Indian Hotels shares rise for six sessions, hit record high; buy, sell or hold?

Shares of Indian Hotels hit record high amid a rally in broader market today. Indian Hotels shares gained 2.08 per cent per cent to hit a high of Rs 377.8 against the previous close of Rs 370.10 on BSE. The stock has climbed 11% in the last six sessions. Total 1.35 lakh shares of the firm changed hands amounting to a turnover of Rs 5.05 crore on BSE. Market cap of the firm rose to Rs 53,250 crore on BSE. The stock hit a 52-week low of Rs 207.25 on June 20, 2022.

In terms of technicals, the relative strength index (RSI) of the stock stands at 82.9, signaling it's strongly overbought. Indian Hotels shares have a beta of 0.9, indicating low volatility in a year. Indian Hotels stock is trading higher than the 5-day, 20-day, 50-day, 100-day and 200-day moving averages. The stock has risen 18 percent in 2023 and gained 57.66% in a year.

The firm reported a 86.39% rise in sales to Rs 1625.43 crore in the March 2023 quarter against Rs 872.08 crore in the March 2022 quarter. Net profit zoomed 342.47% to Rs 328.27 crore in Q4 against Rs 74.19 crore in the March 2022 quarter. EBITDA rose 236.83% to Rs 535.49 crore in Q4 against Rs 159 crore in the March quarter of 2022.

On an annual basis, net profit zoomed to Rs 1002 crore for the fiscal ended March 2023 against a loss of Rs 247.72 crore for the fiscal ended March 2022. For the fiscal ended 2021, net loss stood at Rs 720.11 crore.

Sales climbed 90.10% to Rs 5809.91 crore in the March 2023 fiscal against Rs 3056.22 crore for the fiscal ended March 2022. For the fiscal ended 2021, sales stood at Rs 1575.16 crore.

Vinit Bolinjkar, Head of Research, Ventura Securities said, "The hotel industry is poised for significant growth in the coming years as demand for rooms is expected to exceed supply, driven by a surge in tourism activities and improving business travel. The consolidation that has taken place in the industry has given larger players an advantage in terms of pricing and market share. The Indian Hotel Company Ltd (IHCL) is one such player that has witnessed a strong recovery in occupancy rates and ARR. In the domestic market, IHCL's average occupancy rate has recovered to 71%, surpassing pre-Covid levels of 60%, while ARR has surged to Rs 11,560 per room night, which is 35% higher than pre-Covid levels. To meet the growing demand, IHCL plans to add 9,899 rooms with 75 hotels over the next four years, with over 7,200 rooms being added under management contracts. In FY24 alone, the company plans to add 20 hotels with over 2,300 rooms, and it aspires to open 3,000+ rooms in FY25.

Over the period of FY23-26E, IHCL's revenue, EBITDA, and net profit is expected to grow at a CAGR of 9.1%, 13.7%, and 14.7%, respectively, to INR 7,550 cr, INR 2,654 cr, and INR 1,590 cr, while EBITDA and net margins are expected to improve by 409bps to 35.2% and 294bps to 21.1%, respectively. The stock is currently trading at a FY26 P/E of 33.5X, which is lower than its long-term average P/E of 50X, and therefore, it presents a significant upside potential in the coming years."

Vaishali Parekh, Vice President - Technical Research, Prabhudas Lilladher said, "The stock has given a decent rally from Rs 300 levels from the significant 200DMA zone and currently with the strong trend maintained intact, it is anticipated to carry on with the positive move still ahead till Rs 390-395 zone. The major support zone would be now Rs 348 levels with near-term stop loss levels can be maintained near Rs 365. The RSI has indicated a strong uptrend and with some consolidation or maybe after some exhaustion can continue with the uptrend in the coming days. The target expected is Rs 395 with stop loss of Rs 365."

After the earnings, Motilal Oswal assigned a target of Rs 420 for the Indian Hotels stock.

“We expect the strong momentum to continue in FY24, led by: 1) a further improvement in occupancy due to multiple large global events such as G20 and ICC Cricket Men's World Cup in CY23; 2) an increase in ARR due to better demand, upgrades in hotels and corporate rate hikes; 3) higher income from management contracts; and 4) value unlocking by launching reimagined and new brands. Factoring in the 4QFY23 performance, we raise our FY24/FY25 EBITDA estimates by 5%/3%, aided by better-than-expected ARR, addition of new owned/leased and management hotels, and the normalization of inbound travel. Maintain BUY with an SoTP-based target price of Rs 420,” said the financial services firm.

Abhijeet from Tips2trade said, "Indian Hotels Q4FY23 results expectedly were great but QoQ operating margins saw a drop despite which the stock price continues to soar to its all time highs. Technically, Indian Hotels is overbought and investors should book profits at current levels and wait for a dip near support of Rs 300-309 to buy for better returns in the near term."

Kaustubh Pawaskar, DVP Fundamental Research at Sharekhan by BNP Paribas said, "IHCL posted strong performance in FY2023 with revenues and PAT growing strongly ahead of pre-COVID levels. Room demand is expected to exceed room supply for the next 2-3 years, which will help RevPar grow in strong double digits. The company has charted a strong growth plan to be achieved by FY2025-26 with a strong improvement in cash flows and strengthening the balance sheet with a focus on becoming debt-free. EBITDA margins will consistently improve in the coming years. Thus, we maintain IHCL as one of our top picks in the hospitality space. The stock is currently trading at 20.8x/17.4x its FY2024E/25E EV/EBIDTA. We maintain our Buy recommendation on the stock with a price target of Rs 425."

Brokerage Sharekhan has maintained a buy call on the stock with a revised target price of Rs. 425.

“A recovery in foreign tourist arrivals will further boost the growth in H2. International properties likely to recover to pre-covid level in FY2024 (currently at 90% of pre-COVID levels). EBITDA margins to cross 33% by FY2025. Asset light model to help in high free cash generation. Minimal investment for scaling up of new ventures. Return profile to improve substantially over the next three years. The stock trades at 19.0x/16.0x its FY2024E/25E EV/EBIDTA. We maintain our Buy recommendation on the stock,” the brokerage said.

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