Domestic brokerage house Motilal Oswal, in a recent note, said that it is bullish on Tata Group firm Indian Hotels Company Limited (IHCL) which operates the Taj Group of Hotels. The brokerage has a 'buy' call on the Rakesh Jhunjhunwala portfolio stock with a target price of ₹278, indicating an upside of 21 percent.
The stock has lost 15 percent from its 52-week high of ₹269, hit on May 4, 2022, however, MOSL believes that profit booking in this hotel stock is over and this correction offers a good buying opportunity to investors.
In the last 1 year, the stock has risen over 60 percent and 27 percent in 2022 so far.
The brokerage said that the firm's asset-light model, and new and reimagined revenue-generating avenues, with higher EBITDA margins, bode well for an expansion in RoCE (Return on capital employed). The company expects to register a CAGR of 15 percent to over ₹400 crore in the next four years, it added.
"Like FY22, we expect a strong recovery in FY23 and FY24, led by: a) an improvement in ARR once economic activity normalizes; b) improved occupancies, led by business travelers as well as the Leisure segment; c) cost rationalization efforts; d) an increase in F&B income as banqueting/conferences normalizes, and e) higher income from management contracts," the report explained.
Motilal Oswal further stated that the hotel industry has witnessed a notable demand revival in the Leisure Travel segment. A revival in corporate demand would remain a key monitorable while demand recovery would push up occupancies, followed by average room rate (ARR) growth, it added.
For IHCL, the brokerage said that the occupancy rate (ORR) recovered to 94 percent of the pre-COVID level versus 87 percent for the industry, while Revenue per available room (RevPAR) in Delhi, Mumbai and Bangalore remained at 75 percent. Also, the company outperformed its peers on RevPAR growth front, MOSL pointed out.
“Like in FY22, we anticipate the strong recovery to sustain in FY23/FY24 as well based on ARR improvement, once the economic activities normalize, improved occupancies driven by business travel as well as leisure segment, cost rationalization efforts, and an increase in F&B income as banqueting/ conferences resume,” it added.
The brokerage also highlighted that the firm has taken its business model beyond the traditional hotel business and is expanding into homestays under amã Stays & Trails brand, under which, it has already signed up for 90 homestays and is planning to take the total to over 500 by FY25-26.
MOSL further said that the firm has introduced AHVAAN 2025 strategy, under which it expects to reach a portfolio of 300 hotels, comprising Taj (100), Vivanta and SeleQtions (75), and Ginger (125). As on 31st March 2022, it has 20,581 rooms, after adding around 1,156 rooms in FY22.
As per the March quarter shareholding pattern, Rakesh Jhunjhunwala holds 1.57 crore shares or 1.11 percent stake in the company while his wife Rekha Jhunjhunwala owns 1.42 crore shares or 1.01 percent equity in the company. Together, they hold 3 crore shares or a 2.12 percent stake in the firm.
In the March quarter, IHCL reported a consolidated net profit of ₹71.57 crore against a consolidated net loss of ₹97.72 crore in the same period of the previous fiscal. Its consolidated revenue came in at ₹872.08 crore in Q4FY22 against ₹615.02 crore in the year-ago period.
Its annual losses also decline to ₹265 crore in FY22 from ₹796 crore in FY21. The hospitality firm said it has recorded the highest number of new hotel signings in India for the second consecutive year, totaling 19 new hotels.
Indian Hotels is a midcap firm that owns, operates and manages hotels, palaces and resorts under various brands, including Taj, SeleQtions, Vivanta, The Gateway, Ginger, Expressions, ama Stays and Trails and TajSATS. It also operates restaurants, and food and beverage businesses under Golden Dragon, Wasabi by Morimoto, Thai Pavilion, House of Ming and Shamiana brands.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.