Hotel stocks in focus; Lemon Tree, India Hotels could give 9-20% return in next 1 year

Notably, this trend is more pronounced in key urban hubs and the burgeoning leisure market.

The luxury and upper upscale segments are witnessing even more modest supply growth, around 5-7% CAGR, thereby enhancing pricing power for premium hoteliers.

Against this backdrop, major industry players are strategically positioning themselves to capitalise on these favourable conditions.

Key stakeholders in the Indian hospitality landscape are leveraging distinct strategies to harness the ongoing industry upswing. Brand owners such as , , , and are focusing on expanding their portfolios through management contracts and diversifying revenue streams by integrating owned properties into their portfolios.

Conversely, asset owners like , , and are intensifying their efforts by acquiring additional properties, thereby bolstering their capacity to cater to escalating demand.

Despite anticipated challenges such as subdued performance in the initial quarters of FY25 due to factors like elections and regional heatwaves, the long-term outlook for the sector remains robust.

Factors such as infrastructure development, burgeoning business travel, and rising disposable incomes are poised to drive sustained demand growth.

The introduction of new convention centres in major metropolitan areas like Mumbai and Delhi is set to further enhance hotel occupancies while increasing tourism — both domestic and international — will continue to fuel demand for leisure destinations across the country.

Recent financial data highlights the sector's resilience and growth potential. For instance, in the fourth quarter of FY24, the industry witnessed a notable year-on-year increase in Revenue per Available Room (RevPAR), driven by higher Average Room Rates (ARR) and improved occupancy rates across key players.

Looking ahead, hotel companies are expected to maintain their upward earnings trajectory, supported by rising ARR, corporate rate hikes, and operational efficiencies. This optimism is reflected in bullish analyst projections, reaffirming positive growth prospects for key industry

In conclusion, India's hotel industry is navigating an exciting growth phase, characterised by robust demand dynamics and strategic initiatives by key players to capitalise on emerging opportunities.

As the sector continues to evolve amidst favourable economic conditions and evolving consumer preferences, stakeholders are well-positioned to sustain growth and deliver value to shareholders and guests alike.

As investors and stakeholders eagerly anticipate the next chapter of growth, the hospitality sector stands poised to cement its role as a cornerstone of India's expanding economy.

Lemon Tree: Buy | Target Rs 175 | LTP Rs 142 | Upside 23%

Lemon Tree is focusing on adding hotels under management contracts (accounts for ~98% of the total pipeline of ~4,156 rooms), with the majority of inventory coming from outside top key cities.

It is focusing on renovating its rooms across brands to increase ARR. We expect revenue/EBITDA/ Adj. PAT of CAGR of 23%/27%/51% over FY24-26 and RoCE to improve to 17.8% by FY26 from ~10% in FY24.

Indian Hotels: Buy | Target Rs 680 | LTP Rs 623 | Upside 9%

Indian Hotels is likely to sustain double-digit consolidated revenue growth in FY25, with its new and reimagined business likely to grow at a much higher pace.

TajSATS being an integral part of its new and reimagined business portfolio is likely to aid growth momentum on the back of strong industry tailwinds.

(The author is Head – Retail Research, Motilal Oswal Financial Services Limited)

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)