Indian hotel industry saw a tepid Q1. Will the next quarter bring cheer?

New Delhi: India's hotel industry reported mixed June quarter results, with the general election, extreme weather, and increased outbound travel hurting the sector's performance.

Bigwigs like The Oberoi Group reported a 9% year-on-year decline in profit during the first quarter of FY25. Lemon Tree also logged a 27% lower net profit. Chalet Hotels, the owner of hotels like JW Marriott Mumbai Sahar and The Westin Mumbai Powai Lake, saw a notable 31% erosion in its net profit. IHCL, however, showed a modest growth of 10%.

Traditional Q1 challenges include high temperatures and reduced domestic travel, but the absence of major events like the G20 Summit and ICC Men's World Cup, which gave the industry impetus last year, has compounded the industry's problems.

Post covid, many companies saw strong double-digit growth, but there was a moderation in growth in Q4 of FY24 and the following quarter saw a slowdown. While EIH's Oberoi saw a 5% drop in revenue from operations, Lemon Tree saw a 19% growth.

“We had the election this year. When compared to the previous elections, the impact of this election has been more than previous years,” said Vikramjit Singh Oberoi, managing director and CEO of EIH Ltd that runs Oberoi Hotels, in the company's investor call last week. “This (slow growth) was just a temporary circumstance and we should see demand come back in the third and fourth quarter of the year.” He said the company's performance was hit due to high summer temperatures in locations like Rajasthan and lower demand.

Indian Hotels, while maintaining better revenue and net profit growth than its peers, also showed a marginally lower occupancy of 74.8% versus 76% in the same quarter last year. 

The company, in a call and in its report, told investors that its overall business was impacted by elections and the code of conduct and also due to fewer auspicious wedding dates and a 25% lower revenue from weddings across its enterprise. In fact, at a standalone level, the company saw a nearly flat 4% growth in its revenue from operations and a 10% increase in profit after tax.

Patanjali G. Keswani, chairman and managing director of Lemon Tree Hotels, which also saw a weak quarter, said the right metric to compare the earnings would be quarter on quarter rather than year on year due to the high seasonality. Lemon Tree's lower Ebitda performance, at least half of it, was due to one-off increase in renovations and digital transformation of the company. The hotel's occupancy stood at 66.6% in Q1 and average room rates were ₹5686, up 9% over last year. The company has over 10,000 rooms across its 107 hotels.

"When I talk about a structural uptick and change, I reflect on China and Indonesia back in the 2016-17 period when their GDP per household was roughly the same as India's today," Keswani told investors on their earnings call last week. “What happened for them in the next six years, was a massive increase in SUV car sales, an increase in four lane highways, an increase in runways and airports, a massive increase in airline seats and this led to a 22-25% CAGR growth in the market for hotel room demand over the next six years.”

“So, we felt we would prefer to bite the bullet now in terms of our renovations and upgrades and take some short-term pain for what we anticipate will be long-term gain and become future ready today,” he added.

Usually this is the weakest quarter for hotel companies, but the election made it worse, Manav Thadani, founder chairperson of hospitality consultancy, Hotelivate told Mint. "Plus when we compare this to last year when we had the G20 summit, hotels showed high occupancies even during the leaner period." 

Thadani is also a non-executive director of SAMHI Hotels, which owns hotels over 30 run by brands like Hyatt, Marriott and IHG. This business achieved a net profit of ₹4 crore in the quarter.

For many top hotel companies, prices are well north of 25% over their pre-covid rates and this may be a way of pushback from travellers. 

Rattan Keswani, a veteran in the hospitality industry with leadership experience at Lemon Tree Hotels and The Oberoi Group, said that domestic travel is typically down during this period of time but this year is being influenced by various factors, including the extreme weather and subsequent rainy conditions. 

The increased momentum of outbound travel from India with many affordable hotel options in short-haul travel destinations have also played a big role. “Indian hotels are maintaining high room rates which may have impacted the market. Hotels will have a challenging period till autumn,” Keswani said. 

While hotels might achieve pre-covid occupancy levels, sustaining their current rates could become difficult if the downturn persists beyond autumn, he added.

"We must keep in mind that certain markets like Mumbai etc.,. did better than other markers. Resorts really suffered during this time because of the weather uncertainties. I think a lot more needs to be done to protect the share of the domestic leisure business," Keswani said.

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