Rakesh Jhunjhunwala portfolio stock Indian Hotels Company (IHCL) has outperformed benchmark Nifty 50 so far this year. IHCL share price has rallied 23% so far in 2022, while Nifty has plunged over 8%. Analysts at Motilal Oswal Financial Services expect IHCL shares to rally 20% further given that the hotel industry is expected to return to pre-COVID levels in terms of occupancies and average room rate by mid-CY23. New businesses like Ginger, Qmin, amã, and the Chambers are also expected to generate incremental revenue, with higher EBITDA flow through, without deploying, the brokerage added in its report.
According to the latest shareholding data, Rakesh Jhunjhunwala holds 1.57 crore shares of Indian Hotels Company, while his wife Rekha holds 14.2 crore shares. The couple collectively holds 2.21% stake in the company. Both Rekha and Rakesh Jhunjhunwala increased their shareholding in January-March 2022 quarter to 1.11% and 1.01% respectively from 1.08% each in October-December 2021 quarter.
New businesses to act as a growth catalyst
According to analysts at Motilal Oswal, IHCL’s new business will act as a growth catalyst for the Hotels company. The management is increasing its focus on scaling up its high margin new business segment, which comprises Ginger, Qmin, Chambers, and amã. capital. Under ‘amã Stays & Trails’, it aims to increase the number of homestays to over 500 by FY25-26, with a focus on signing homestays in the vicinity of its existing Hotels. IHCL is also innovating in its F&B segment, with new concepts and offerings such as: scaling up the Seven Rivers brand; launching of authentic Indian concept Restaurants at Taj Lands End, Taj Mahal Palace, and Taj West End; launching Restaurants under the Paper Moons brand; expanding the Soulinaire brand to deliver food from its portfolio of Taj Hotels.
Productivity to improve; cost optimization to sustain
According to the brokerage report, IHCL has moved to a new cost structure, and expects to retain lower and efficient levels of staff to room proportion, even with operations back at normalized levels. The company aims to drive down overheads, as a percentage of sales, to 5% in CY25 from 8% in FY19-20 through its AHVAAN 2025 project. It also aims to simplify its holding structure through consolidation of legal entities. Other cost optimization initiatives include: The separate head office for Ginger has been surrendered, and the head office of Taj and Vivanta will look after its operations. Also, the same Area Director will look at Ginger, along with other brands; Ongoing improvement in profitability of its international operations. IH is banking on its ability to control costs and overheads, optimize manpower, and improve the mix of higher margin contributing businesses to drive margin growth by 4% to 5%.
Robust expansion pipeline, focus on an asset-light model
According to the Motilal Oswal report, IHCL has a pipeline of 60 Hotels (over 7,500 rooms), with a well-diversified mix between Taj (32%), SeleQtions (9%), Vivanta (19%), and Ginger (40%) brands. Under this robust Hotel pipeline, the share of management contracts is 74%. The balance Hotels are owned, with 92% of owned Hotels belonging to the Ginger brand. Through a focus on the asset-light model, the management aims to attain revenue of over Rs 4bn v/s current levels of Rs 2.3bn in FY22. It will continue to re-invest in its premier properties, such as St. James Court, UK; Taj Lands End; and Taj Mahal, New Delhi, to retain its iconic positioning.
Recovery in Hotel industry to propel growth
The industry has seen a recovery, led by domestic travel and a strong pent-up demand, which is likely to propel growth further. The industry is observing multiple drivers such as: increasing priority on quality of stay; focus on branded players; blending of business and leisure travel – BLeisure, lesser number of trips; but longer stays; increased demand for staycations, and a willingness to pay a premium for new and unique experiences. IHCL management expects demand for Hotel rooms to clock 6.5% CAGR over FY20-26. The Hotel industry is expected to return to pre-COVID levels in terms of occupancies and average room rate by mid-CY23. Hotels continue to act as a hedge against inflation globally.
IHCL stock rating: Buy
Target price: Rs 278; Upside: 20%
According to Motilal Oswal analysts, IHCL’s asset-light model as well as new and reimagined revenue-generating avenues, with higher EBITDA margin, bodes well for an expansion in RoCE. “Like FY22, we expect a strong recovery in FY23 and FY24, led by: a) an improvement in ARR once economic activity normalizes; b) improved occupancies, led by business travelers as well as the Leisure segment; c) cost rationalization efforts; d) an increase in F&B income as banqueting/conferences resume; and e) higher income from management contracts,” they said. The brokerage maintained its FY23/FY24 EBITDA estimate on account of a demand recovery in Business Hotels. It also retained ‘buy’ rating on the stock with a target price of Rs 278, implying 20% upside.
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