Tourist arrivals buoyancy positive for hotels - Views on News from Equitymaster

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Tourist arrivals buoyancy positive for hotels

Jul 3, 2000

Foreign tourist arrivals grew by 4.5% YoY in May'2000. This growth is better than May'99's arrival growth rate of 1.9% YoY. Cumulatively for the months of April and May'2000 tourist arrivals have reported a strong growth of 9.2% YoY. These growth figures are positive for the hotel industry as normally arrivals do not show substantial improvement during the months from April-September as this is considered the lean season for the industry. Foreign tourist earnings during April-May'2000 showed a growth of 12.6% YoY, this is much higher than the average growth achieved in tourist earnings of 4.7% YoY in FY2000.

As the year has started on a good note, this augurs well for the hotel industry. Occupancy rates in metro city hotels have started to improve in the current year, and should result in improved earnings performance for hotel companies during the year.

The improvement in the economic scenario and political stability are the two main factors to contribute to this growth. Even though the break up of arrivals by purpose of visit is not easily available, it would be easy to decipher that in the last two months the growth has been mainly due to growth in business travellers. This being mainly due to the fact that tourists generally do not come to India during these months as the hot and sultry climate is not conducive.

The two major hotel chains Indian Hotels Company Ltd (IHCL) and EIH Ltd will be beneficiaries of this growth as they have a predominantly metro based presence. On valuation terms, Indian Hotels Company Ltd is trading at a price to earnings multiple of 8.6x and EIH Ltd is trading at 8.4x (on FY2000 earnings). This is low as compared to multiples of 20x-25x they traded at few years ago and negativity's facing the hotel industry all seem to be in the price.

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