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Business Standard

Motilal Oswal sector of the week: Hospitality; check stock picks, targets

The Indian hospitality sector is poised for continued strength in the financial year 2025-26 (FY26), building on the robust momentum seen at the close of FY25. A strong mix of rising Average Room Rates (ARRs), high occupancy, and resilient demand from weddings, spiritual tourism, and large-scale events is driving performance. April 2025 saw strong revenue per available room (RevPAR) growth despite a temporary moderation in May due to geopolitical tensions. Recovery followed quickly in June, aided by MICE activity and domestic travel, with leading hotel players anticipating 11–12 per cent Year-on-Year (Y-o-Y) RevPAR growth in 1Q FY26, led by ARR gains. A major tailwind has been the surge in India's live entertainment economy. High-profile concerts, sporting events, and expos have significantly boosted hotel demand in key metros, allowing hotels to exercise pricing power. With a strong pipeline of such events lined up through FY26, this trend is expected to sustain. Spiritual tourism, another key demand driver, is gaining traction with government-backed initiatives like PRASHAD and Swadesh Darshan improving infrastructure at pilgrimage sites. Hotel chains are responding by expanding in spiritual hubs such as Ayodhya, Tirupati, and Varanasi. The seasonality that typically weighs on Q1 performance is easing due to increasing MICE activities and experiential travel trends. India's hospitality landscape is gradually transitioning into a more structurally balanced growth phase, supported by growing domestic tourism and improving travel connectivity. This is reflected in the FY25 industry data, which showed 8 per cent Y-o-Y RevPAR growth, 7 per cent ARR improvement, and steady occupancy at 65 per cent. The hotel basket also reported 18 per cent revenue and 20 per cent Ebitda growth. Looking ahead, hotel players are expected to benefit from continued ARR growth, healthy occupancy levels, and strong demand from weddings, business travel, and large events. Backed by structural tailwinds and supportive supply-demand dynamics, the outlook for the Indian hospitality sector remains upbeat for FY26 and beyond. Lemon Tree -- Target price: ₹200 Lemon Tree is poised to benefit from sustained demand across MICE, weddings, and spiritual tourism, supported by strong ARR growth and improving occupancy. The ramp-up of Aurika Mumbai, a 1,100-plus room pipeline in spiritual destinations, and the Infinity 2.0 loyalty program strengthen visibility. With rising retail demand (45 per cent of FY25 room revenue), cost efficiencies, and better asset utilisation, earnings growth is likely to accelerate. Over FY25–27, we estimate 14 per cent/17per cent/38per cent CAGR in revenue/Ebitda/PAT, with RoCE expanding to 19 per cent. Indian Hotels -- Target price: ₹940 IHCL is well-positioned to capture the hospitality upcycle led by a strong pipeline of events, rising MICE activity, and the rapid expansion of spiritual tourism. With 30 hotels in the pipeline and ₹1200 crore capex allocated for upgrades and greenfield projects, the company is set for sustained double-digit growth.