ICICI Direct has given Buy recommendation for Indian Hotels recommended buy rating on the stock with a target price of Rs 240 in its research rep with a target price of Rs. 240 in its research report issued on Oct 11, 2021

ICICI Direct’s research report on Indian Hotels

The company is witnessing strong traction in room demand in the leisure destinations. Revenue per occupied room (RevPAR) in some leisure destinations has already crossed pre-pandemic levels reflecting the encouraging trend along with the increase in average length of stay to five to seven days vs. two to four days earlier. Corporate segment, which has remained a laggard so far due to work from home culture till Q1FY22, is also seeing good traction from Q2 onwards. International destinations such as US, UK and Dubai are bouncing back with demand reaching 55-60% of pre-Covid levels during Q2 vs. 39% in Q1FY22. Daily domestic air traffic has now reached 76% of pre-Covid levels in October 2021 with the government allowing airlines to operate at 85% capacity vs. 72.5% earlier. Also, doors are now open for foreign tourists from November 2021 onwards to visit India. This would drive revenues of the premium segment hotel rooms sooner than expected earlier. We expect healthy 62.9% revenue CAGR over FY21-23E. Expect business to recover to 93% of pre-Covid levels in FY23E with EBITDA surpassing pre-Covid levels in FY23; margins seen at over 24% in FY23E that has potential to further expand to 30%+. Improved cash flows, equity infusion and divestment of non-core assets to help manage debt at comfortable levels.

Outlook

We remain positive on the company and maintain our BUY rating. We value IHCL at Rs 240 i.e.31x FY23E EV/EBITDA.

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