Macquarie began coverage on Lemon Tree Hotels Ltd., Chalet Hotels Ltd., and Indian Hotels Co. The brokerage rated the first two hotels 'outperform', while it rated Indian Hotels 'neutral'.
Macquarie began coverage on Lemon Tree Hotels Ltd., Chalet Hotels Ltd., and Indian Hotels Co. The brokerage rated the first two hotels 'outperform', while it rated Indian Hotels 'neutral'.
Hospitality and real-estate businesses are in growth mode. Macro and structural tailwinds of increasing business and leisure travel against room-supply shortages will provide pricing power to hotel businesses in India, the brokerage said. It expects the industry to witness 13% growth rate.
Recently announced income tax cuts and the Government of India's push for tourism will further benefit hotel businesses, it said.
Lemon Tree Hotels Is Top Pick
Macquarie gave Lemon Tree Hotels an 'outperform' and has a target price of Rs 210, which indicates 35% premium to its four-year enterprise value.
The hotel chain is expected to benefit from a rise in demand in business, leisure travels, and discretionary income. The brokerage estimates return on capital to expand to 24% from 12%.
The tourism push in financial year 2026 and tax cuts will also help Lemon Tree Hotels' growth. This drove the decision to initiate coverage, while making the hotels firm the brokerage's top pick.
The luxury hotel operator is now expanding to tier-2 and tier-3 cities at a time when the Government of India is focusing on developing 50 tourism destinations. Lemon Tree Hotels has more than 100 hotels and 75 are in the pipeline in mid-markets, which will further benefit the company.
Lemon Tree Hotels plans to focus on high margin and capital-efficient franchise model, which will support the hospitality service provider to scale 8% and 15% of revenue and Ebitda by financial year 2028. "We estimate ROCE increases from 12% in FY24 to 24% by FY28E, and expect it to be the key determinant of stock performance in this cycle."
Chalet Hotels
Macquarie sees Chalet Hotels benefitting from increased business demand and shortage of inventory. Its top-line growth and operating leverage will likely drive 20% and 23% revenue and Ebitda compound annual growth rate, respectively.
The brokerage has a target price of Rs 1,100 on the stock.
Macquarie forecasts Chalet's hospitality revenue to deliver a 16.4% CAGR over financial year 2024 and 2028, compared to 13% industry growth rate.
Chalet Hotels' return on capital employed will rise by 21% in financial year 2028, from 12% in financial year 2024. It'll be the determinant of the stock performance in the next cycle. "While heavy investments will continue to build scale/scope, high Ebitda margins provide valuation support as a proxy for earnings power."
In hospitality sector, Chalet Hotels has trifecta of location, brand and hotel, with 87% rooms in high demand tier-1 cities. The strategic real-estate business will increase ROCE, diversification, and generate cash flow. "We expect a 20% revenue CAGR over FY24-28E, driven by pricing power, pipeline deployment, and real-estate monetisation."
The increase in ROCE will drive Chalet Hotels' stock performance.
Indian Hotels
Macquarie rated Indian Hotels 'neutral', with a target price Rs 840, which indicates 42% premium to four-year enterprise value and Ebitda. Risk-reward is currently balanced, the brokerage said.
Indian Hotels' brand and expanding portfolio business should provide sustained and steady growth, Macquarie said. India's largest hospitality company is now investing in upcycle in the industry, as an improving macro backdrop drives demand. In tier-1 cities, which is Indian Hotels' key market, there's a significant shortage of quality inventory which is driving pricing, it said.
Indian Hotels has leveraged its high-end hotel heritage to expand into other hospitality segments such as midscale, upscale, boutique hotels, bunglows, catering and food delivery. The increased scale has created a strong brand portfolio and grown the total addressable market share, according to Macquarie.
Strategic pivot to a capital-light model has been successful, with share of these rooms at 60% compared to 44% in financial year 2017. Most of its pipeline supply is under this model. Indian Hotels' ROCE may improve to 19.5% in financial year 2028, compared to 14% in financial year 2024, Macquarie said.
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