Motilal Oswal Initiates Buy Call For This Hotel-Chain Stock, For 24% Returns, In 1 Year

The brokerage firm Motilal Oswal initiated a buy call for the stocks of Indian Hotels (IHIN), for a 24% return, in 1 year. The share of IHIN's management contract rooms has improved to 46% of its overall room portfolio (including pipeline) from 32% in FY18.

Target Price

The Current Market Price (CMP) of Indian Hotels' (IHIN's) is Rs. 208. Motilal Oswal has estimated a Target Price for the stock at Rs. 258. Hence this company is expected to give a 24% return, in 1 year.

Stock Outlook
Current Market Price (CMP)	Rs. 208
Target Price	Rs. 258
1 year returns	24.00%

Company performance

IHIN's total operating cost dropped 45% to Rs. 19.2b and fixed cost per month decreased 28% to Rs. 1.2b in FY21 - backed by manpower optimization and a reduction in corporate overheads. Corporate overheads dipped 39% YoY to Rs. 2.1b in FY21 - redeployments and restructuring, prudent resource allocation, and synergies, aided this. Additionally, The Chambers - Taj's exclusive business club - was relaunched with enhanced features. The company generated Rs. 2.2b of revenue in FY20 from management contracts, which is expected to rise to Rs. 3.5b in the future. Notably, the EBITDA generated from management contract income stands at 70-80% without deploying capital/with minimum capital and is, thus, highly RoCE accretive.

Comments by Motilal Oswal

Maintaining a buy rating, Motilal Oswal said, "There has been a major transition in IHIN's business strategy from an asset-heavy model (adding owned rooms that entail higher CAPEX and debt) to an asset-light operating strategy (adding rooms under management contracts by leveraging its brand). We believe this shift will foster business expansion for IHIN. Though the ongoing third Covid-wave poses a threat to near-term earnings of the hospitality sector, higher vaccination and lower hospitalization rates will lead to a much stronger rebound than the second wave. Thus, we view this weakness as a buying opportunity."

About the company

Founded by Jamsetji Tata in 1868, the Tata group is a global enterprise, comprising over 100 independently operating companies. The group operates in more than 6 continents with a mission to improve the quality of life of the communities it serves globally. The Company has over 1,70,000 members. As on date, approximately 98% of the Equity Share Capital of the Company has been dematerialized. Indian hotels are present in above 12 countries, at more than 100 locations.

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Disclaimer

The above stock was picked from the brokerage report of Motilal Oswal. 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.