Recommendation From Hotels Sector

Recommendation From Hotels Sector

This section gives a recommendation of a stock having stock price below Rs 100 with sound fundamentals and expected to give handsome returns over a one-year time horizon. 

INDIAN HOTELS COMPANY : BACK TO A ‘COMFORTABLE’ STATUS 

HERE IS WHY
☛Strong parentage and brand visibility.
☛Tourism to witness sharp recovery next year.
☛RESET 2020 to help the company overcome pandemic-related challenges.

The hospitality and tourism sector remained one of the worst impacted sectors by the outbreak of the pandemic. However, post the unlocking phase in the course of which the government allowed hotels to function from June 8, 2020 and with improvement in economy, the sector has reflected good visibility in terms of revival. From September hotels were allowed to operate with 100 per cent occupancy. The positive report about a vaccine for corona virus being available in the near future has provided the much needed optimism for the early return of the hospitality sector to a completely normal scenario.

The impact of the pandemic will make strong companies stronger and Indian Hotels Company (IHCL) is one of the strongest companies in this industry. IHCL and its subsidiaries have four brands of hotels including Taj, SeleQtions, Vivantaa and Ginger, which together have 13,182 owned or leased rooms. Taj, the hallmark of iconic hospitality, is India’s strongest brand as per Brand Finance India 100, 2020 report. With the resumption of economic growth, we expect tourism to witness a sharp recovery in FY22. 

Healthy improvement is already being witnessed in key leisure destinations like Goa, Coorg, Kerala and Rajasthan. Wedding season demand booking for the October-March period is also witnessing good pick-up. Average occupancy levels of the domestic business are also likely to improve going ahead, as per the current trend. It has already improved to 32 per cent in Q2FY21 against 20.5 per cent in Q1FY21. Average room rates have also increased from Rs 800 per room QoQ to Rs 5,424 per room. Occupancy levels at Ginger Hotels improved sharply to around 51 per cent in September 2020 against average of 20 per cent in Q1FY21. 

After achieving around 75 per cent target set in ASPIRE 2020, the focus has shifted to RESET 2020. Under this, IHCL is maximising the revenue potential through initiatives such as online food and beverage business, digital transformation and rationalisation of fixed overheads. These initiatives have added Rs 135 crore to the topli-ne in the first half of FY21. Also, cost optimisation measures like certain temporary concessions helped the company reduce total costs by 51 per cent. We believe these initiatives will bode well in the long term as business returns to normal. 

IHCL’s revenue in Q2FY21 declined 75 per cent YoY but increased by 78.7 per cent sequentially to Rs 256.7 crore. Average occupancy levels of the domestic business improved to 32.3 per cent as against 20.5 per cent in Q1FY21 as compared to 62 per cent last year while ARR also improved 12 per cent sequentially to Rs 5,424 for the quarter. IHCL reported operating loss of around Rs 150.3 crore, lower than the operating loss of Rs 266 crore reported in Q1FY21. The company also reported loss of Rs 230 crore against loss of Rs 279.9 crore in Q1FY21. 

Shares of the company are currently trading at an EV per owned or leased room of Rs 1.47 crore, 6 per cent below its EV per owned or leased room of Rs 1.55 crore at the average price of FY20. As per the cost of construction, the EV per owned or leased room for IHCL is Rs 1.12 crore. The worst phase for the hotel industry is behind and taking into consideration the company’s strong parentage and brand visibility along with meaningful cost optimisation measures, readers can BUY the stock with a target gain of 15 per cent in the next one year.

Rate this article:
4.0
Comments are only visible to subscribers.

DALAL STREET INVESTMENT JOURNAL - DEMOCRATIZING WEALTH CREATION

Principal Officer: Mr. Shashikant Singh,
Email: principalofficer@dsij.in
Tel: (+91)-20-66663800

Compliance Officer: Mr. Rajesh Padode
Email: complianceofficer@dsij.in
Tel: (+91)-20-66663800

Grievance Officer: Mr. Rajesh Padode
Email: service@dsij.in
Tel: (+91)-20-66663800

Corresponding SEBI regional/local office address- SEBI Bhavan BKC, Plot No.C4-A, 'G' Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400051, Maharashtra.
Tel: +91-22-26449000 / 40459000 | Fax : +91-22-26449019-22 / 40459019-22 | E-mail : sebi@sebi.gov.in | Toll Free Investor Helpline: 1800 22 7575 | SEBI SCORES | SMARTODR