Multibagger Tata Group Stock To Buy For 20% Potential Upside; To Be Debt Free By Fy23E

Indian Hotels Company- a Tata Group hospitality major has a 'Buy' call from several experts and brokerages for likely gains of 20% in 1 year. The stock in the last 1-year has yielded returns to the tune of 101%, while YTD returns are at 52%.

About the company:

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. The company's group of brands include Taj, SeleQtions, Vivanta, Ginger and amã Stays & Trails.

Indian Hotels Q1Fy23 results:

The company's Q1 performance has been far better than estimate given the strong recovery in corporate demand. Revenue at the firm climbed 45% QoQ to Rs. 1266.1 crore during the review period. The revenue has also inched higher when compared to pre-Covid levels i.e. Q1Fy20 by 24%. EBITDA margin climbed 1162 bps sequentially. Net profit also climbed 129% sequentially to Rs. 170 crore given the strong demand and improved margins versus loss of Rs. 277 crore in the same period last year.

 

Company's expansion plans:

Under AHVAAN 2025, the company plans to have 300+ hotel room portfolio with zero net debt status.

 

Why 'Buy' the stock of Indian Hotels?

As per Sonam Srivastava, Founder, Wright Research- the stock of Indian Hotels has had a remarkable run in the last 1-year and it shall continue going forward. The stock is seen to gain 20% by the next year. Reopening of the economy post Covid has favoured the hotel industry and the upcoming festive season shall make it further lucrative. The company logged 33% revenue growth and EBITDA margin is placed at 30%.

The company is migrating from an asset-heavy entity to 50% owned and leased business and the remaining 50% fee-based business. Furthermore, the company has incorporated new entities that are high-margin businesses and thus offer good revenue and margin expansion visibility for the next year.

 

ICICI Direct's view on Indian Hotels:

The brokerage has set out a target of Rs. 330 on the stock to be realised in 12 months. The brokerage mentions that we value the scrip at Rs. 330 i.e. 23x FY24E EV/EBITDA.

As for the rationale for the buy on the scrip of Indian Hotels, the brokerage says through increased cash flows, equity infusion and divestment of non-core assets, the company will be net debt free in Fy23. Further as the foreign tourists are allowed into the country post Covid, there will be greater leisure and business hotel room demand in Fy23.

"Expect revenue CAGR of 40.9% during FY22-24E. Business to recover fully to pre-Covid levels while EBITDA to surpass pre-Covid levels in FY23E; margins seen at over 32% in FY24E, which has the potential to further expand by around 100 bps thereafter", notes the brokerage.

 

Jefferies gives the stock a 'Buy' rating:

Jefferies, the foreign brokerage is also optimistic on the stock and has given it a 'Buy' rating for a target price of Rs. 325 per share. "With the strong run-up in Indian Hotels in the past 6-months/1yr, the debate is whether it fully prices in the recovery. We believe IHCL can continue to trade at a premium given it is a strong proxy play to travel recovery, as well as its brand equity, leadership position (multiple segments/price points) and the strong promoter group," the note by the brokerage stated.

"With the expanding scale, the company is focusing on the asset-light strategy via increasing hotel mix via management contracts (50:50% mix). For IHCL, management contracts are taken based on meeting the standards and there is no quality compromise expected here; operations are targeted to be alike in Hotels under management contracts as in the case of Owned/leased Hotels. Furthermore, in the new set of signups under management contracts, a major portion is of new constructions built under IHCL advisory," the brokerage adds.

 

Disclaimer:

The stock mentioned in the story is recommended for buying by experts and brokerages. Nevertheless, readers should not construe it as an investment advice and instead should do their own analysis and due diligence before betting on any market linked security.

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