Ambit Capital Recommends Two Travel-Linked Stocks Over The Next 12 Months
Travelers wearing protective masks arrive at Netaji Subhas Chandra Bose International Airport in Kolkata. (Photographer: Arco Dato/Bloomberg)

Ambit Capital Recommends Two Travel-Linked Stocks Over The Next 12 Months

Ambit Capital bets on two travel-linked stocks over the next 12 months as it sees “green shoots of business travel and vaccine drives” despite Covid-19 headwinds.

“As the economy opened up, trends across luggage and hospitality have been encouraging. While the resumption of marriages and domestic travel aided the recovery in the luggage segment, leisure travel further contributed to recovery for organised hotel chains,” the brokerage said in a note, picking Safari Industries Ltd. and Chalet Hotels Ltd. to “play the recovery in FY22”.

While market share gains and improving profitability drives preference for Safari, Chalet Hotels remains a preferred bet to play the turnaround narrative in hotels given 59% inventory in landlocked Mumbai Metropolitan Region, Ambit said.

That comes even as a significant impact on earnings, coupled with a lagged recovery, according to Ambit, led to underperformance of travel-related stocks versus the broader indices in the last 12 months despite a sharp rerating from March 2020-lows. Luggage and hospitality service providers were among the worst-hit amid the Covid-19 pandemic as lockdowns across the world barred travel and tourism. Deferred weddings because of a cut in discretionary spends, too, hurt their revenue.

“While cost control across organised hotel chains has been commendable, high fixed costs and levered balance sheets imply a significant impact on earnings,” the note said. Still, with a broader-based recovery and “resounding commentary by global hospitality chains”, Ambit sees upside risks to its FY22/23 estimates.

Here are Ambit’s preferred picks within the travel space:

Safari Industries

  • Rates ‘buy’; two-year price target of Rs 730 apiece.
  • “While VIP has gained market share in the e-commerce channel, we will wait for one-two quarters to observe how the recent senior management team transitions within the company.”
  • Continues to prefer Safari over VIP to play the recovery, given better channel execution and continued 2x industry growth.
  • Pick-up in travel and marriage season, the revival of backpacks as schools and colleges reopen, soft luggage outsourcing from Bangladesh and capital raise are key catalysts.
  • Unable to make in-roads in Bangladesh outsourcing and increased competitive intensity amid cost benefits to peers are some key risks.

Chalet Hotels

  • Rates ‘buy’; two-year price target of Rs 340 apiece.
  • Remains preferred bet to play the turnaround narrative in hotels as green shoots of business travel emerge, along with large corporates planning to vaccinate their employees.
  • Has 59% inventory in Mumbai Metropolitan Region and that will witness faster recovery given the presence of both tourism and business travel.
  • Sustenance of green shoots of recovery in business travel and restart of international travel are some key catalysts.
  • Improving trends getting impacted amid rising Covid cases, further delays in MIAL completion timeline, deferment in pick-up for business travel and muted international travel are some key risks.
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