Shares of the Indian Hotels Co. hit a record high on Thursday after the management highlighted several growth drivers.
At the Jefferies Asia Forum 2023, the company said it is working on diversification of the topline, eyeing steady earnings growth, and also undertaking effective asset management strategies. Its focus lies in organic and possibly inorganic expansions, with a strong emphasis on healthy balance sheet ratios.
The management sees continued growth in the medium-to-long term within the sector, given the strong macro enabler. Factors like improving infrastructure, new airports, improved road and rail connectivity, the opening of new convention centres, a continued rise in discretionary spend, healthcare, wellness, and changing travel habits are all positive for the sector. International arrivals are still much lower than pre-Covid levels, so there is another likely area of growth, according to the brokerage.
Jefferies maintains a 'buy' rating with a price target of Rs 445 per share, implying an upside of 5% over the next 12 months.
Key Management Takeaways
The company is targeting steady growth in revenue and operating profit and is working on diversification of the top line.
Focus on adding businesses that yield over a 35% margin.
Another focus area for the company is building cycle-independent businesses, targeted to achieve resilience against the cyclical nature of the industry.
Aims for an effective business model for the asset-light AMA homestay segment.
Plans to scale up chambers and lounges to reduce the impact of cyclicality
The company is pursuing aggressive growth in management contracts. However, it also wants to keep pursuing strategic asset-heavy projects that are owned or leased by them.
Indian Hotels is continuing to evaluate standalone properties for mergers and acquisitions, including those in the Ginger+ segment.
Expect the June quarter's momentum to sustain in the September quarter as well. The company expects to open over 20 hotels in financial year 2024.
Risks To The Price Target Include
A slowdown in the global or domestic economy.
Resurfacing of issues related to the pandemic.
Delay in capacity ramp-up or realisation of productivity-related benefits
Increase in supply pressure, resulting in a lower-than-expected improvement in average room rates.
Shares of Indian Hotels were trading 0.94% lower at Rs 427.45 apiece, compared to a 0.06% decline in the benchmark NSE Nifty 50 as of 11.51 a.m. Before paring gains, the share price advanced as much as 1.15% during the day to hit an all-time high of Rs 436.45 per share.
The stock has risen 34.6% on a year-to-date basis. The relative strength index was at 71, implying that the stock may be overbought.
Fourteen out of the 20 analysts tracking Indian Hotels maintain a 'buy' rating on the stock, five recommend a 'hold' and one suggests a 'sell', according to Bloomberg data. The average of 12-month analyst price targets given by analysts implies a potential downside of 0.3%.
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