Buy Indian Hotels Company, target Rs 183: Stewart & Mackertich

Stewart & Mackertich has given a buy recommendation on Indian Hotels Company with a target price of Rs 183.

Shares of Indian Hotels Company traded at Rs 157.1 around 2:05 pm on 3 June, 2019. The brokerage has set a one-year horizon for the stock to hit the target price.

March quarter highlights:


Revenue from Operations was up by 9 per cent to Rs 1,244 crore whereas Ebitda was up by Rs 284 crore, up by 16 per cent. PAT for the company went up by 51.3 per cent to Rs 115 crore.

Ebitda margin for the company was at 22.85 per cent which expanded by 145 bps. PAT margin for the company was at 9 per cent which expanded by 250 bps.

During the full year, revenue from Operation went up by 10 per cent to Rs 4,512 crore. Ebitda was up by 24 per cent at Rs 830 crore Adjusted PAT was at Rs 287 crore as against Rs 101 crore which is an increase of 184 per cent.

The Revenue per available room for the domestic properties was up by 6 per cent while for the international properties it was up by 9.3 per cent.

Standalone Revenue was up by 7 per cent to Rs 843 crore. Ebitda was 15 per cent up at 295crore. PAT for the standalone business was up by more than 150 per cent to Rs 165 crore.

Investment rationale:

Over the years, the company has built a vibrant portfolio, catering to different hotel categories including premium hotels, mid-market hotels and budget hotels.

As per the brokerage, the management of the company has set a 2022 strategic plan, targeting 25 per cent Ebitda margin (consolidated) by 2022.

"We expect the management to achieve this target driven by the domestic business accompanied with cost control and capital restructuring. The mid-market chain Ginger (being revamped) will get a higher focus from the management, a potential turnaround here will be positive for the company. The share of management contract rooms in the company’s portfolio increased to 40 per cent from 32 per cent last fiscal," said the brokerage.

The domestic market is awaiting robust growth since there is a demand - supply mismatch in terms of required room inventory. According to Ministry of Tourism, India is short of over 2 lakh tourist hotel rooms and India is projected to be the fastest growing nation in the wellness tourism sector.

"We expect this demand supply mismatch to continue for another couple of years thereby increasing the revenue per available rooms (RevPAR) by another 10 per cent by FY22. This will further help the company to improve the margins," said the brokerage.

Indian Hotels will continue with its strategy of monetising assets backed by strong fundamentals; the company has monetised two assets in its subsidiary Oriental Hotels in Vishakapatnam and Trivandrum. In case of Non-core assets, some residential apartments worth around Rs 200 crore alongside land bank of over 500 acres could be monetized.

The management has also planned to sell some of non-performing hotels going ahead which will help IHCL to improve profitability and margins, the brokerage added.