Sharekhan Research recommends a Buy for Indian Hotels Company Ltd (IHCL) with a revised price target (PT) of Rs. 774, rolling over to September 2026 earnings. The stock currently trades at 26x/22x EV/EBIDTA for FY2026E/27E. Q2FY2025 is expected to be among the company’s strongest quarters, with a 21% YoY revenue growth and an expected 55% YoY growth in profit after tax (PAT). The company's focus on capital-light expansion, increased hotel openings, and rising EBITDA margins position it well for sustained growth, particularly with domestic demand and foreign tourist arrivals recovering.

Q2FY2025 to Lead Strong Performance After Muted Q1

After a weak Q1 due to extreme weather and elections, IHCL is set for a robust Q2FY2025, driven by:

A 21% YoY revenue growth.
EBITDA margins are expected to rise by 300 basis points (bps).
A 55% YoY PAT growth fueled by strong wedding season demand and recovery in foreign tourist arrivals (FTAs).
IHCL is capitalizing on domestic demand and recovering FTAs, positioning itself for continued growth into H2FY2025. The company is eyeing a double-digit revenue growth in FY2025 with a strong push in business and MICE activity.

Focus on Capital-Light Expansion

The company continues to pursue an asset-light model:

Targeting 25-30 hotel openings in FY2025, after adding 6 in Q1.
By FY2024, the operational inventory mix achieved a 60:40 split between capital-light and capital-heavy models, enhancing flexibility.
This strategy is expected to bolster EBITDA margins and return ratios, contributing to long-term profitability.

EBITDA Margins and Profitability to Improve

IHCL’s capital-light model is driving higher operating efficiencies. With this approach, the company expects:

EBITDA margins to grow from 31.9% in FY2024 to 35.1% by FY2027.
Profit growth, with revenue expected to reach Rs. 10,292 crore by FY2027, up from Rs. 5,810 crore in FY2023.

Target Price and Valuation

Sharekhan maintains a Buy recommendation on IHCL with a price target of Rs. 774.
The stock trades at 32x/26x/22x EV/EBIDTA for FY2025E/26E/27E.
IHCL is set to benefit from strong domestic tourism and structural tailwinds in the hospitality industry, particularly with its strategic focus on expanding through management contracts and enhancing profitability through operational efficiencies.

Key Risks

Any downturn in corporate travel or a slower recovery in inbound and outbound tourism may impact earnings.
A significant increase in room supply without a proportional increase in demand could pressure room rates and margins.