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Amidst the global slowdown, the Indian hotel industry remains resilient with growing domestic demand.
As per a report by Jefferies, favorable demographics in the country are pivotal in boosting the hospitality sector. The brokerage house also expects the sector to remain trending with growing interests in music concerts, solid business travel demand, and the wedding season in the pipeline. To cater to this growing domestic demand, hotel businesses are adding new properties at a healthy pace, too. That said, the footfall of foreign tourists is still way behind the pre-COVID levels.
With the increasing domestic demand in the hospitality sector, the domestic institutional investors (DIIs), including mutual funds, are also raising their stakes in the hotel stocks. Here are three stocks that have undivided attention from the DIIs.
Let’s try to figure out why the domestic institutions are so fond of these hotel stocks.
#1 Chalet Hotels Ltd. (CHALET)
Chalet Hotels, which has a portfolio of 11 fully functional hotels with 3,314 keys, witnessed a rise in its DII holding during Q4FY25. Domestic institutions raised their stakes by 2.72% points, taking the total holding to 23.93% at the end of Q4FY25.
The growing sales of this hotel giant might have been one of the reasons domestic institutions are raising their stake. The year-on-year (YoY) sales growth rates too are impressive. While it was 16.17% for Q1FY25, in Q2FY25 it went up to 19.87%, and in Q3FY25, it went up to 22.51%. The sales further increased during the March quarter by 24.80% YoY, which makes it more interesting to see if the DIIs increase their stakes in this quarter or not.
Apart from sales, the operating profit margin also increased for the previous three quarters. During Q3FY25, it went up to 45% YoY compared to 40% in Q2FY25, and in the fourth quarter, it increased to 46% YoY.
As a result of this growth, net profit went up to ₹97 crores from a ₹139 crore loss recorded during Q2FY25. Even the YoY profit growth turned positive at 37% during Q3FY25, from Q2FY25’s drop of 480%. During the March quarter, net profit increased to ₹124 crore, recording a 50% YoY growth.
During Q3FY25, the average room rates (ADR) increased by 18% while Revenue per available room (RevPAR) increased by 16%. Even the occupancy rate was steady at around 70%, making the fourth quarter one of the best quarters in the history of Chalet Hotels.
In addition, they have a plethora of new projects coming up. The Taj at Terminal 3 of Delhi International Airport will most probably be operational from Q2FY27. Then there are multiple hotel projects coming up in Mumbai, Goa, Varca, Airoli, and other places.
The top three DIIs having stakes in Chalet Hotels at the end of Q4FY25 are –
- SBI Consumption Opportunities Fund has a 4.92% stake
- HDFC Mutual Fund has a 4.35% stake
- Nippon Life India Trustee Ltd. has a 3.88% stake
#2 Lemon Tree Hotels Limited (LEMONTREE)
Lemon Tree is the largest mid-priced hotel chain in the country. It has over 100 hotels already operating, with another 60 in the pipeline.
Domestic institutions and mutual funds held 19.68% stakes in Lemon Tree at the end of Q4FY24. Though DII’s holding decreased marginally by 1.12% points, but still, it is still one of the top choices of the domestic institutions amongst hotel stocks in India.
DIIs holding this stock so closely is probably due to its significant rise in net profit consecutively for the past three quarters. During Q2FY25, net profit went up to ₹35 crore from ₹20 crore of Q1FY25, then further increased to ₹80 crore in Q3FY25 and ₹108 crore in Q4FY25. The YoY profit growth was 77% during the third quarter, up from 31% in Q2FY25, and during Q4FY25, it stood at 26%. The operating profit margin also increased consecutively for four quarters in FY25. From 43% in Q1FY25, it has increased to 54% in Q4FY25.
The Return on Equity (ROE) has also been improving for this company. The 1-year ROE stands at 18%, against the 5-year median ROE of 5%.
