Wah Taj! Morgan Stanley upgrades Indian Hotels to overweight

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Morgan Stanley has upgraded Indian Hotels to overweight with an increased target price of Rs 160 per share, stating that it is on the cusp of an uptrend. The stock gained 4 percent intraday on Thursday. Share of the group which runs the Taj chain of hotels jumped 14 percent in a month's time.

The brokerage firm says that the increase in target price reflects scenario value increases of 30-83 percent driven by estimate changes and sale of Taj Boston and higher bull case probability of 30 percent. The company is planning to sell the Taj Boston hotel for at least USD 125 million.

It has also raised FY17 and FY18 EBITDA by 9 percent each. Betting big on the hotel industry in India, Morgan Stanley thinks with supply growth slowing & prices increasing Indian Hotels will be a great play to ride the tide. It expects Indian Hotels occupancy to grow another 600 basis points (bps) by FY18, with a pricing CAGR of 8 percent through FY18 to reach last peak levels.

As per its analysis, given high operating leverage from pricing growth, IHCL's EBITDA could double to Rs 1200 crore in FY 18.

Morgan Stanley is positive that IHCL's structural changes including online bookings, focus to grow more through management contracts to keep growth asset-light can go a long way in bringing down leverage for IHCL.

At 10:26 hrs Indian Hotels Company was quoting at Rs 131.40, up Rs 4.00, or 3.14 percent on the BSE. Posted by Nasrin SultanaFollow @NasrinzStory