Brokerage sees double-digit upside in this Rekha Jhunjhunwala-backed midcap stock. Do you own any?

In its latest report dated February 17th, 2023, on Indian Hotels, Geojit said, IHCL reported solid performance in Q3 FY23 led by growth in the average room rate (ARR), improved occupancy rate, and higher revenue per available room (RevPAR).”

During December 2022 quarter, Indian Hotels PAT rose by a breath-taking 403% YoY hitting an all-time high of ₹383 crore. Also, the company recorded its best-ever EBITDA of ₹655 crore up by 90% YoY, while EBITDA margins were at a record level of 37.6%. Its revenue soared by 54% YoY to ₹1,744 crore.

According to Geojit’s note, in Q3FY23, Indian Hotels’ consolidated operating revenue was recorded at ₹1,686 crore, an increase of 36.8% QoQ (+51.7% YoY), driven by improved occupancy rate, ARR, and RevPAR. Strong demand led to increased occupancy of more than 70% in both leisure and business hotels in major domestic markets; an increase of 27% as compared to pre-COVID levels. International business also registered positive growth with strong RevPAR growth.

The company continues to maintain its leadership position across markets with RevPar penetration index of more than 130%.

Going ahead, the demand outlook for the sector is expected to remain strong owing to the easing of COVID-19 lockdown restrictions, and the subsequent recovery of inbound and corporate travel.

Over the forecast period, Geojit’s note added, “the continues to focus on sustained revenue growth, cost optimization and improving operational excellence. Demand for the sector is also expected to remain favourable due to the ongoing recovery of inbound and corporate travel and major events such as the ICC ODI Cricket World Cup.”

These factors coupled with the implementation of the AHVAAN 2025 strategy, as per Geojit, will drive the long-term growth prospects of the company.

Last year, in May, the company announced the AVHAAN 2025 strategy, under which, it plans to o build a portfolio of 300 hotels and register 33% EBITDA margins with a 35% EBITDA share from its new businesses and management fees by FY25-26.

Geojit’s note highlighted that AHVAAN 2025 is expected to support the company’s profitability by scaling its brand portfolio across both traditional and new businesses. IHCL is focusing on restructuring the portfolio and aims to achieve a 50:50 mix between owned, leased, and managed hotels.

Also, the company aims to be a zero-debt company by April 2023.

Following the above, Geojit’s note said, “we assign ACCUMULATE rating on the stock with a target price of ₹357, based on based on 24x FY25E EV/EBITDA.”

On Friday, Indian Hotels stock tumbled by 1.16% to end at ₹318.15 apiece on BSE. The company’s market cap is over ₹45,190 crore.

Taking into consideration Friday’s closing price and Geojit’s target price, Indian Hotels has the potential for a 12.2% upside ahead.

Rekha Jhunjhunwala is among the leading individual retail investors in Indian Hotels. As of December 31, 2022, Rekha’s shareholding in the company is around 3,00,16,965 equity shares or 2.11%.

As per Trendlyne data, her shareholding in Indian Hotels is valued at nearly ₹955 crore as of February 17th. The company is among the top 10 most valued stocks in Rekha’s portfolio.

It was her husband Rakesh Jhunjhunwala who first added Indian Hotels to his portfolio in June 2020. However, the man who was often referred to as the ‘Warren Buffett of India’, Rakesh Jhunjhunwala died on August 14, 2022, due to health conditions. His estate, including shares and property, has been passed on to his wife Rekha, and three children.

Indian Hotels is among the country’s leading hospitality companies, with some of the leading brands such as Taj, Ginger, and Vivanta among others. The Tatas hold around 38.2% stake in the company. Currently, the company’s portfolio consists of over 250 hotels, including the new addition of 30 hotels, spreading across four continents and 12 countries.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.