Motilal Oswal has issued a bullish call on Indian Hotels (IHCL), setting a target price of Rs 770, which represents a 13% upside from the current level. Driven by robust growth and strategic expansions, Indian Hotels has showcased a stellar performance in its recent quarterly results. The company continues to benefit from rising demand across regions, higher average room rates (ARR), and increased occupancy rates. This report delves into the key drivers, outlook, and strategic initiatives underpinning this Buy recommendation.

Summary of Performance and Growth Prospects

Quarterly Revenue and Earnings Growth: IHCL achieved a consolidated revenue growth of 27% year-over-year (YoY) in 2QFY25, bolstered by both organic and subsidiary performance. The company’s earnings before interest, taxes, depreciation, and amortization (EBITDA) surged by 41%, with an adjusted profit after tax (PAT) up 94% YoY. Management contract revenues and revenue from standalone businesses significantly contributed to these gains.

Target Price and Recommendation: Based on IHCL's solid financial trajectory and strong demand in core and emerging businesses, Motilal Oswal has reiterated its Buy recommendation with a target price of Rs 770, implying a potential upside of 13%.

Key Drivers of Revenue Growth

Increase in ARR and Occupancy Rates: The standalone revenue of IHCL grew by 16% YoY, supported by a 10% YoY increase in ARR and a 150 basis points (bps) rise in occupancy, reaching 78%. The boost in ARR helped drive RevPAR (Revenue per Available Room) by 13% YoY to Rs 11,163. Notably, the standalone business achieved revenue of Rs 10.4 billion, reflecting IHCL’s strong foothold in premium and luxury segments.

Substantial Gains in Subsidiaries: Key IHCL subsidiaries, including Taj SATS, posted a revenue increase of 46% YoY. Taj SATS, along with other reimagined brands like Ginger, Qmin, and amã Stays & Trails, recorded an impressive 47% YoY growth. New and revamped verticals such as The Chambers and Benares also reported growth, with Taj SATS reaching Rs 2.5 billion in revenue.

Strategic Expansion and Projected Growth

Expansion of Core and Reimagined Brands: IHCL’s business diversification strategy is underscored by the growth of brands like Qmin and Ginger, alongside expanding amã Stays & Trails. With 116 operational bungalows, the amã portfolio is set for further expansion. In 2QFY25, IHCL opened six new hotels and signed 23 more, contributing to a robust future pipeline of over 120 hotels under development.

Domestic and International Performance: IHCL reported positive traction in key domestic markets, including Mumbai and Delhi, with strong YoY RevPAR growth across major cities. The company's international presence has also strengthened, particularly in New York and the UK, though performance remains mixed in markets like San Francisco, Sri Lanka, and the Maldives.

Investment in New Projects and Revenue Diversification

Capital Investment Plans: IHCL has earmarked Rs 7–8 billion in capital expenditure for FY25, focusing on renovations, greenfield developments, and room expansion. The company’s greenfield projects include high-profile locations like Aguada Plateau in Goa, Shiroda in Maharashtra, and the landmark Sea Rock in Mumbai.

Wedding and MICE Segments as Revenue Catalysts: IHCL has capitalized on increased wedding bookings and the Meetings, Incentives, Conferences, and Exhibitions (MICE) sector, particularly in premium convention spaces. The robust wedding season and MICE segment, which are anticipated to maintain strong demand, are expected to contribute significantly to revenue in the coming quarters.

Financial Performance and Forecasts

Revenue and Margin Projections: Motilal Oswal expects IHCL’s consolidated revenue to grow to Rs 84.2 billion in FY25, with EBITDA forecasted at Rs 28.1 billion and PAT at Rs 16.7 billion. The EBITDA margin is projected to expand, reaching 33.4% in FY25, underpinned by higher ARR, robust demand, and improved cost efficiencies.

Valuation Metrics and Expected Return: IHCL is trading at a forward P/E of 58x for FY25, with EV/EBITDA at 33.6x. The stock’s P/BV is anticipated to strengthen further, aligning with the anticipated growth trajectory in ARR, occupancy, and subsidiary performance. Based on these factors, the target price of Rs 770 remains well within reach.

Management Outlook and Guidance

Growth Expectations for 2HFY25: The company anticipates maintaining a double-digit growth trajectory in 2HFY25, driven by a robust pipeline of wedding bookings, rising foreign tourist arrivals, and demand from corporate and MICE events. IHCL also expects occupancy and ARR to grow consistently through 2HFY25 and beyond.

Expansion and Diversification Goals: With a goal to open 25 new hotels in FY25 and another 30 in FY26, IHCL’s focus on expanding both asset-light and capital-intensive properties highlights its diversified expansion strategy. This growth will be supported by new revenue streams from its diversified offerings and strategic capex investments.