Buy Indian Hotels; target of Rs 390: Motilal Oswal

Motilal Oswal's research report on Indian Hotels

Indian Hotel’s (IH’s) new and re-imagined businesses Ama Stays, Qmin, Chambers, and Management contracts are expected to scale up rapidly on the lower base and high growth runway. These businesses are margin accretive with higher margin flowthrough, thereby driving up the RoCE. The new business is expected to contribute ~26% to the company’s operating profits by FY25. Amã stay portfolio is expected to grow 5x in the next two-three years with robust revenue growth, driven by the thriving industry and synergy with the group businesses. Further, it is aided by the company’s asset light model. The business has higher a flowthrough of ~60-65%. IH is establishing its Qmin brand across verticals of food delivery/QSR/ Restaurants. Growing food delivery industry (~30% CAGR) and Qminization of Ginger (from 8 to ~90 hotels) is expected to drive the growth ahead.  Member additions are expected to drive the incremental growth for Chambers (initiation fees forms ~50% of Chamber’s revenue in 1HFY23). Also, the addition of new clubs such as the one planned in New York and Bengaluru will aid in growing the company’s membership base. While IH’s managed room portfolio stood at ~46% (including pipeline) in 1HFY23, it is expected to reach ~50% by FY25/26. The increasing inventory under management contract is margin as well as RoCE accretive for the business.

Outlook

We expect Revenue/EBITDA of 31%/79% over FY22-25E and reiterate our Buy rating with an SoTP-based TP of INR390 on FY25E EBITDA.