PL Sector Report - Travel & Tourism - Oct-Dec'23 Earnings Preview - Demand tepid for luggage but hotels to blossom

Travel & Tourism – Jinesh Joshi – Research Analyst, Prabhudas Lilladher Pvt Ltd

Oct-Dec'23 Earnings Preview – Demand tepid for luggage but hotels to blossom

Luggage: Our checks revealed soft demand environment in the traditional dealer-distribution channel, however, uptick in online format has been good. Backed by festivities and seasonality (travel & wedding) we expect VIP/Safari to report 5%/25% growth in top-line. Further, competitive pricing is likely to offset benefit of benign RM prices and result in GM of 52%/45% for VIP/Safari.

Hotels: In a seasonally strong quarter, we expect Chalet/Lemon Tree to report ARR of Rs11,185/Rs6,406 respectively. While Chalet would stand to benefit from operationalization of 88 rooms at Novotel, Pune; Lemon Tree’s performance would get a boost from inauguration of 669 rooms at Aurika, Mumbai. Overall, we expect Chalet and Lemon Tree to report top-line growth of 22.6%/19.6% with EBITDA margin of 43.4%/47.9% respectively.

Aviation: We expect Indigo to report load factor of 85.1% and yield of Rs5.3 (in-line with 3QFY23) buoyed by festivities and World Cup. We expect gross spread of Rs3.19 (RASK less fuel CASK) aided by 5.9% YoY fall in ATF prices (up 10.8% QoQ to Rs113 per litre in 3QFY24). Overall, we expect Indigo to report revenues of Rs181bn (up 21.3% YoY) with EBITDAR margin of 24.8% (adjusted for forex impact).

Top picks: Lemon Tree remains our preferred pick in the travel & tourism space given its crown jewel asset Aurika, Mumbai has just started operations. In luggage space, we prefer Safari Industries given recent correction provides a good entry point.

Luggage-Competitive pricing to offset benefit of benign RM prices: For our luggage universe, we foresee modest performance in 3QFY24. We expect VIP/Safari to report revenues of Rs5.5bn (up 5.0% YoY) and Rs3.8bn (up 25.0% YoY) respectively. Further, we expect GM of 52.0%/45.0% for VIP/Safari as benefit of benign RM prices is expected to be offset by competitive pricing.

For VIP we cut our FY24E/FY25E EPS estimates by 10%/2%, as we realign our indirect cost assumptions. Consequently, our TP stands revised to Rs674 (earlier Rs689). Retain ‘HOLD’ rating on the stock. In case of Safari, we maintain our positive bias with a TP of Rs2,375 (bonus adjusted) and retain ‘BUY’ rating.

Hotels-ARR’s inch northwards: For Chalet, we expect ARR’s to increase 10.0% YoY to Rs11,185 with an occupancy of 69%. Overall, we expect Chalet to report 22.6% YoY growth in revenue with EBITDA margin of 43.4%. Current quarter performance will get an additional boost from operationalization of 88 rooms at Novotel, Pune and leasing of commercial tower in Bangalore. We maintain our positive bias on Chalet and retain ‘BUY’ rating with an SOTP based TP of Rs753 (earlier Rs650), as we roll forward our valuation to FY26E.

For Lemon Tree, we expect blended ARR (including Aurika, Mumbai) to increase 11.6% YoY to Rs6,406 with an occupancy of 67%. Overall, we expect Lemon Tree to report 19.6% YoY growth in revenue with EBITDA margin of 47.9%. We have marginally cut our EPS estimates by 1.5-2% over FY24E-FY26E as we have realigned our employee cost assumptions (staff to room ratio) but maintain ‘BUY’ rating on the stock with SOTP based TP of Rs141.

Aviation-Yield performance eyed: We expect Indigo to report revenues of Rs181bn with a load factor of 85.1% and yield of Rs5.3. We expect ASKM/RPKM to improve 2.0%4.3% on QoQ basis to 36.0bn/30.6bn respectively. We expect RASK of Rs5.0 and gross spread (RASK less fuel CASK) of Rs3.2 with EBITDAR margin of 24.8% (excluding forex adjustments). Given 19% appreciation in the last 2 months we downgrade the rating to ‘ACCUMULATE’ (earlier BUY) with a revised TP of Rs3,053 (earlier Rs2,816) as we raise our EV/EBITDAR multiple to 8.0x (7.5x earlier).

IRCTC-Top line expected to pick-up: We expect online ticket booking figure to be at 110.9mn resulting in ticketing revenue (including non-convenience fee) of Rs3.2bn in 3QFY24. Catering revenue is expected to increase 10.5% YoY to Rs4.3bn, while tourism business is expected to increase by 25.0% YoY due to seasonality impact. Overall, we expect IRCTC’s revenues to increase 12.9% YoY to Rs10.3bn with EBITDA margin of 36.0%. Retain ‘HOLD’ rating on IRCTC with revised TP of Rs749 (earlier Rs709), as we roll forward our valuation to FY26E.

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