Indian Hotels Company: Strong momentum to continue; G-20 Summit, Men's ICC Cricket World Cup to propel demand

Indian Hotels Company share price: The travel, tourism, hospitality, and leisure industry, which suffered huge losses due to the COVID-19 pandemic, is slowly but steadily getting on its feet, and by 2028, India's tourism and hospitality industry is projected to generate $50.9 billion in visitor exports, a significant increase from $28.9 billion in 2018. Additionally, foreign tourist arrivals (FTAs) are anticipated to reach 30.5 million by 2028, according to a report by Invest India.

And one of the biggest growth drivers for the industry is the Hotels & Accommodation segment, whose revenue is projected at $7.66 billion in 2023. The compound annual growth rate (CAGR) of 8.29 per cent is estimated between 2023 and 2027, and by 2027, the segment is expected to see 61.3 million customers, as highlighted by the same report.

A report by Statistica adds that the largest Travel & Tourism market is the 'Package Holidays' market, with a projected market volume of $8.33 billion in 2023.

Hence, hotels in India look poised to grow and flourish as the world has almost come back to normalcy. Indian Hotels Company (IHCL) is one such name that is expected to perform well in the coming days, given robust demand owing to a slew of important and global events lined up. 

The Tata Group company released its June quarter numbers (Q1 FY24) on Thursday, wherein it posted an impressive 30.5 per cent year-on-year (YoY) rise in its consolidated net profit at Rs 2,36.01 crore. Its consolidated revenue from operations came in at Rs 1,466.37 crore as compared to Rs 1,266.07 crore logged in the year-ago period. CLICK HERE TO READ MORE

Healthy demand supported occupancy and the average daily rate (ADR), which resulted in healthy net sales growth. The management reiterated its guidance of adding 20 hotels in FY24.

Indian Hotels: Should you check in?

Most analysts are positive on the stock given the company's superior revenue growth outlook, cost optimisation measures, increasing contribution of new initiatives in net sales as well as EBITDA, and healthy balance sheet. Moreover, the two big events of this year—the G20 Summit and the ICC Cricket Men’s World Cup—are expected to keep demand buoyant. Therefore, it would be a wise decision to add the stock to one's portfolio, according to analysts.

Motilal Oswal Securities says it expects the strong momentum in Indian Hotels to continue in FY24, led by: 1) a further improvement in occupancy due to multiple large global events such as the G20 and ICC Cricket Men’s World Cup in CY23; 2) an increase in average room rate (ARR) due to better demand, upgrades in hotels, and corporate rate hikes; 3) higher income from management contracts; and 4) value unlocking by scaling up reimagined and new brands.

The brokerage has maintained a 'BUY' rating on the stock with a target price of Rs 440. 

Archana Gude, a research analyst with IDBI Capital, says Indian Hotels is poised to benefit from strong industry dynamics, prudent cost optimisation, and the scaling up of new businesses in the near term. The brokerage has maintained a "BUY" call on the stock with a target price of Rs 447.

ICICI Securities, in its earnings review note, says they currently build in LTL RevPAR (long-term revenue per available room) growth of 10 per cent in FY24 and 6 per cent in FY25 and FY26 and similar increase in domestic subsidiaries (Ginger/PIEM/Benares/United hotels), and along with new room additions, they estimate 10 per cent revenue CAGR and 15 per cent EBITDA CAGR over FY23-26E.

"We maintain our SOTP-based TP at Rs 443 (valuing the company at 23x Jun’25 EV/EBITDA), implying a 15 per cent upside from CMP. Hence, we upgrade our rating from ADD to BUY," it added. The sum-of-the-parts (SOTP) valuation is a type of analysis wherein a firm is valued by separately assessing the value of each vertical or subsidiary and adding them up to get the total value of the company.