of the company. Note that this comes on the back of an already sluggish performance by Wonderla Holidays.

In the September quarter, the company’s business was hit by the Cauvery river water agitation in Bengaluru and excess rains in Hyderabad. The business was expected to see partial recovery in October-December thanks to the festive season. But that looks increasingly unlikely now. Citing the threat of slower growth in footfalls, Sharekhan reduced its earnings estimates for the current and next fiscal years by 10% each.

Earnings estimates of Thomas Cook India, a travel and financial services provider, were also cut. But unlike Wonderla Holidays, the impact is not likely to be felt in the current quarter earnings but may be felt from next quarter onwards when the summer holiday season kicks off. “The bookings for summer holidays 2017 (Q1 FY2018) will be adversely impacted by the adjustment in the economy due to demonetisation of large currency notes. The bookings for winter holidays have already been done and hence the performance of the Travel & Tourism business for Q3 FY2017 is expected to be stable," adds Sharekhan.

In the hotels industry, luxury and upscale properties are not expected to see a large impact as payments are mostly done through corporate accounts or online. But demand for budget hotels and banquet halls is expected to be impacted.

According to an analyst who tracks the sector, around 40% of the banquet hall payments are made in cash. Hoteliers fear there may be some impact in forthcoming banquet bookings, said the person.

Analysts are not clear how long the ongoing currency crunch will last. Some expect the impact to be felt in current and next quarterly results. But they expect the business to recover in the long run and take comfort from the diversified nature of the companies’ businesses.