Mid Cap Multibagger Tata Group Stock Gets Add Call, Target Price Rs 366: ICICI Securities Enthused

ICICI Securities has picked mid cap Tata Group stock, Indian Hotels Company Ltd and assigned "Add" call. The brokerage is enthused by the company's efforts to leverage its existing brand equity to focus on new business segments, focus on cost optimisation, asset light management contract model to expand room portfolio along with its net debt free balance sheet. The multibagger stock has a market capitalisation of Rs 47,498.16 crore. Check key takeaways below:

1. Indian Hotels Company Stock Performance & Return

The current market price of the stock is Rs 334 apiece with 52-week high at Rs 348 apiece and 52-week low at Rs 172 apiece, respectively. The stock has given multibagger returns with last 5-years return at 179%. The stock has soared 128% return in last 3-years and 67% in last 1-year only.

2. Demand Trends Remain Intact In Q3fy23 Till Date

As per company management, the occupancy and room rates seen in Q3FY23 (Oct'22-Nov'22) so far indicate that RevPAR is growing at double digits vs. the similar period seen in Q3FY20 which was the strongest pre-Covid quarter for the company and industry.

The revenue continues to be driven largely by higher ARRs as seen in H1FY23 and a demand-supply gap and management's strategy will continue to be focused on higher room rates vs. occupancy in India.

3. Utilisation Of Free Cash Flows To Be Key Monitorable Over Medium Term

We expect the company to generate annual free cash flow (post capex) of over Rs10bn each in FY23-25E. While a portion of this may be distributed in the form of dividends, with a consolidated net cash position of Rs3.9bn as of Sep'22, utilisation of the free cash flow to enhance return ratios further is a key monitorable over the medium term.

4. Valuation

According to ICICI Securities, "We retain our ADD rating on IHCL with a revised SoTP-based target price of Rs366/share (earlier Rs351) as we roll forward to Dec'24 EV/EBITDA (earlier Sep'24 EV/EBITDA) at an unchanged EV/EBITDA multiple of 23x considering strong ARR trajectory. We are enthused by the company's efforts to leverage its existing brand equity to focus on new business segments, focus on cost optimisation, asset light management contract model to expand room portfolio along with its net debt free balance sheet."

Key risks to our call are further Covid waves globally and in India impacting demand and rise in operating costs denting margins.

5. About Indian Hotels Company Ltd

The Indian Hotels Company Limited (IHCL) and its subsidiaries bring together a group of brands and businesses that offer a fusion of warm Indian hospitality and world-class service.

These include Taj - the hallmark of iconic hospitality, SeleQtions, a named collection of hotels, Vivanta, sophisticated upscale hotels and Ginger which is revolutionizing the lean luxe segment. Incorporated by the founder of the Tata Group, Jamsetji Tata, the Company opened its first hotel - The Taj Mahal Palace, in Bombay in 1903. IHCL has a portfolio of 196 hotels including 40 under development globally across 4 continents, 12 countries and in over 80 locations, according to its official website.

 

Disclaimer

The stock has been picked from the brokerage report of ICICI Securities. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.