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Hotel sector benefits from buoyant tourist arrivals - Views on News from Equitymaster
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  • Aug 17, 2000

    Hotel sector benefits from buoyant tourist arrivals

    Tourist arrivals in the first four months of the current financial year are up 9% YoY. For the period April-July 2000, tourist numbers into India stood at 7,05,908 as compared to 6,48,065 for the same period in the previous year. This growth has resulted in higher occupancy rates in the metro cities.

    This growth in the first four months has provided a good beginning for FY2001, as during FY2000 arrivals grew by an average of only 4.6% YoY to 2.5 m tourists. The economic recovery and political stability over the past year have contributed to the growth in arrivals as business sentiment is stronger now than it has been for a long time. Normally business travel picks up after October which marks the beginning of the peak season. As arrivals growth is already buoyant in the first half, it is expected that this would contribute to higher tourist inflows in the current year.

    Both the two largest Indian hotel chains, Indian Hotels Co. Ltd (IHCL) and EIH Ltd have seen a marked improvement in occupancy rates in the 1QFY01. The market too seems to have discounted this improved performance of hotel companies, as can be seen from the table given below:

    Share price performance in absolute and relative terms
      Aug 16, 2000 2 weeks 1 month 2 months Dividend yield
    (%) FY2000
    Indian Hotels Co. Ltd (Rs) 246 228 218 229 3.5%
    Absolute (%)   8.0% 13.0% 8.0%  
    Relative to BSE Sensex (%)   5.0% 24.0% 17.0%  
    EIH Ltd (Rs) 180 139 125 118 2.8%
    Absolute (%)   30.0% 44.0% 53.0%  
    Relative to BSE Sensex (%)   27.0% 55.0% 62.0%  
    BSE Sensex 4,326 4,208 4,880 4,765  
    Absolute (%)   3.0% -11.0% -9.0%  

    On valuation terms, Indian Hotels Company Ltd is trading at a price to earnings multiple of 9.8x and EIH Ltd is trading at 13.0x (both 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 seem to be factored in the price.



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