Hotels, multiplexes and logistics set to ride the vaccine theme

It is always the darkest just before the day dawneth. Civil War-era clergyman Thomas Fuller may have used the phrase in a theological context to explain the lowest ebb in the cycle of life, but there’s no better way to describe the immediate prospects of leisure industries — buffeted, bruised and battered as they were by the seemingly endless lockdowns.

So, as the lights and camera go into action yet again, hospitality, theatres and multiplex companies are set to catch investor attention. A few fund managers and savvy investors have started to increase exposure to the battered stocks in the hotels, multiplexes and logistics sectors on the expectation that mass vaccination programmes will improve socialising.

This investing strategy is being described as the “vaccine day theme”.

Sector analysts prefer Indian Hotels, EIH, PVR, Mahindra Logistics, and VRL Logistics, given their relatively light balance sheets, cash on books, brand and pricing power, and scale of operations.

“Mass vaccination is likely to begin in the first half of 2021. This may increase people’s confidence to avail non-essential services. I think select stocks in logistics, hospitality and multiplex sectors will do well in two years,” said a senior fund manager at a leading fund house.

Fundamentals of these sectors justify the bullishness. There is no incremental capacity addition in the next three years in these sectors. Also, companies have been able to maintain rigorous cost discipline, which includes waiving of rent and revenue-sharing agreements between the multiplexes and developers. Business is also gradually improving — occupancy rates are headed north for hotels. Moreover, valuations are favourable.

Vikram Suryavanshi, analyst with brokerage Philip Capital, said: “There is still upside in logistics stocks as valuations are attractive. Mahindra Logistics trades at one-year forward price-earnings (P/E) multiple of close to 30, which is quite cheaper when compared with its historical range of 50-52.”

According to a senior fund manager, select hotels, logistic and multiplex companies have either negligible or no debt. Hence, once demand revives, their margins will increase meaningfully.

In the case of multiplexes, a good line-up of films in the next two to three years could boost stocks. “Multiplex stocks such as PVR continue to trade 20-30 per cent lower than their peak before Covid-19. As theatres reopen, they stand to gain in the next two to three years given the low base of operations,” said Naval Seth, analyst, Emkay Global. Mutual funds have increased stake in PVR to 15.6 per cent from 14.9 per cent in the past two quarters.