This Tata group multibagger stock gets 'reduce' rating by Nuvama; check target price

Trading close to its all-time high, shares of Indian Hotels Co. Ltd. (IHCL) - a Tata group company have been accorded a 'Reduce' rating by Nuvama in its report dated November 21. In today's trade (November 26), the stock was up 0.5 per cent at Rs 801.65, while at the day's high it hit levels of Rs 805 apiece on the BSE.

The 12-month price target for the stock is Rs 574, implying loss of a steep 28 per cent from the previous close.

The stock marked its all-time high of Rs 814.65 despite the 'reduce' rating on the counter on November 25.

The drag in the company's rating company's post the hotel company's 2024 Capital Market Day-2024 wherein it laid out its plan to double its portfolio by 2030. We reckon this may involve accelerated leasing and
possibly a few M&As. Notably, the guidance excludes ~980 keys (including 400 key SeaRock) in its guidance, which may accelerate growth further, albeit being a little back ended, added the report.

The brokerage firm noted that even though we appreciate IHCL's positive outlook, we currently lack sufficient justification to revise estimates for revenue, profit margins, or valuation multiples (which is a function of stronger earnings or elongating cycle).

The stock is trading at 33x FY26 and 29x FY27 EV/EBITDA, which we consider expensive given the earnings visibility, it added.

Nuvama noted that the company's management forecasts a significant improvement in RoCE from current 15-20 per cent by FY30. This shall be led by higher contributions from asset-light businesses and monetisation of previously stalled assets (e.g. SeaRock). Moreover, IHCL has laid out its capital allocation strategy and aims to keep 20–25% of free cash flow reserved for fresh capex and renovations, ~12–15% for dividends, ~15–20% for future greenfield investment and balance for new opportunities including inorganic acquisitions, if any. I

It wants to retain its net cash positive stance and further bolster its war chest, added the report.

Key positives: The Bandstand (Sea Rock) property, Shiroda and Aguada property, which were stuck for so long, have received clearances and approvals to go ahead.

Key negatives: No margin guidance, which in turn implies higher leasing projects on the horizon that may be margin dilutive but RoCE accretive. Moreover, management’s ambition to seed a few foreign markets even at the cost of diluting margins may be another reason.

Indian Hotels share price performance

In the past one year, the stock has zoomed 91 per cent, while in the 3-year period the returns are at a handsome 340 per cent.