Indian Hotels Company shares rallied 9 percent intraday on Thursday after MotilalOswal initiated coverage on the stock with a buy rating and target price of Rs 163, implying a 21 percent potential upside.
The research house said the Indian hospitality industry is set to enter into an up cycle, led by favorable demand-supply dynamics. Industry occupancy (67 percent) has already breached the optimum level, allowing players to exercise pricing power.
Hence, as the second largest hotel chain operator in India (manages 17,145 rooms, around 85 percent of which are in the domestic market) with the presence in high-demand, high-occupancy micro markets, Indian Hotels is strategically well placed to capitalize on the growth opportunities, it feels.
Historical data suggests that once occupancies reach optimum levels, hotel companies usually see themselves as having passed a crucial threshold level to begin pursuing a rate-based strategy to boost yields.
Against this favorable backdrop, Motilal Oswal sees Indian Hotels – the second largest hotel operator in India – as an attractive investment candidate.
"Strong presence in the high demand, high-occupancy micro markets of Mumbai, NCR, Bangalore, and Goa (8-14 percent market share across regions) places it well to cater to rapid growth in the domestic market. The company also has an invaluable asset in the form of a strong brand name," it explained.
Indian Hotels appears set to benefit from operating leverage in the impending upcycle, led by its higher fixed-cost proportion and efforts to rationalize expenses, the research house said.
It expects Indian Hotels to record revenue/ EBITDA CAGR of 9 / 25 percent over FY18-20.
The company has the presence across the pricing spectrum through its four brands – Taj, Vivanta, and Ginger. It manages 17,145 rooms across India and international locations. Around 85 percent of its room inventory is in the domestic market, while the rest is outside India. Domestic business remains the key driver, contributing around 78 percent of its consolidated revenue.
At 15:01 hours IST, the stock was quoting at Rs 139.50, up Rs 5.00, or 3.72 percent on the BSE.
