Domestic brokerage house Motilal Oswal has reiterated Indian Hotels as its top stock pick in the hospitality industry driven by its continuous focus on leveraging its brands, expanding its operations through management contracts.
The company has been unlocking value by launching new/reimagined brands, creating a hospitality eco-system across the country, reducing costs sustainably, and deploying capital judiciously to improve return ratios, it said.
The brokerage and research firm has maintained its Buy rating on the Tata group stock, while reiterating it as its top pick, with a target price of ₹258 per share.
“Though the ongoing third Covid wave poses a threat to near-term earnings of the hospitality sector, higher vaccination and lower hospitalization rates will lead to a much stronger rebound than the second wave. Thus, we view this weakness as a buying opportunity,” the note stated.
Motilal Oswal believes that Indian Hotels asset-light model as well as the new/reimagined revenue generating avenues with higher EBITDA margins bodes well for RoCE expansion.
Though, it said that key risks to its call are 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.
“Like in FY22, we anticipate a strong recovery in FY23E/FY24E as well on ARR improvement, once the economic activities normalize, improved occupancies driven by business travel as well as leisure segment, cost rationalization efforts, an increase in F&B income as banqueting/conferences resume, and higher income from management contracts,” the brokerage note added.
As per the BSE shareholding pattern, veteran investor Rakesh Jhunjhunwala and his wife Rekha Jhunjhunwala have increased their stakes in Indian Hotels to 1.08% each during October-December 2021 period. They held 1.05% stake each in the previous quarter of September 2021.
The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
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