Buy This Multibagger Tata Group Stock As Share Price Likely To Jump, Recommended By Axis Securities

Leading brokerage firm Axis Securities is bullish on Indian Hotels Company Ltd. (IHCL), a Tata Group Hotel sector company. The brokerage suggests 'buy' the stock of the company for a target price of Rs 360 apiece to get 18% potential gains in 12 months. IHCL is a Tata Group mid-Cap company having a market cap of Rs 43,343.49 crore.

Stock outlook

07 September, on NSE, the stock of the company opened at Rs 305.50 apiece. At the time of writing the stock is trading at Rs 306 apiece, 0.28% up from its previous close. The 52-week low level of the stock is Rs 138.30 apiece and the 52-week high level of the stock is Rs 311.45 apiece, respectively.

 

Returns on investment

It has given a positive return of 6.78% in a week, and 12.97% in a month. It gave a 31.92% positive return in the past 3 months. However, in the past 1 year, it has given a multibagger return of 111.89%. In 3 years, the stock gave a multibagger return of 129.43% and in the past 5 years, it gave a multibagger return of 159.96%.

 

Indian Hospitality & Tourism industry at cusp of a turnaround

According to the brokerage firm, "Indian Travel & Tourism industry is pegged to report ARR CAGR 11.2% and occupancy improvement by 400 bps to 70% during the period CY22E-CY24E. The said growth will be driven by 1) Easing supply-side constraints that would improve Rev PAR and occupancies, 2) The release of pent-up demand in domestic leisure travel, extended stays, weddings, and social events, 3) Government delegations, and 4) Spiritual and Medical tourism. Furthermore, the opening and increase in international travel could improve occupancies in the upcoming quarters. Against this backdrop, we expect significant improvement in the company's realizations and occupancies, which in turn, would be further augmented by the strong operating leverage it enjoys among the industry peers."

Strategic initiatives to support sustainable revenue growth and margins

IHCL's Hotel and F&B segments contribute the majority of revenue (70%) to business. While it is cyclical in nature, the company enjoys healthy EBITDA margins of ~25% during peak business season. Moreover, IHCL has successfully developed new businesses such as Management fees, The Chambers, Qmin, and Ama, among others where it enjoys much higher EBITDA margins which stand in the range of ~70%-80%. We expect these less-cyclical new businesses to add 40%-50% of the company's absolute EBITDA in the next two years. We also expect the company to deliver overall EBITDA margins of ~35%, backed by the operational leverage in Room & F&B business, high margins of new businesses, and increase of management contracts in total room inventory in FY24E and FY25E. We expect IHCL to post standalone revenue growth of 25.7% CAGR over FY22-FY25E.

Strong Cash flow generation constituting ~50%-60% of operating profit

The brokerage said, "We expect IHCL to generate FCFF of Rs 1,000-1,500 Cr per year after incurring a minimal Capex of Rs 400 Cr per year over the next 3 years. The company is expected to incur a Capex on maintenance, Ginger Santa Cruz, and the Kevadia which would be 10% of the overall Capex. We expect IHCL's RoIC to improve to ~13.2% (Standalone RoIC 24%) in FY24E. The company's RoIC is currently dragged by two major investments of Searock investment and international subsidiaries. IHCL is looking for a strategic partner to offload a stake in Searock Investment while the company is on track to monetize a few international assets. We expect both these steps to improve RoIC in the next 2-3 years."

Strategic Measures, Proactive Capex, & Reviving Industry to Provide Growth

Commenting on the valuation of the stock, Axis Securities said, "We initiate coverage on Indian Hotels Company Ltd (IHCL) with a BUY rating and a target price of Rs 360 (EV/EBITDA 26x for FY25E EBITDA), implying an upside of 16% from the CMP."

The Indian Hotels Company Limited (IHCL), along with its subsidiaries, offers a fusion of warm Indian hospitality and world-class service. These include Taj - the iconic brand for the most discerning travellers, SeleQtions - a named collection of hotels; Vivanta - sophisticated upscale hotels; and Ginger - which is revolutionising the lean luxe segment.

 

About the company

IHCL and its subsidiaries bring together a group of brands and businesses that offer a fusion of warm Indian hospitality and world-class service. These include Taj - the iconic brand for the most discerning travellers and ranked as the World's Strongest Hotel Brand and India's Strongest Brand across sectors as per Brand Finance Hotels 50 Report 2022 and India 100 Report 2022 respectively; SeleQtions, a named collection of handpicked, storied hotels; Vivanta, a chain of contemporary upscale hotels that celebrate joie de vivre; Ginger, a brand that is revolutionizing the lean-luxe segment, and amã Stays & Trails, a charming portfolio of private bungalows and villas set in picturesque locales.

Disclaimer

The stock has been picked from the brokerage report of Axis Securities. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.