Motilal Oswal maintains a Buy rating on Indian Hotels with a target price of Rs 950 per share. This implies nearly 24% upside from current levels on the back of strong growth outlook led by healthy traction in the core business and an accelerated growth trajectory in the new and reimagined businesses.
Motilal Oswal expects this Tata Group company to maintain the strong momentum over the medium term, led by-
- Increase in ARR due to healthy demand, an asset management strategy
- Corporate rate hikes
- Higher occupancy amid favourable demand-supply dynamics
- Strong room addition pipeline until FY28 in both owned/leased and management hotels
- Higher income from management contracts
- Value unlocking by scaling up reimagined and new brands.
Motilal Oswal on Indian Hotels: Asset-light expansion and ARR surge
Motilal Oswal explained that the positive recommendation is on the back of the “financial turnaround” seen by the company coupled with “strategic expansion in both core and emerging segments, and well-defined roadmap for sustained long-term growth.” According to Motilal Oswal these factors have helped the hotel major to “firmly establish it as a market leader.” That apart Motilal Oswal added that the “shift in its portfolio composition is primarily attributed to the superior EBITDA margin profile of management contracts (70-75%). Gowing share of management contracts in key brands further reflects this strategic transition.”
Motilal Oswal on Indian Hotels: Reaping benefits of focus on India business
Given the fact that Indian Hotels’ room kets have seen significant 18% CAGR growth, Motilal Oswal believes that “The company’s remarkable financial turnaround, strategic expansion in both core and emerging segments, and well-defined roadmap for sustained long-term growth have firmly established it as a market leader.”
Motilal Oswal on Indian Hotels: New segments, key subsidiaries
To strengthen its grip and capitalize on the booming industry, Indian Hotels has been increasing its stake across key subsidiaries, thereby gaining better control and flexibility to align these subsidiaries with its strategies.
Motilal Oswal cited the transformation of Ginger hotels after purchasing the remaining stake in RCL for Rs 5 crore as a classic example. Apart from this, Indian Hotels has been increasing its control in other key subsidiaries.
Motilal Oswal pointed out that Indian Hotel’s decision to increase its stake in PIEM Hotels was driven by consistent growth in EBITDA (27% CAGR since FY19), reinforcing confidence in the subsidiary’s long-term value and performance and that too supports the Buy recommendation on the stock.
Going forward, they expect “many such transactions in other important subsidiaries to restructure and simplify Indian Hotel’s business structure.”
In conclusion, Indian Hotels has guided for a revenue share of 12–14% from The Chambers and Taj Sats combined, by FY30E. Motilal Oswal pointed out that this is “a massive leap from the current 2% contribution. This strong growth is expected to significantly enhance margins and profitability.