Low travel may keep investors from checking into the Indian Hotels stock2 min read . Updated: 07 Aug 2020, 11:28 AM IST
- Occupancy fell to 20.5% in Q1FY21, which is a steep drop compared to about 63.4% last year. This also had an effect on average room rents which almost halved this quarter—one reason why revenues tumbled about 86% year-on-year.
Mumbai: With leisure and business travel at a standstill, hotels are facing the brunt of the travel bans. Hotel chains, such as The Indian Hotels Co. Ltd, naturally reported a sharp downturn in business, and the lower occupancy could be a feature of the coming quarters too. Shares of Indian Hotels, though, have held up well in the recent past despite the turmoil surrounding the business, and were trading flat on Friday.
Hotels have hardly picked up much business even after international flights resumed. Occupancy at Indian Hotels fell to 20.5% in Q1FY21, which is a steep drop compared to about 63.4% last year. This also had an effect on average room rents which almost halved this quarter. That’s one reason why revenues tumbled about 86% year-on-year (y-o-y).
Of course, business is not likely to see an improvement in the near future. Much of the current occupancy is from hospital staff and travellers undergoing mandatory quarantine. Even so, some of the revenues coming in now are at much lower occupancy rates. This hardly helps cover operating costs in the high-fixed costs hotels business.
As such, the company reported an Ebitda (earnings before interest, taxes, depreciation and amortization) loss in this quarter of about ₹266 crore compared to a profit in the year-ago period. Still, the hospitality business may not be able to recover much ground on the Ebitda front for a few quarters unless occupancy inches up significantly from current levels coupled with an increase in room rents. Some occupancy increase could help cover costs and lower the burden on operating cash flows. In some of its other models, such as Ginger, occupancies have been better at about 34-40%. Overall, the firm has been able to cut operational costs, and also reduce rentals in some places.
Still, that may not be enough to tide over the coming months. On that front, operationally the hotel chain could still post losses.
“Although hotels will not be able to be Ebitda-positive in these months, but by November, the may get into 30-35% occupancy levels, generating enough to cover operating cash flows. There are no plans for 6-8 months and hotels are focused on surviving this year by trying to achieve their month-on-month cash flow requirements. Indians Hotels is in a comfortable position regarding debt against peers, given its limited refinancing needs and strong promoter backing," said Shobit Singhal, analyst, Anand Rathi Institutional Equities.
The Indian Hotel’s stock, though, has dropped about 43% since January this year, before the pandemic hit. But while it is holding fort lately at about ₹70, the slowing travel and leisure industry may be an overhang for a long time.