Synopsis: The demand for travel and tourism in India is expected to grow at a rate of 1.5 to 1.8 times greater than GDP, producing a 10%-12% growth rate in demand each year. The increase in demand will provide tremendous opportunities for all aspects of the industry, including airlines, hotels, and e-travel.
The travel and tourism industry in India is in a period of tremendous growth, with some estimates indicating that the travel market will grow at a rate of 1.5 to 1.8 times the rate of GDP growth during the same time. If GDP growth in India is projected to be around 6-8 percent annually, then the travel and tourism sector could be expected to grow at a rate of 10-12 percent each year, thereby making it one of the most compelling consumption themes for investors to follow.
Driving force behind this industry
Various structural drivers are causing travel and tourism in India to be on an accelerated growth track. These include: Rising disposable incomes, improved transportation infrastructure, improved levels of (air) connectivity, tax incentives and subsidies on travel-related expenses, and increased interest in travel for leisure and experience. Anand Rathi estimates that around Rs 1 lakh crore in savings will be in the hands of people, and some part of it will be spent on travel and tourism.
The government has funded the development of Airports, Highways, and Regional Connectivity, which have provided easier access to travel around the country. Most importantly, travel demand recovers quickly from economic downturns and maintains the greatest resiliency because, as disposable income levels rise in a country, travel demand grows rapidly, as observed in India. India had around 90 airports in pre covid, but it significantly increased to 160-165 airports currently, and this industry is also facing a massive push because of government initiatives such as spiritual tourism, Island tourism, winter tourism, etc.
Stock Picks
InterGlobe Aviation (IndiGo) is one of the leading beneficiaries in the Indian aviation sector. While IndiGo currently holds approximately 63–65 percent of India’s domestic aviation market, the airline has an extensive expansion plan, with an estimated 900 aircraft on order and anticipated aircraft deliveries scheduled at regular intervals over the next 10 years.
Additionally, approximately 23–25 percent of IndiGo’s revenue currently comes from its international operations, which is expected to increase to approximately 40 percent by 2030. Strong cost controls coupled with high aircraft utilisation allow IndiGo to maintain healthy EBITDA margins of over 23 percent, making it one of the most profitable airlines in the world.
Also, the brokerage cited that the hotel industry is in a multi-year upward cycle. There is a demand for hotel rooms growing at approximately 10–12 percent and supply growing at only 4–5 percent, especially in metro cities. As the demand for hotel rooms continues to exceed supply, occupancy rates and room rates will continue to rise.
Chalet Hotels is preferred among hotel stocks due to its portfolio focused on metro areas and its premium asset base, along with a planned room increase from approximately 3,300 keys to nearly 4,000 keys over 2-3 years. It also added that the valuations are reasonable and expects its annuity business to double with a robust EBITDA margins of 95 percent.
Coming down to further picks, it cited that Ixigo has a unique positioning within the online travel sector. Its strength lies in its dominant position regarding train tickets & continual market share gain within bus & airplane ticketing. Ixigo should see continuing growth with an increase in scale & operating leverage, resulting in increased revenue margins, especially with larger hotel business volume driving a 13-15 percent gain in EBITDA margins over the next three years.
With growing travel demand outpacing the GDP Growth Rate, Airlines, Hotels and Online Travel Platforms will gain substantial benefits. There will be Significant opportunities for Investors in Airlines such as IndiGo, Hotels like Chalet Hotels, and the Online Travel Platform Ixigo as they capitalise on India’s Long-Term Travel & Tourism Growth Story.
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