Rakesh Jhunjhunwala portfolio stock Indian Hotels Company Ltd is Motilal Oswal’s top stock pick in the hospitality industry for the current year 2022. The brokerage firm says that the company’s continuous focus on leveraging its brands, and expanding its operations through management contracts will drive IHCL stock. IHCL unlocking value by launching new, reimagined brands, and creating a hospitality ecosystem is another reason behind the positive view on the stock. IHCL stock was trading at Rs 208.50 on Friday, down 0.45% on the National Stock Exchange (NSE). It has risen 77.08% in the last one year.
Big Bull Rakesh Jhunjhunwala owns 14,279,200 shares in Indian Hotels Company Ltd, which translates to 1.08% stake. His wife Rekha Jhunjhunwala owns 14,287,765 shares, according to the latest shareholding data. The Jhunjhunwalas have increased their combined stake from 2.10% in September 2021 quarter to 2.16% in the quarter ended December, Trendlye data showed.
Focused and scalable asset-light operating model to underpin growth
According to analysts at Motilal Oswal, there has been a major transition in Indian Hotel’s business strategy from an asset-heavy model to an asset-light operating strategy. They believe that this shift will foster business expansion for the hotel company. The hospitality major reported industry-leading hotel signings and openings in the year 2020. Going forward, unbranded and distressed hotel owners are anticipated to approach branded players such as Indian Hotels for partnerships in the post-COVID era, to leverage the IHCL’s established distribution network.
The company generated Rs 2.2 billion of revenue in FY20 from management contracts, which is expected to rise to Rs 3.5 billion in future. “Notably, the EBITDA generated from management contract income stands at 70–80% without deploying capital/with minimum capital and is, thus, highly RoCE accretive. We expect the contribution of contract income EBITDA to the consolidated EBITDA of IHIN to be at 20% in FY24,” the brokerage said.
Target Price: Rs 258
Though the ongoing third COVID wave poses a threat to near-term earnings of the hospitality sector, Motilal Oswal expects higher vaccination and lower hospitalization rates to lead to a much stronger rebound than the second wave. Thus, the brokerage views this weakness as a buying opportunity. It anticipates a strong recovery in the next two financial years. “We value the stock at 21x FY24E EV/EBITDA to arrive at our SoTP-based TP of Rs 258, implying a 24% potential upside. We maintain our BUY rating on IHIN”, it added. Prolonged delay in demand revival due to the pandemic, intensified competition in acquisition of rooms under management contracts, and failure in scaling up new businesses can be the key risks to the Buy call.
IHCL share price soars over 105% in last five years
As markets witnessed correction this week, Indian Hotels Company Ltd’s share price dipped 0.83% in the fast five days. However, the stock has rallied over 15% in one month. Over the last five years, the stock has rallied over 105%. At present, the shares are around 7% down from the 52-week high of Rs 230.14, hit on 14 October 2021.