Jefferies bullish as hotel room rates surge 30% from pre-COVID levels

Jefferies Equity Research, the research arm of the global financial services firm, maintains its bullish stance on India’s hotel industry. Over the last three years, the market capitalization of the industry has tripled, coinciding with a significant 30% surge in RevPAR (revenue per available room) over the past year. According to a recent report by Jefferies, the firm anticipates the sector to sustain its robust performance throughout the current financial year (FY24).
The remarkable ascent in stock prices within this sector is credited to its impressive operational performance, unexpected earnings outcomes, valuation reevaluation fueled by the surge in domestic travel, and the introduction of three new IPOs within the industry.

“The supportive macro, hotel demand outstripping supply growth, industry focus on pricing, premiumisation and the travel theme should remain earnings & valuation drivers,” Jefferies said.
In CY23, industry-wide average room rates (ARRs) have surged by over 30% compared to pre-COVID levels in CY19. Luxury hotels have experienced the most substantial growth, indicative of consumers’ readiness to pay a premium for elevated experiences.

While foreign tourist arrivals have not fully rebounded to pre-pandemic levels, the sector’s growth has been sustained by robust domestic travel spending, according to the report.

Jefferies report anticipates that hotel companies will uphold their robust earnings momentum in FY25/FY26, albeit with a slightly moderated pace compared to the substantial growth witnessed in FY23/FY24.

The report sustains a positive outlook on the hotel sector, bolstered by the ongoing cyclical recovery and the potential for new listed players to provide exposure to diverse brands and asset-heavy models. Jefferies asserts that the sector’s valuations will continue to stay strong, supported by the favourable travel trend, resilient domestic tourism and the trend towards premiumization.

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