Unlock trades: A cautious approach is advisable

Aviation, hospitality, and multiplex stocks rising on hopes of strong rebound in coming months

Speculators have started betting on unlock trades in stocks beaten down in the second wave. Businesses such as Indigo (Interglobe Aviation), Indian Hotels, PVR, and Makemytrip (MMT is Nasdaq listed) have delivered poor results in Q4FY21, which were in line with expectations. They will also have a poor Q1FY22.

But the shares have held firm or gone up. Analysts have also given buy calls. The anticipation is a strong rebound through the next nine months of FY22 as the economy unlocks. This assumes no third wave (or low impact), and travel and consumption pickup as vaccinations take hold.

In Q4FY21, Interglobe saw net losses rise to ~1,147 crore from a loss of ~871 crore a year earlier. Revenue fell 25 per cent to ~6,223 crore. For the full FY21, the net loss was ~5,806 crore, down from a net profit of ~233 crore in FY20. The airline had a cash balance of ~18,569 crore and total debt of ~29,860 crore on the balance sheet. It has also been hit by escalating fuel costs.

PVR reported a consolidated net loss of ~289.12 crore in Q4FY21, compared with a net loss of ~74.49 crore in Q4FY20. Revenues were ~263.26 crore, against ~661.78 crore the previous year. The results were not comparable due to lockdowns, staggered reopenings, social distancing, and low flows of new content.

Tata group’s Indian Hotels reported a consolidated net loss of ~97.72 crore in Q4, versus a net profit of ~76.29 crore the previous year. Revenue was ~615.02 crore, against ~1,062.98 crore in Q4FY20. For the whole of FY21, Indian Hotels posted a net loss of ~795.63 crore, versus a net profit of ~363.74 crore in FY20. Consolidated revenue for FY21 was ~1,575.16 crore, versus ~4,463.14 crore in FY20.

IRCTC has not yet declared its Q4 results, but they are not expected to be strong. MMT’S loss for FY21 was $56 million, compared to a loss of $447.5 million in FY20. Marketing and sales promotion expenses decreased 56.5 per cent to $11.8 million. Total revenue of $163 million in FY21 was 68 per cent down from $511 million in FY20.

However, these shares have gained despite these numbers. April and May were badly impacted and lockdowns continue in many regions in June. IRCTC is a utility, and will see ticketing demand rise since people will have to travel when they can. However, it may have lower catering revenues. In MMT, the substantial cost-cutting may interest investors.

Indian Hotels has expansion plans in the Ginger and AMA (homestay) brands and in Tajsat and Qmin catering and delivery services. Growth will be dependent on consumption, and a pickup in budget business travel. Indigo, like other airlines, must hope that fuel costs don’t escalate further and travel picks up. PVR, (and Inox Leisure), are pure entertainment players and, hence, most dependent on a return of consumer confidence.

These are all speculative trades which could result in big profits or big losses in the medium term. Investors should trade with caution.