Anand Rathi Share and Stock Brokers have retained a 'buy' call on the stock of Indian Hotels (IHCL) with a target price of ₹260, slightly above the previous target price of ₹254.
The brokerage firm said it had maintained a positive stance on the hotelier and expected it to outclass others, driven by its dominance in the Indian hotels' sector, superlative brand equity and well-diversified portfolio across business segments and price points.
Investment rationale
Leading the industry in new signings: By FY22, the hotel company owned or managed nearly 20,581 rooms. Management contracts have increased from nearly 25 percent of rooms in FY18 to 36 percent in FY22, and the company intends to take this figure to 50 percent in the next few years.
On the management-contract side, the company has nearly 5,550 rooms in the pipeline (74 percent of the overall nearly 7500+ room pipeline), which should be operational in the next 3-5 years. Management expects nearly ₹400 crore (70 percent to flow through to EBITDA) revenue from management fees by FY26 (FY20/FY21/FY22: ₹213 crore/ ₹136 crore/ ₹231 crore).
Fresh initiatives drive to benefit it in the long run: The company intends to focus on and expand its brands and business (Qmin, amã Stays & Trail sports folio, 7 Rivers, a brewing company, The Chambers, India’s leading business club, and management contracts) started in the last 2-2.5 years and aims at a further 25 percent revenue and 35 percent EBITDA contribution from these businesses by FY26 from respectively 10 percent and 22 percent now.
Valuation: At its capital market day, IHCL announced Ahvaan 2025, under which it aims to build a cohort of 300 hotels (in FY22, it had 20,581 rooms at 175 operational hotels), clock 33 percent EBITDA margins (in FY22, nearly 13.2 percent) with a 35 percent share of EBITDA from new businesses and management fees by FY26 (currently nearly 22 percent).
The brokerage firm has a 'buy' call on the stock with a new target price of ₹260 (on a sum-of-parts basis, valuing it at 22 times consolidated FY24e EBITDA).
Disclaimer: This article is based on a report of the brokerage firm Anand Rathi Share and Stock Brokers with some minor editing. The views and recommendations made above are those of the broking firm and not of MintGenie.
