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What is the story about?
Brokerage firm HSBC believes the Indian hospitality industry is currently in a sweet spot, with demand remaining strong, broad-based, and sustainable, even as room supply struggles to keep pace.
The brokerage said that room rates have risen consistently for the past four years, occupancy levels are at record highs, foreign tourist arrivals are improving, and domestic travel is at its strongest in years.
Overall, HSBC said the sector is in a healthy position.
Despite fresh capacity additions, the supply-demand imbalance continues, with room supply still falling short of demand. Against this backdrop, HSBC has initiated coverage on several hotel stocks with a largely positive stance.
HSBC has initiated coverage on Chalet Hotels with a 'Buy' rating and a target price of ₹1,144, implying an upside potential of nearly 39.5%. On Indian Hotels, the brokerage has maintained its 'Buy' rating and set a target price of ₹874, which suggests an upside of around 35.3%.
The brokerage has also initiated coverage on ITC Hotels with a 'Buy' rating and a target price of ₹226, indicating an upside potential of about 24%. Leela has been initiated with a 'Buy' rating and a target price of ₹568, translating into an upside of nearly 39.2%.
Lemon Tree Hotels received a 'Buy' rating on initiation, with HSBC assigning a target price of ₹179. This offers the highest upside among the covered stocks at about 44.6%. Samhi Hotels has also been initiated with a 'Buy' rating, with a target price of ₹244, implying an upside potential of close to 38.9%.
In contrast, HSBC has downgraded Ventive to 'Hold' from 'Buy', while revising the target price to ₹838. Despite the downgrade, the stock still offers an upside potential of about 15.8%.
HSBC added that valuations remain undemanding despite strong fundamentals, healthy balance sheets, and robust margins, with the sector trading at around a 17% discount to its five-year average.
The brokerage said recent weakness driven by geopolitical tensions and adverse weather conditions presents a buying opportunity.
Looking ahead, HSBC expects industry-wide EBITDA to grow at a strong 16% to 21% CAGR over FY25-FY28e.
This growth is likely to be driven by annual average room rate growth of 5-7%, improving occupancy across key urban and leisure markets, the addition of high-margin managed room inventory, and a steady contribution from ancillary segments.
The brokerage further forecasts EBITDA margins to expand by an average of 140 basis points for the companies under its coverage over the next three years, driven by better traffic mix, operational efficiencies, and an increasing shift towards managed room inventory, which typically delivers higher margins.
The brokerage said that room rates have risen consistently for the past four years, occupancy levels are at record highs, foreign tourist arrivals are improving, and domestic travel is at its strongest in years.
Overall, HSBC said the sector is in a healthy position.
Despite fresh capacity additions, the supply-demand imbalance continues, with room supply still falling short of demand. Against this backdrop, HSBC has initiated coverage on several hotel stocks with a largely positive stance.
HSBC has initiated coverage on Chalet Hotels with a 'Buy' rating and a target price of ₹1,144, implying an upside potential of nearly 39.5%. On Indian Hotels, the brokerage has maintained its 'Buy' rating and set a target price of ₹874, which suggests an upside of around 35.3%.
The brokerage has also initiated coverage on ITC Hotels with a 'Buy' rating and a target price of ₹226, indicating an upside potential of about 24%. Leela has been initiated with a 'Buy' rating and a target price of ₹568, translating into an upside of nearly 39.2%.
Lemon Tree Hotels received a 'Buy' rating on initiation, with HSBC assigning a target price of ₹179. This offers the highest upside among the covered stocks at about 44.6%. Samhi Hotels has also been initiated with a 'Buy' rating, with a target price of ₹244, implying an upside potential of close to 38.9%.
In contrast, HSBC has downgraded Ventive to 'Hold' from 'Buy', while revising the target price to ₹838. Despite the downgrade, the stock still offers an upside potential of about 15.8%.
HSBC added that valuations remain undemanding despite strong fundamentals, healthy balance sheets, and robust margins, with the sector trading at around a 17% discount to its five-year average.
The brokerage said recent weakness driven by geopolitical tensions and adverse weather conditions presents a buying opportunity.
Looking ahead, HSBC expects industry-wide EBITDA to grow at a strong 16% to 21% CAGR over FY25-FY28e.
This growth is likely to be driven by annual average room rate growth of 5-7%, improving occupancy across key urban and leisure markets, the addition of high-margin managed room inventory, and a steady contribution from ancillary segments.
The brokerage further forecasts EBITDA margins to expand by an average of 140 basis points for the companies under its coverage over the next three years, driven by better traffic mix, operational efficiencies, and an increasing shift towards managed room inventory, which typically delivers higher margins.
