Global brokerage JPMorgan has upgraded Indian Hotels’ rating to overweight from Neutral with improved business travel momentum and favorable demand-supply signaling potential upcycle.
Indian Hotels’ Q4 missed estimates though, but it was mostly subs while domestic was a beat. Omicron impacted the fourth quarter, but March-April 2022 saw a strong recovery in Leisure/Non-Leisure markets, said the brokerage while upgrading its rating to Overweight on Indian Hotels shares with revised March 2023 target price of ₹260 (from ₹220).
“Indian Hotels is the largest play on the hospitality sector in India, with inventory of around 20k rooms and pipeline of 7,500 rooms. New inventory addition is largely asset-light. We estimate full travel recovery by FY23 and better margins with the cost cuts,” the note stated.
Indian Hotels 7,500+ keys pipeline, demand recovery coupled with cost optimization (FY22 fixed costs/overheads down 23/34% vs FY20) should drive earnings and free cash. Indian Hotels is now net cash post the ₹40 bn capital raise and management intends not to lever up again, JPM highlighted.
As per the brokerage, key downside risks to its rating and price target include an uncertain macro environment post-covid-19 continuing to adversely impact domestic portfolio performance – ARR/occupancy.
Further, a new variant/wave of covid-19 in India, impacting travel demand, higher-than-expected losses in the US portfolio or further significant write-offs in international operations, could also pose as key risks.
As per recent BSE shareholding pattern, Indian ace investor and stock market trader Rakesh Jhunjhunwala holds 1.11% stake in the company whereas his wife Rekha Jhunjhunwala has 1.01% equity as of March 2022.
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