Buy Indian Hotels Company, target Rs 193: IDBI Capital

IDBI Capital has a buy call on Indian Hotels Company with a target price of Rs 193.

The current market price of Indian Hotels Company is Rs 150.

Time period given by the brokerage is six months when Indian Hotels Company price can reach the defined target.


IDBI Capital recommended keeping a stop loss at Rs 129.

Investment rationale by the brokerage:
The domestic hotel industry is expected to witness robust growth in coming years led by higher occupancy, limited capacity addition and rise in spending by domestic travellers. Indian Hotels, one of the largest domestic hotel players, will be a key beneficiary of a turnaround in the industry. The company plans to add 15-20 new hotels annually through management contracts that will further boost topline.

The company has outlined its strategy to boost margins by at least 10 per cent (i.e. 1000 bps) in FY18-22E. The company aims to achieve the same by revenue optimisation, cost rationalisation and debt reduction. Under revenue optimisation, the company will focus on RevPAR growth, an increase in management fee income and higher income from new inventory boosting margins by 3-4 per cent.

The management is focused on improving the health of the balance sheet by reducing leverage. At the end of 9MFY19, the company’s debt/equity was at comfortable 0.47x. Further, various initiatives like asset monetization and unlocking the value through sale and leaseback will help in strengthening the balance sheet.

Healthy growth in room addition, improvement in revenue per room, higher occupancy, cost rationalization at the operating level and various other cost reduction initiatives will help the future earnings growth.

For 9MFY19, the company reported 10 per cent YoY increase in net sales at Rs 33,140mn, while EBITDA grew by impressive 27 per cent YoY to Rs 5,920mn with EBITDA Margin expansion by 230bps YoY to 17.8 per cent.

Valuation: We forecast FY18-20E Net Sales/ EBITDA to grow at CAGR of 9.5 per cent/20 per cent over FY18-20E. The stock is currently trading at EV/EBITDA of 19x/17x FY19E/20E. Considering the healthy earnings growth and margins improvement, we believe the stock is poised to give good returns from current levels.