Travel & Tourisms To See Steady Performance In Q3, But Hotels To Bloom; Chalet, Lemon Tree Among Top Picks

The Q3 earnings season is to kickstart from Monday onward at full-fledged. In the travel and tourism sector, demand in the luggage segment is likely to be tepid, however, it will be the hotels segment which will outperform. Broadly, the performance is seen to be steady in travel and tourism during the third quarter. Ahead of Q3, brokerage Prabhudas Lilladher has recommended buying and accumulating four stocks.

These stocks are majorly in the hotels segment such as Chalet Hotels and Lemon Tree Hotels. While in the aviation basket, the largest airline in terms of market share, Interglobe Aviation aka Indigo Airline is suggested for accumulation. Further, Safari Industries is suggested to 'BUY' and VIP Industries for 'HOLD' in the luggage industry.

Hotels Segment:

As per PL's preview note, in a seasonally strong quarter, we expect Chalet/Lemon Tree to report ARR of Rs11,185/Rs6,406 respectively. While Chalet would stand to benefit from the operationalization of 88 rooms at Novotel, Pune; Lemon Tree's performance would get a boost from the inauguration of 669 rooms at Aurika, Mumbai.

Overall, the brokerage expects Chalet and Lemon Tree to report top-line growth of 22.6%/19.6% with an EBITDA margin of 43.4%/47.9% respectively.

For Chalet Hotels, PL's note said, "We expect ARR's to increase 10.0% YoY to Rs11,185 with an occupancy of 69%. Overall, we expect Chalet to report 22.6% YoY growth in revenue with EBITDA margin of 43.4%. The current quarter performance will get an additional boost from the operationalization of 88 rooms at Novotel, Pune and leasing of commercial tower in Bangalore. We maintain our positive bias on Chalet and retain a 'BUY' rating with an SOTP-based TP of Rs753 (earlier Rs650), as we roll forward our valuation to FY26E."

Meanwhile, in the case of Lemon Tree Hotels, the brokerage said, "We expect blended ARR (including Aurika, Mumbai) to increase
11.6% YoY to Rs6,406 with an occupancy of 67%. Overall, we expect Lemon Tree to report 19.6% YoY growth in revenue with an EBITDA margin of 47.9%. We have marginally cut our EPS estimates by 1.5-2% over FY24E-FY26E as we have realigned our employee cost assumptions (staff to room ratio) but maintain a 'BUY' rating on the stock with SOTP-based TP of Rs141."

Luggage Segment:

PL's checks revealed a soft demand environment in the traditional dealer-distribution channel, however, an uptick in online format has been good. Backed by festivities and seasonality (travel & wedding) the brokerage expects VIP/Safari to report 5%/25% growth in top-line. Further, competitive pricing is likely to offset the benefit of benign RM prices and result in a GM of 52%/45% for VIP/Safari.

Brokerage is expecting modest performance in 3QFY24. It expects VIP/Safari to report revenues of Rs5.5bn (up 5.0% YoY) and Rs3.8bn (up 25.0% YoY) respectively. Further, we expect GM of 52.0%/45.0% for VIP/Safari as a benefit of benign RM prices is expected to be offset by competitive pricing.

In the case of VIP, Industries, the brokerage said, "We cut our FY24E/FY25E EPS estimates by 10%/2%, as we realign our indirect cost assumptions. Consequently, our TP stands revised to Rs674 (earlier Rs689)." Retain the 'HOLD' rating on the stock.

In regards to SAFARI Industries, the brokerage said, "We maintain our positive bias with a TP of Rs2,375 (bonus adjusted) and retain a 'BUY' rating."

Aviation Segment:

For India's largest airline in terms of market share, PL's note said, "We expect Indigo to report revenues of Rs181bn with a load factor of 85.1% and yield of Rs5.3. We expect ASKM/RPKM to improve 2.0%4.3% on a QoQ basis to 36.0bn/30.6bn respectively. We expect an RASK of Rs5.0 and a gross spread (RASK less fuel CASK) of Rs3.2 with EBITDAR margin of 24.8% (excluding forex adjustments)."

Given the 19% appreciation in the last 2 months, the brokerage however added that "we downgrade the rating to 'ACCUMULATE' (earlier BUY) with a revised TP of Rs3,053 (earlier Rs2,816) as we raise our EV/EBITDAR multiple to 8.0x (7.5x earlier)."

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author or Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.