Are Mid-Cap Hotel Stocks Ripe for Picking?

By Aditya Raghunath — On the face of it, buying hotel stock is a contrarian move right now. While the Budget provided cheer to a lot of industries, the lack of incentives for the tourism and hotel industry was conspicuous.

“We anticipate the overall Indian hospitality sector (including organized, unorganized and semi-organized operators) to incur an estimated total revenue loss of approximately Rs 90,000 Cr in 2020. Occupancy and average daily rate (ADR) are expected to reach pre-COVID levels by 2022 and 2023 respectively – assuming that a vaccine is in place by early 2021 and becomes widely available before the end of the year,” Mandeep Lamba, President (South Asia) HVS ANAROCK, said in a note titled ‘Indian Hotel Industry – A Post-Pandemic Snapshot’.

While that sounds quite dire, share prices of two mid-cap hotels have recovered quite smartly in the last two quarters. Lemon Tree Hotels (NS:) closed February 12 on Rs 41.9, up over 50% from its September 30 closing price of Rs 27.9. EIH Ltd (NS:)closed February 12 on Rs 98.5, up over 22% from its September 30 price of Rs 80.6.

People are traveling again and as tourism slowly gets back, these hotels should see increased traction.

Brokerage firm Motilal Oswal (NS:) has given Lemon Tree a target of Rs 50, an upside of almost 20% from current levels while ICICI Securities had given EIH a target of Rs 113. That’s an upside of almost 15% from current levels.

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