Expect strong demand momentum and pricing power in hotel industry over next 3-5 years: Pankaj Murarka

“Right from early Covid days we remain very constructive on Indian Hotels and the overall outlook for the hotel industry as such. We have exposure to VIP Industries in the luggage segment and we continue to own both of them. The outlook or the momentum for the business continues to be strong and both segments of the industry should be big beneficiaries of the trend,” says Pankaj Murarka, CIO, Renaissance Investment

Whatever may be the disruption, you will still need bags to travel. Have you invested in Safari or VIP?
You are absolutely right. We can do a lot of things digitally but travel has to be a physical experience. We have been holding Indian Hotels for quite some time. In fact, right from early Covid days we remain very constructive on Indian Hotels and the overall outlook for the hotel industry as such.

We do have exposure to VIP Industries in the luggage segment and we continue to own both of them. They have done pretty well for us and as you rightly said, probably the outlook or the momentum for the business continues to remain strong and both the companies or segments of the industry should be big beneficiaries of the trend. After a very long time, almost a decade, we are seeing an environment where, especially in the hotel industry, demand is much higher than supply which effectively means the industry is witnessing pricing power after almost a decade.

That trend will continue at least over the next four to five years. Given the strong resurgence of people wanting to travel either for holidays or business, which was constrained for the last few years due to Covid, luggage and bag companies are also beneficiaries of that. In that sense, we remain positive on the whole trend.

What are your thoughts on Eicher given that they have created a new category by coming up with a 350 CC version of Hunter?
I think that is a smart strategy as far as business is concerned because clearly Eicher dominates the segment with 90% plus market share. Clearly they are constrained by the overall growth of the segment to expand or wanting to grow faster. They really need to expand their potential pool of customers and which is what effectively they have tried to do by launching this 350 CC at a price point which is about 15-20% lower than the existing classic 350.

That effectively helps some of the customers across some of the other brands like Pulsar and others to migrate to Hunter 350. That becomes the entry level brand for Eicher. Effectively, what it will do for Eicher is it will help expand volumes probably at somewhat low margin but at the same time it will also expand their potential pool of customers and probably over medium term help the company deliver a much stronger growth given their dominance in the 350 CC plus bikes segment.

I think from a medium to longer term, it makes imminent sense and that is why we have seen a strong run up in the stock over the last four-five months. Strategically, it is just the right move. It is just that the stock has moved quite significantly over the last six months and some profit taking can happen.

In an otherwise weak market, Indian Hotels is sitting at a life high. Chalet Hotels, Lemon Tree Hotels are also holding up in the green. What would be your top bet in this space?
I think the sector is in the middle of a very strong demand environment. Usually, the second quarter tends to be somewhat lean or weaker quarter for travel companies, especially hotel companies but this time around, the second quarter has been very strong and going into the seasonally strong third quarter and seasonally strong second half, probably Indian Hotels or the entire hotel industry will report numbers which will probably be the strongest they have ever reported in the last decade.

We like the industry leader Indian Hotels and we own it across our portfolios. The hotel industry is at a point where the industry after a very long period of time is witnessing strong pricing power because demand is outpacing supply in the hotel industry and the occupancy rates are significantly higher, probably the highest in the last decade.

I have come across an anecdotal situation where in many of the cities and hill stations outside of Mumbai and some of the other key metro cities, hotels are completely sold out during the festival season. Also on top of that, we have a record number of corporate travels and MICE business which is helping this. Plus, we are in the middle of a wedding season as well which again is going to be strong. So overall, this year is going to be a very strong year for the travel industry as a whole and specifically for the hotel industry.

I think it is just not one off year, but probably the hotel industry will have very strong demand momentum and pricing power over the next three to five years.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)