The shares of Oriental Hotels (OHL), a subsidiary of Tata group enterprise Indian Hotels Company (IHCL), have received a buy recommendation from brokerage firm ICICI Securities. In one year, the stock has risen from Rs 22 to Rs 63.00, representing a multibagger return of 184.42 percent. Year to date (YTD), the stock has risen 35.34 percent, and in the last six months, it has risen 51.44 percent. The stock has risen 7.78 percent in the last month, and the brokerage company anticipates a potential upside of 27 percent from the current market price of Rs 63 and has given a buy call rating with a target price of Rs 80 in a timeframe of 12 months.
Key investment rationale for OHL
ICICI Securities has said that "Oriental Hotel's revenue for Q4FY22 declined 13% QoQ to Rs 66.1 crore due to lockdown during January 2022 on account of omicron. Margins were also lower by 800 bps QoQ to 17.5%. This led to a marginal PAT of Rs 4 lakh vs. Rs 9.2 crore reported in Q3. For the full year FY22, revenues grew 189% YoY to Rs 219.4 crore though it was still 34% lower than pre-pandemic levels."
The brokerage has claimed that "In our view, this minor blip in revenue is temporary as forward hotel booking data suggests strong buoyancy in demand with hotel booking for MarchMay crossing pre-pandemic levels led by wedding season, vacations and IPL matches. Further, with the opening of international borders for foreign tourists and resumption of corporate offices, we expect sharp traction in the revenues from H1FY23E onwards."
"In terms of rooms supply, we expect launch of new hotel projects to get delayed due to higher land and input costs that would augur well for existing branded players. Further, hotel players are now leaner in terms of costs that are sustainable in nature. We expect healthy 29.2% revenue CAGR over FY22-24E. We expect the company's business to recover fully in FY23E while EBITDA to surpass pre-Covid levels in FY23E. Margins are seen at 18.1% and 20.2% for FY23E and FY24E, respectively," the brokerage has further clarified.
"The company enjoys strong patronage from IHCL. Operationally, OHL's properties are managed by IHCL apart from over 39% holding by Tata group. Hence, in our view, OHL has strong financial flexibility due to comfort arising from being an associate of IHCL," said ICICI Securities in a research note.
Buy for a target price of Rs. 80 for an upside potential of 27%
ICICI Securities has highlighted that "On a replacement basis, the stock is trading at EV/room of ~Rs 1.6 crore which is still at ~40% discount to current replacement costs. We remain positive on the company and maintain our BUY rating. We value the company at Rs 80 i.e.21x FY24E EV/EBITDA or Rs 2.0 crore EV/room (vs. earlier target price of Rs 73/share)."
Likely third, fourth wave may hamper business and major companies continuing with work from home policy could delay recovery in business segment are the two key risks for the stock as per the brokerage.
The stock has been picked from the brokerage report of ICICI Securities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.