The Indian Hotels Co. Ltd (IHCL)’s progress towards its goals set under the Ahvaan strategy 2025 is encouraging. The FY23 margin is near the target. What is more, in the recently held annual analysts and investors meet known as Capital Market Day, IHCL has revised some of the guidance under Ahvaan targets slightly upwards. While it is on track to reach its Ahvaan target of more than 300 hotels, it also sees potential to increase the count to over 325. Further, the company has stepped up target of management fees to over ₹550 crore from ₹400 crore earlier.
However, IHCL has retained the consolidated Ebitda margin (including other income) target of 33% by FY26. The company is focusing on diversification rather than scaling up its margin as this would help in coping with the cyclicality of the hotel business. ICICI Securities expects the company to deliver its margin target in FY24E itself assuming that the current demand momentum stays intact. In FY23, IHCL’s Ebitda margin was 32.7%.
Further, IHCL’s premiumization efforts would aid in earnings growth ahead. Premiumization of its portfolio has led to further expansion in revenue per available room (RevPAR) premium to industry. As per this strategy, IHCL plans to make amã Stays a more premium brand and has scaled down properties addition target here.
For now, it seems like favourable factors for the sector are likely to continue in FY24 as well. Large global events such as the G20 summit and ICC Cricket Men’s World Cup in 2023 would boost the occupancy levels. In FY23, IHCL’s domestic occupancy rate stood at 66%, higher than the 63% seen in FY20, pre-pandemic year. Also, RevPAR in FY23 was far higher than pre-covid levels.
The management notes that demand growth continues to outpace supply. This would support pricing and, in turn, the trajectory of average room rate would move upwards in the medium term. The company said RevPAR in April was higher by 11% year-on-year. Despite a high base in FY23, IHCL expects RevPAR growth to be healthy in FY24. This remains a key monitorable for the stock, which has risen as much as 62% in the last one year and is now hovering near its 52-week high of ₹377.95 apiece seen on 9 May. Investors seem to be factoring the optimism adequately.
“The recent run-up in the stock leaves limited upside potential,” said Nuvama Research analysts. Investors would do well to monitor discretionary spending trends as a slowdown would dampen momentum.