Hotel Stocks on the Rise Despite Lockdown

03 Jun, 2021

6 min read

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The hospitality industry suffered a major setback when the prime minister announced a nationwide lockdown for 3 weeks at the end of March 2020.

Hotels, restaurants and offline retail brands that rely on footfall to do business were worst off in the first few weeks of the pandemic. Even with food delivery being allowed, the uncertainty around how long the lockdown would last, and the magnitude of the crisis, food businesses had no clear mandate from the state or civic authorities on the health safety protocols to be followed. Amidst this confusion, many F&B businesses decided to shut shop until the situation improved. Hotels became quarantine centres and shut completely for business or leisure travel. Despite the sharp blows that the first lockdown dealt to the hospitality industry, this time around even as the second wave overwhelms India’s health care systems, the hotel industry stocks are up. Investor sentiment continues to remain strong as hotels along with the f&b industry have recovered from the last lockdown and have improvised business plans based on reduced profits over the next few quarters, making a slow but steady comeback.

A quick glance at the performance of stocks of listed hospitality companies for the period September 2020 to February 2021.

Company

Change in Share Price in the last 6 months

IHCL

+36.77%

Lemon Tree Hotels

+50%

Chalet Hotels

+27.6%

EIH Hotels

+28.5%

Mahindra Holidays & Resorts

+40%

Vaccination for All

A major contributor to the revival of the hospitality industry has been the rolling out of a nationwide vaccination program for adults of all ages. As vaccinations become widely available to citizens of all ages, not just in India, but also abroad, travel and tourism, in general, are geared to recover to their pre-covid levels. The second wave in India is being viewed as a battle as the war will be won once more vaccines are made available to the public. It helps that the lockdown this time around has not been as stringent and confusing for the F&B industry with food delivery being allowed to operate unfettered.

Hotels Turn Quarantine Facilities

Hotels have doubled up as quarantine facilities by state governments for frontline workers as well as pre-symptomatic and asymptomatic persons travelling from abroad. Hospitals also tied up with hotels to expand their quarantining facilities. Occupancy has been up for hotels even during the lockdowns, but the prices of rooms remain regulated by the state. Around 200 hotels in Mumbai were turned into quarantine centres.

Revenge Travel

A term coined in China to describe the surge in domestic travel as the lockdown was lifted. Families and couples that had cooped up for the duration of the lockdown were now travelling within the boundaries of their respective countries to take a much-needed break. Intercity staycations and workations have become increasingly popular among Indian tourists as well.

Travel and Tourism on the Rise

The Maldives was among India’s top tourist destinations in the second half of 2020. As soon as flights opened up, many jumped at the chance to take a vacation abroad. This is only an indication of how quickly the travel and tourism industry can rebound, even in the face of a global pandemic. As the vaccine is being rolled out, inbound tourism can be expected to pick up soon. As has been a pattern in the Indian stock market this last year, there is a tendency to flock towards stocks and industries with upward trends with no insight on what the fundamentals driving these prices are.

The hospitality industry has been actively seeking relief in the form of rent waivers, tax breaks, and other concessions from state and central governments. There has been no overt impetus provided by the government of India to members of the industry. In spite of this, companies like Chalet Hotels and Lemon Tree have announced new projects set to be completed in 2022. The IHCL has announced the acquisition of 6 new hotels in the third quarter.

The fact that hotels have found a way to make the best of a very tough situation is commendable, however, whether the past year has been profitable and will continue to be so in the near future, still remains to be seen.

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