Hotels & Tourism - Q2FY21 Result Preview - ICICI Securities

The strain on occupancy during times of restricted travel and subsequent low demand is expected to impact profitability of premium hotels even in Q2FY21. Although lifting of lockdown curbs, gradual relaxation of travel restrictions in domestic market would provide some breather QoQ, overall demand is expected to remain muted as change in consumer behaviour and social distancing norms will impact travel plans in the near term, which will also get elongated due to monsoon. Hence, alternative revenue verticals like online food business, quarantine business of repatriation guests, stay for medical professional or even tie-ups with hospitals would continue to be key revenue drivers this quarter as well. This demand, albeit temporarily coming with highly discounted room rates, is expected to provide some breather to hotel players in Q2FY21E. In terms of individual performances, we expect premium segment hotel players to report a sharp drop in revenue of over 75% YoY while mid-scale players like Lemon Tree would report revenue decline of ~66% YoY. Overall, we expect I-direct hotel universe to report revenue decline of 74.9% YoY during the quarter.

Recent fund raising by companies to provide enough liquidity support

In our coverage universe, EIH Ltd is best placed on B/S front. The recent fund raising of Rs. 350 crore via rights issue would improve the debt/equity mix to 0.1x from 0.2x. While Indian Hotels has a strong promoter backing, its debt/equity is 0.7x, which combined with capex requirement could lead to rise D/E further to 0.9x if the current Covid issue persists for longer. Lemon Tree Hotels, being on a capex mode, is highly levered vs peers but also has strong institutional backing for liquidity support.

For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_Hotel_Q2FY21.pdf

Source : Equity Bulls

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