The ongoing Coronavirus outbreak has had a severe impact on hotel bookings in India from February 2020 onwards with massive forward booking cancellations across cities. A complete travel ban from foreign countries and corporates adopting a Work from Home policy has hit the hotel business very hard with occupancy levels of business and leisure destinations coming down drastically to multi-year lows. Due to this environment, hoteliers have resorted to alternative revenue from verticals like quarantine business of repatriation guests, institutional quarantine of domestic returnees, stay for medical professional or even tie-ups with hospitals. This demand, albeit temporarily coming with highly discounted room rates, is expected to provide a marginal breather to hotel players in Q1FY21E. In terms of individual performances, we expect premium segment hotel players to report a sharp drop in revenue of over 75% YoY while midscale players like Lemon Tree would report revenue decline of ~69% YoY. Overall, we expect I-direct hotel universe to report revenue decline of 75.8% YoY during the quarter.
High levered companies to face headwinds in near term
In our coverage universe, EIH is the best placed on the B/S front. EIH has the lowest leverage, with debt/equity below 0.5x, combined with a strong institutional investor backing. While Indian Hotels has a strong promoter backing, its debt/equity is 0.8x, which combined with capex requirement could create cash flow issues if current Covid issue persist longer. Lemon Tree, being on a capex mode, is highly levered vs. peers with a debt/equity of over 1.1x that could be a matter of concern at this point.
For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_Hotel_Q1FY21.pdf