Hotel stocks may rebound as growth rates remain strong

Hotel stocks have seen a correction underperforming the BSE MidCap by 10 per cent despite strong third quarter (Q3) results and commentary.

- DEVANGSHU DATTA

ADR (Average Daily Rate) growth may slow down in the second half of calendar year 2025 (H2CY25), in part due to base effects. But management commentary suggests demand will remain strong. India has 270 rooms per million. The global average is 6,900. So, there is headroom for growth.

During Q3, hotels reported strong pricing growth across key markets. Revenue growth is expected to remain strong in Q4. Indian Hotels reiterated double-digit revenue growth guidance for financial year 2025 (FY25). Chalet Hotels expects Q4 to be better than Q3.

However, channel checks suggest rates may moderate in H2CY25, with pricing growth down to single-digit growth.

Operating profit margins improved slightly in Q3 aided by operational efficiencies. Most companies are moving towards the asset-light model.

Domestic travel continues to be the key driver with large-scale events, concerts, conferences, and weddings. A few industry experts have cautioned about an economic slowdown.