Indian Hotels, Lemon Tree End At Multi-Month High On Covid Vaccine Hope

Shares of The Indian Hotels Co. Ltd. and Lemon Tree Hotels Ltd. gained more than 10% each in today’s trade as reports of Pfizer’s potential Covid-19 vaccine offered hope that one of the most beaten down sectors amid the pandemic will recover sooner than expected.

Shares of Indian Hotels Ended 14.3% Higher - the biggest single-day gain since 2009 to end at eight-month high of Rs 113.7. Shares of Lemon Tree gained 10% - the most since September 2019 to end at Rs 30.9 - the highest level in nearly three months.

An early analysis of data from the trial on more than 40,000 volunteers, who were administered the shot developed by Pfizer and BioNTech, suggested that the vaccine was more than 90% effective in preventing the illness, according to a Bloomberg report. But questions about production, distribution and—most importantly—the performance and capability of the shot itself still need to be answered, the report said.

“Although we agree that it’s early to jump to any clear conclusion and initial optimism could fade away, the current news improves the probability of vaccination coming in the next six months or so,” Antique Stock Broking analysts Vikas Ahuja and Ashish Agrawal said in a note. And “vaccine efficacy news is a huge step forward and should add optimism to travel stocks after a tough period”.

Besides, demand from foreign tourists is not expected to pick up in the near term as travel bans across the globe will fully roll down only by the end of the year. But a pick-up in domestic travel, expected in the second half of FY21, should be able to fill for the loss of foreign tourist demand, the brokerage’s note said.

International travel, according to Tourism Economic and World Travel & Tourism Council, will largely recover by 2023.

Reaching Pre-Pandemic Levels

Though a gradual recovery is visible, it will take a while for operations to reach the pre-pandemic levels in this uncertain environment, Indian Hotels’ Managing Director and Chief Executive Offcer Puneet Chhatwal said. The company’s revenue rose 85% sequentially in the quarter ended September.

Chhatwal’s sentiments were echoed by Lemon Tree’s Chairman and MD Patanjali Keswani. “Although the overall demand is far from pre-crisis levels, we are hopeful that the momentum which we gained in Q2 will increase in the months ahead,” he was quoted as saying in a post-earnings statement.

Lemon Tree saw its revenue from operations rise 17% over the previous three months to Rs 40.7 crore in the July-September period, while operating profit surged 92%.

“Through conscious cost control measures, Lemon Tree was able to remain Ebitda positive in the second quarter. However, we remain concerned about the rising debt levels,” Nirmal Bang Analyst Amit Agarwal said in a post-earnings note.

Indian Hotels and Lemon Tree are tracked by 12 analysts each. While both stocks have eight ‘buy’ ratings each, Indian Hotels has four ‘hold’ calls. Anand Rathi has a ‘sell’ recommendation on Lemon Tree.

The average of Bloomberg consensus target prices implies an upside of 5% for Indian Hotels and 5.1% for Lemon Tree.