Target: ₹360

CMP: ₹307.65

We initiate coverage on Indian Hotels Company Ltd (IHCL) with a Buy rating and a target price of ₹360 (EV/EBITDA 26x for FY25E EBITDA).

The Indian travel and tourism industry is pegged to report ARR CAGR 11.2 per cent and occupancy improvement by 400 bps to 70 per cent during the period CY22E-CY24. The growth will be driven by: easing supply-side constraints that would improve RevPAR and occupancies; the release of pent-up demand in domestic leisure travel, extended stays, weddings, and social events; government delegations; and spiritual and medical tourism. Furthermore, the opening and increase in international travel could improve occupancies in the coming quarters.

IHCL’s Hotel and F&B segments contribute 70 per cent of its revenues. While it is cyclical in nature, the company enjoys healthy EBITDA margins of about 25 per cent during peak business season.

We expect the company to deliver overall EBITDA margins of about 35 per cent, backed by the operational leverage in room & F&B business, high margins of new businesses, and increase of management contracts in total room inventory in FY24 and FY25.

We expect IHCL to generate FCFF of ₹1,000-1,500 crore per year after incurring a minimal capex of ₹400 crore per year over the next three years.