Indian Hotels Company shares: IHCL target price post Capital Markets Day

Nirmal Bang Institutional Equities, which attended Capital Markets Day hosted by Indian Hotels Co Ltd (IHCL), has upped its target price for the stock while keeping its earnings estimates and rating unchanged.

Capital Markets Day saw the IHCL management unveiling its execution strategy and goals for 2030. The management said while Indian Hotels achieved over FY17-24 was ‘aspirational’ whereas journey going ahead should be an ‘acceleration’ and building on that base by managing the cyclicality well.

"While 2 times revenue target over FY24-30 might sound unattractive, any potential M&A activity could lead to further upside in our view. Also, we believe that most importantly 20 per cent ROIC target (15 per cent in FY24) by FY30 is the key
differentiator to justify the premium valuation," Nirmal Bang said.

Nirmal Bang maintained its 'Buy' with a revised target price of Rs 860 against Rs 790 earlier after rolling forward valuation its earnings projections to December 2026, using SoTP valuation methodology. The Tata group stock is up 11 per cent in the past one month and 27.4 per cent in 2024 so far. Nirmal Bang's target price suggests a 14 per cent potential upside ahead for the stock.

The brokerage said its valuation premium for IHCL is on the basis of portfolio positioning across the segments, better mix of owned versus managed rooms, multiple new non-room revenue growth avenues and cash rich balance sheet unlike in the last upcycle.

The IHCL management indicated that while the dividend pay-out ratio is 20-40 per cent, it intends to conserve the cash and prudently use it during cycle turnaround to consolidate the market further.

Nirmal Bang said while demand supply gap is expected to continue in key markets, the management is aware of the fact that all categories cannot thrive on an ongoing basis and cyclical headwinds could impact the growth.

"Therefore, for doubling the total hotels count by FY30, the major heavy lifting has to be done by brands such as Ginger, Gateway (Accelerated growth brands- 50 signings 30 openings per annum) whereas Taj, Vivanta and SeleQtions (Steady growth brands- 15 signings and openings p.a.) should grow at a normal pace," it said.