Business
Hotels set for a strong 2HFY26: Indian Hotels, Lemon Tree strong buys
The first half of FY26 delivered healthy performance despite several demand disruptions, with revenue and operating profit rising at a mid-teens pace on the back of stronger room rates and stable occupancies.
As renovated inventory lifts achievable rates and the event calendar turns richer, the industry is positioned for an even stronger second half.
Channel checks indicate that October held steady despite festival clustering, while November delivered mid-to-high-teen RevPAR gains and December is showing a similar visibility. Industry-level expectations point to 9–11% ARR growth and 12–15% RevPAR growth in 3QFY26, reflecting broad-based traction.
Demand fundamentals strengthened further in 1HFY26 as corporate travel normalised, domestic tourism continued at elevated levels, and MICE activity expanded sharply.
Even with several headwinds—festivals compressing business travel days, airline disruptions, and patchy international arrivals—occupancies held firm, highlighting the depth of domestic demand.
Weddings, diplomatic events and large-format conventions are shaping 2HFY26 into a high-intensity season, aided by India’s rising prominence as a host for global forums and cultural showcases.Travel data also suggests a resilient air-traffic backdrop, with passenger volumes improving year-on-year and airport-adjacent hotels benefiting from longer stays linked to flight rescheduling.
While airline operational issues trimmed some leisure travel, the broader impact on hotel performance remained limited as bookings shifted rather than cancelled.
A defining catalyst for the sector is the transformation of urban infrastructure, particularly the commencement of new airport capacity.
The upcoming Navi Mumbai International Airport marks a structural turning point, set to unlock a fresh demand corridor with its first-phase 20-million-passenger capacity.
With branded room supply in the region still limited, the demand–supply gap is expected to widen meaningfully as MICE activity expands around emerging commercial districts, new convention centres and improved road connectivity through link bridges and metro corridors.
The surrounding business landscape—from IT parks to corporate clusters—is expanding rapidly, creating multi-year visibility for hotel requirements in both corporate and leisure categories. The region’s proximity to popular getaway destinations further amplifies its potential as a dual-purpose hotel market.
Mumbai, one of India’s most premium hospitality markets, is also positioned for a strong second half of FY26. The city’s event pipeline—spanning concerts, global sporting tournaments, medical and technology conventions, and significant wedding dates—points to heightened occupancy levels across luxury and upper-upscale hotels.
Renovation completions are adding refreshed inventory at higher realizations, while the city continues to enjoy a structurally favourable demand–supply balance. Industry reports project stronger demand growth than supply additions for luxury hotels in the region through FY27, reinforcing upward pressure on ARR.
With a rising concentration of large-format events at the Jio Convention Centre and a premium guest segment willing to pay for accessibility, the Mumbai Metropolitan Region remains one of the strongest hospitality micro-markets in India.
Overall, India’s hotel sector is entering a demand-dense phase supported by expanding travel behaviours, stronger infrastructure connectivity, and a deeply diversified event calendar.
The structural drivers—domestic tourism, weddings, cultural festivals, conventions and corporate mobility—remain firmly in place, while new supply is entering the market in a measured and regionally focused manner.
With room rates holding at elevated levels, occupancy resilient across key cities and multiple demand engines firing simultaneously, the sector appears well-positioned to sustain healthy operating performance and deliver a broad-based growth cycle through the medium term.
Lemon Tree: Buy| Target Rs 200
Lemon Tree Hotels is well placed to benefit from strong cyclical and structural tailwinds in the Indian hospitality sector, supported by robust MICE activity, rising corporate travel, and healthy domestic demand.
Sector trends such as mid-to-high teen RevPAR growth, firm ARR momentum, and a strong wedding season reinforce operating leverage across its business-focused portfolio.
A major catalyst is the upcoming Navi Mumbai International Airport, where limited branded supply and rapidly expanding demand position Lemon Tree’s planned 400–500 key addition strategically. Improved connectivity via the Atal Setu and the formation of new commercial clusters further strengthen occupancy visibility.
Industry-wide tailwinds—normalizing airline capacity, sustained domestic travel, and large convention-led traffic—should keep RevPAR on an upward trajectory.
With an efficient cost structure, strong presence in key metros, and a robust project pipeline, Lemon Tree is well poised for steady growth, improving yield metrics, and meaningful gains in high-potential markets like Navi Mumbai.
Indian Hotels: Target Rs 880
Indian Hotels is well positioned to benefit from the sector’s broad-based recovery, supported by its strong brand equity, premium positioning, and leading presence across major metros.
In 1HFY26, it delivered the fastest revenue growth among peers, aided by ARR gains and resilient occupancies, with momentum expected to strengthen in 2HFY26 on the back of heavy MICE activity, a packed wedding season, and a revival in leisure travel.
The Mumbai Metropolitan Region remains a key growth engine, with large global events, limited luxury supply, and renovation upgrades boosting pricing power.
Upcoming developments such as Taj Bandstand and the opening of the Navi Mumbai International Airport further expand demand through rising corporate travel, conventions, and transit stays.
Supported by structural tailwinds—robust domestic tourism, expanding MICE demand, improving connectivity, and constrained premium supply—IHCL is well placed to capture the next phase of sector growth and maintain its leadership in the luxury segment.
(The author is Head – Research, Wealth Management, Motilal Oswal Financial Services Ltd)
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
