SynopsisAccording to the latest earnings estimates of Bloomberg’s pool of analysts, earnings per share (EPS) of hospitality sector leader Indian Hotels Company Limited (IHCL) are estimated to grow 21% in 2022-23.
ET Intelligence Group: In the leisure segment, a clear trend has emerged after the September quarter results. Analysts expect higher earnings growth for hotel companies than airlines in 2022-23. This is reflected in the change in earnings estimates of dominant players in these sectors.
According to the latest earnings estimates of Bloomberg’s pool of analysts, earnings per share (EPS) of hospitality sector leader Indian Hotels Company Limited (IHCL) are estimated to grow 21% in 2022-23. This is despite the fact that the share price of IHCL in the past six months has increased 78.1% to Rs 196. As opposed to this, Bloomberg’s pool of analysts’ estimates that the EPS of aviation leader InterGlobe Aviation will grow 6.7% in the next financial year.
The optimism about sharp recovery in earnings of IHCL is largely connected to its recovery in business both in its domestic and international operations. The recovery in revenues for the company in domestic operations is 86% of the pre-Covid operations. For international operations, the company’s revenues have recovered more than 62% of its pre-Covid operations.
In terms of revenue per available room (RevPAR), in the July-September quarter, IHCL recovered 82% of RevPAR in pre-Covid operations as opposed to the industry’s 73%. Besides, an increasing tendency among travellers to follow staycation (one day trips at destinations closer to home), revenge travel, festival season, increasing business in meetings, incentives, conferences and exhibitions (MICE) and pre-bookings for upcoming wedding season indicate that demand is likely to sustain in the coming quarters. IHCL’s cost discipline is another big positive for analysts’ optimistic view of its earnings.
On the other hand, analysts believe that the current share price of InterGlobe Aviation takes into account all possible earnings-enhancing benefits it could gain in the coming quarters. Stiff competition (oversupply and price war), and rising fuel prices limit any further upside for the airline’s earnings growth. In the past three months ending September 2021, Indigo’s market share has fallen to 56.2% from 58.6%. In these three months, GoAir, Air Asia and Vistara have gained market share. This shows that Indigo is facing stiff competition from its peers.
ICICI Securities said in its latest report on Indigo Airlines, “Entry of new players (low-cost carrier segment is getting crowded), delay in recovery of international travel (operating at one-third of pre-Covid levels), longer absence of high-yielding corporate travel and low cash balance do not provide any rationale for increase in multiples.”
It further said, “Sharp increase in revenue per available seat-kilometre is also difficult considering the delay in recovery of corporate travel where prices are higher. Leisure travel can be dampened by higher prices and beyond a certain price, alternate modes like rail and road become more attractive.
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