Tata Group Stock To Buy Where Motilal Oswal Sees A Sharp Upside

Brokerage firm, Motilal Oswal has recommended buying the stock of Tata Group Company, Indian Hotels. The brokerage sees an upside of nearly 20% from current levels of Rs 322.

New businesses to scale-up

According to Motilal Oswal, Indian Hotel's new and re-imagined businesses Ama Stays, Qmin, Chambers, and Management contracts are expected to scale up rapidly on the lower base and high growth runway. These businesses are margin accretive with higher margin flowthrough, thereby driving up the RoCE. The new business is expected to contribute 26% to the company's operating profits by FY25.

"Amã stay portfolio is expected to grow 5x in the next two-three years with robust revenue growth, driven by the thriving industry and synergy with the group businesses. Further, it is aided by the company's asset light model. The business has higher a flowthrough of ~60-65%," the brokerage has said.

Amã stay sees rapid expansion

According to Motilal Oswal, Amã stay has a portfolio of more than 100 homestays as on 2QFY23 with 57 in operations, while others are in various phases of development/ licensing. Management expects to increase the portfolio to ~500 homestays by FY25/26.
"The business operates on an asset light model with IH charging ~18% of topline from the owners of the property (15% - management fees and 3% - marketing and reimbursement fees)," Motilal Oswal has said.

Qmin too is expanding

Qmin is establishing its brand by expanding its businesses into restaurants and cafés (Qmin Café/Qmin Shop/Qmin food trucks) from just being a food delivery business.

"Qminization of ginger (i.e., opening of Qmin restaurant in Ginger hotels) is expected to be a key driver for the offline segment. IH is planning to add more Ginger hotels, taking the total count to ~125 by FY25/26. Management expects~90 of them to feature a Qmin restaurant, which along with other QSR outlets, will lead to a significant increase in Qmin outlets by FY25/26," Motilal Oswal has said in its report. The new business is expected to contribute ~26% to the company's operating profits by FY25.

View on the stock of Indian Hotels

According to Motilal Oswal the new and re-imagined businesses are expected to provide incremental boost to Indian Hotel's growth trajectory with their margin and ROCE accretive business model. "Overall, the new and re-imagined business revenue is expected to register a
CAGR of 50% over FY22-25E. Further, we expect the strong demand momentum witnessed in FY22 to continue in FY23-25E, led by a) a further improvement in ARR and occupancy rate due to favorable demand-supply dynamics; b) higher income from management contracts; and c) unlocking value by launching reimagined and new brands. We expect Revenue/EBITDA of 31%/79% over FY22-25E and reiterate our Buy rating with an SoTP-based target price of Rs 390 on FY25E EBITDA," the brokerage has said.

Disclaimer

The stocks have been picked from the brokerage report of Motilal Oswal Financial Services. 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 consult with certified experts before making any investment decision.