During both Q3 and Q4 of FY25, the hotel chain witnessed its highest-ever revenue generation in its history. Q3FY25 revenue surged to ₹355.8 crore, recording a 22% YoY growth. For Q4, the revenue increased to ₹379.4 crore, growing at 15% YoY. Even the EBITDA jumped by 30% YoY to ₹184.8 crore in Q3FY25, and in the fourth quarter it went up by 17% YoY to ₹205 crore.
For Q3FY25, the Gross ARR was recorded at ₹6763, which is 7% up from the previous year’s Q3 ARR. RevPAR increased by 21% YoY to ₹5018 as well. In Q4, Gross ARR stood at ₹7042, increasing 7% YoY, and RevPAR increased at 15% YoY to ₹5462.
The top three DIIs holding stakes in Lemon Tree Hotels at the end of Q4FY25 include
- Franklin India Smaller Companies Fund holds a 7.17% stake, increased from a 6.89% stake of Q3FY25.
- SBI Small Cap Fund holds 5.04% stakes, down from 7.18% in Q3FY25
- HSBC Small Cap Fund holds 2.64% stakes, up from 2.57% recorded in Q3FY25
#3 Indian Hotels Co. Ltd. (INDHOTEL)
Indian Hotels is a luxury hotel chain with presence across four continents, 12 countries, and 100 cities. It is one of the favorites of the domestic institutions, including mutual funds within the hospitality sector. DIIs held 19.05% stakes in this hotel chain at the end of Q4FY25. Furthermore, they increased their holding by 0.61% point during the quarter as well.
The growing revenue of the company might have attracted the DIIs to increase their stakes. The sales increased from ₹1,905 crore in Q4FY24 to ₹2,425 crore in Q4FY25, witnessing a 27.28% growth. However, compared to Q3FY25’s sales of ₹2,533 crore, the sales dropped marginally in the March quarter. This was due to seasonality of the business.
The EBITDA for Q3FY25 grew to ₹1,000 crore, which is a record in itself and further by 35% during Q4FY25. The OPM went up to 38% in Q3FY25, from 27% recorded in Q2FY25, but dipped a bit during Q4FY25 to 35%. Again, this dip is a result of the seasonality in the business.
Similarly, the net profit decreased to ₹563 crore during Q4 from ₹633 crore recorded in Q3FY25. However, that didn’t stop DIIs from adding stakes in this hotel to their portfolio.
A strong year-on-year growth was witnessed in RevPAR as it grew by 13% and 16% respectively for Q3 and Q4, mainly driven by domestic demand.
During the quarter ended on 31 December, Indian Hotels signed 20 new hotels into its portfolio and opened eight new hotels.
ROE of Indian Hotels for last year stood at 16%, while the 10-year median ROE is 6%. This can be another reason for DIIs increasing their stakes in the company.
The top three DIIs holding stakes in Indian Hotels at the end of Q4FY25 include –
- HDFC Mutual Fund – HDFC Midcap Opportunities Fund holding 2.88% stake
- Nippon Life India Trustee Ltd. – A/C Nippon India Multicap Fund holding 2.39% stake
- Axis Nifty Midcap 50 Index Fund holding 2.33% stake
Other Hotels with Significant DIIs’ Holdings
- Samhi Hotels (SAMHI): DIIs held 13.97% stakes at the end of Q4FY25.
- EIH (EIHOTEL): Domestic Institutions held a 13.64% stake in this company at the end of Q4FY25.
Wrapping Up
The boom in the hospitality sector, and the expectation that it may continue, is perhaps the the biggest reason for DIIs investing in hotel stocks and in some cases increasing their holdings. It will be interesting to see whether this optimism is rewarded by the markets as some of these stocks are already quite pricey compared to their long term median valuations.
Disclaimer
We have relied on data from www.Screener.in throughout this article. Only in cases where the data was not available, have we used an alternate, but widely used and accepted source of information.
The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educative purposes only.
Maumita Mitra is a seasoned writer specializing in demystifying the world of investment for a broad audience. She has a keen eye for detail and a knack for explaining complex financial concepts in the simplest manner possible.
Disclosure: The writer and his dependents do not hold the stocks discussed in this article.
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