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What if you had bought Indian Hotels shares instead of taking a vacation

In Q1FY23, IHCL posted a net profit of ₹170.05 crore on a consolidated basis compared to ₹277.34 crore in Q1FY22. The Q1 PAT also climbed by 129.21% from ₹74.19 crore in Q4FY22.

Riding on the back of the latest strong bull run, the shares of IHCL have now given more than 100% return to investors in a year.Premium
Riding on the back of the latest strong bull run, the shares of IHCL have now given more than 100% return to investors in a year.

Tata Group-backed Indian Hotels Company (IHCL) has emerged as a multi-bagger as its shares hit a fresh 52-week high on Thursday. IHCL is into the Indian hospitality business. Imagine, if rather than taking a vacation, you would have invested the money in IHCL shares a year ago. By today, investors would be sitting on triple-digit growth in their wealth. Or better, if invested in the shares two years ago, then investors would be garnering more than a 3-folds jump in their wealth. Riding on the back of the latest strong bull run, the shares of IHCL have now given more than 100% return to investors in a year. Not just this, there is a huge potential in IHCL shares ahead as demand trends remain intact in the second quarter of FY23.

The midcap stock witnessed a robust rally throughout the day and settled near its fresh 1-year high.

On BSE, IHCL shares closed at 277.30 apiece up by 9.20 or 3.43%. The shares have touched a new 52-week high of 278.80 apiece today - resulting in a nearly 4% jump in the day.

The company's market valuation is around 39,387.68 crore.

IHCL which took a hit during the pandemic due to a nationwide lockdown in late March 2020, has shown significant recovery in its business, and demand is seen on a sustainable path.

In March 2020, the hotels and tourism sector faced a heavy blow due to a country-wide lockdown that halted business activities of international traveling, festivals, weddings, business travel, and much more. IHCL shares on August 11, 2020, were around 80.86 apiece on BSE.

However, with the recovery in the business activities across industries, hotels and tourism sector too witnessed an uptick. Although the second wave did manage to dent demand, however, rapid vaccination drive limited severity compared to the first wave and boosted the upside at industry levels. Last year, on August 11, IHCL shares were about 136.58 apiece on the same exchange.

After a year, the shares were now shy of the 280-mark. In a span of two years, IHCL has made its journey from near 80 to a whopping over 278. The shares have climbed by nearly 198 in these two years.

That said, compared to Thursday's closing price, IHCL shares have risen by over 50% year-to-date, while it has climbed by over 103% in a year, and increased by 3.43 times in two years.

If compared to its fresh 52-week high, IHCL shares have jumped by over 51% year-to-date, soaring by more than 104% in a year, and skyrocketing by a whopping nearly 3.45 times in two years.

Using Axis Direct returns Calculator, let's suppose an investor invests 1 lakh in IHCL shares for a period of 12 month, then the lump sum value would reach 2,02,927. If the shares were invested two years ago (August 2020), then the lump sum value rises to 3,42,768.

That means, in a year, investing in IHCL shares has doubled the investment. While the shares more than tripled in a span of two years. 

IHCL shares have even outrun BSE Sensex. The benchmark has surged by nearly 9% in a year, while the upsurge is around 55% in two years.

One of the investors who has made strong gains from IHCL shares would be the Dalal Street king, Rakesh Jhunjhunwala.

As of June 30, 2022, Rakesh has 15,729,200 equity shares or 1.11% in IHCL, while he holds another 14,287,765 equity shares or 1.01% in the name of his wife Rekha Jhunjhunwala. Together, the couple holds about 30,016,965 equity shares, or 2.12%.

Indian Hotels is among the leading Indian hospitality companies, and has a diverse business portfolio in hotels, resorts, jungle safaris, palaces, spas, and in-flight catering services.

Why did shares rallied to fresh 1-year high? 

Investors were bullish on IHCL shares due to its strong earnings for the quarter ending June 30, 2022 (Q1FY23).

In Q1FY23, IHCL posted a net profit of 170.05 crore on a consolidated basis compared to 277.34 crore in Q1FY22. The Q1 PAT also climbed by 129.21% from 74.19 crore in Q4FY22. Consolidated revenue increased by a huge 267.46% to 1,266.07 crore in Q1FY23 against 344.55 crore in Q1 of last year and also climbed by 45.18% from 872.08 crore in Q4FY22.

Puneet Chhatwal, Managing Director & CEO, IHCL said, “IHCL has reported its best first quarter in the company’s history. This performance has been boosted by a surge in demand across markets and segments, with both, occupancy and rates exceeding pre-COVID levels. This has resulted in a milestone EBITDA Margin of 31.3%, which is an improvement of 1140 bps over Q1 FY 2019-20. In line with our vision of Ahvaan 2025, IHCL will continue on its trajectory of delivering responsible profitable growth."

In its long-term growth, the company will also focus significantly on digital enablers such as the super app – Tata Neu. As a founding member of Tata Neu, IHCL has seen a 50% increase in its loyalty members since the launch of the app.

Should you still invest in IHCL shares?

According to Adhidev Chattopadhyay, Research Analyst at ICICI Securities, the company reported a Q1FY23 consolidated revenue of Rs12.7 billion, 9% higher than the I-sec estimate of Rs11.6 billion driven by stronger than expected ARR across standalone/domestic subsidiaries. This translated into Q1FY23 consolidated EBITDA of Rs3.8 billion (20% higher than the I-sec estimate of Rs3.2 billion) as operating leverage played out leading to reported EBITDA margins of 29.8% vs. estimated 27.1%. At an overall level across the domestic hotel portfolio, ARR was 31% higher than Q1FY20 (pre-Covid levels) with RevPAR being 42% higher than pre-Covid levels with demand in Mumbai/Delhi NCR/Bengaluru staging a bounce back.

Further, Chattopadhyay cited that as per company management, the occupancy and room rates seen in Q1FY23 are trending at similar levels so far up to the first week of Aug’22 with leisure travel seeing sustained demand and business travel continuing to see the pickup.

"With the Oct’22-Mar’22 period (H2FY23) traditionally being the strongest quarters, a further pick up in international travel (especially inbound), coupled with weddings, business travel, and continued leisure demand will determine the trajectory of medium-term demand," the analyst said.

ICICI Securities expect that FY25-26E margin guidance may be achieved in FY23 itself.

Chattopadhyay said, "We raise our FY23E consolidated revenue estimate by 11% factoring in higher standalone FY23E RevPAR of Rs8,104 vs. Rs7,215 earlier and a similar increase in domestic subsidiaries (PIEM/Benares/United hotels). For FY24-25E, we have raised our revenue estimates by 7% each. With IHCL being able to demonstrate pricing power across brands, we now expect the operating leverage to play out along with new business contribution and we raise our FY23E consolidated EBITDA estimate by 29% to Rs17.1bn and FY24E and FY25E EBITDA estimate by 16% and 17%, respectively."

Finally, the analyst said, "We reiterate our BUY rating on IHCL with a revised SoTP-based target price of Rs332/share (earlier Rs284) valuing the stock at an unchanged 22x Jun’24E EV/EBITDA multiple. Key risks to our rating are fresh Covid waves impacting demand and rise in costs denting margins."

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Updated: 11 Aug 2022, 06:05 PM IST
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