Brokerage firm Nirmal Bang believes that there has been a strong stock price movement in the hospitality sector. “The stocks of hotel companies under our coverage post lockdown have appreciated 93-170% from their 52-week low levels.”
Post the Omicron wave, there has been a steady increase in corporate travel, with easing of regulatory restrictions. Leisure travel continues to be strong due to vacations, staycations and weddings.
The brokerage expects the Enterprise Value (EV)/room of these hospitality companies to trend higher due to strong improvement in profitability with strong demand combined with construction costs.
Nirmal Bang maintains a Buy rating on Indian Hotels (IHCL), Chalet Hotels and EIH with target prices of Rs 335, Rs 378 and Rs 192, respectively.
IHCL has 19,417 rooms (as per FY21 annual report) across four brands. It is trading at an EV per room of Rs 18.63 million, 40.9% above its EV per room of Rs 13.22 million at an average of FY22 and 2% below its EV per room of Rs 19.01 million at a 52-week high price. As per the average construction cost, the EV per room comes to Rs 11.6 million. “Our valuation for all hotels is based on 17x FY24E EV/EBITDA,” the report said.
The stock gained 219.26% in the past 2 years. Both mutual funds and FPIs have increased their holdings in the March quarter.
According to data available on Trendyne, the consensus recommendation from 11 analysts for this midcap is Buy. Despite the market correction so far this year, IHCL’s share price has rallied over 30 per cent in 2022. In the last year, investors have got returns of 162%.
Recently ace investor Rakesh Jhunjhunwala also bought 14.50 lakh new shares in Tata Group’s stock during the March quarter. However, his wife Rekha Jhunjhunwala has reduced her stake. Together, they held 2.12% in Indian Hotels during the March quarter.
This multibagger has risen 102.8% in the past year and both mutual funds and FPIs have increased their holdings in the March quarter.
According to the brokerage report, Chalet has 2,554 rooms. It is currently trading at an EV per room of Rs 30.81 million, 20.8% above its EV per room of Rs 25.52 million at an average price of FY22 and 12.2% below its EV per room of Rs 35.08 million at a 52-week high price.
Nirmal Bang maintains a Buy rating with a target of Rs 378. The consensus recommendation from 5 analysts for Chalet Hotels is Strong Buy, according to data available on Trendlyne.
EIH has a total of 4,572 rooms. It is currently trading at an EV per room of Rs 22.27 million, 29.5% above its EV per room of Rs 17.20 million at an average price of FY22 and 7.2% below its EV per room of Rs 23.99 million at a 52-week high price. The brokerage maintains its Buy rating on EIH with a Target of Rs 192.
Pashupati Advani of Global Foray also mentioned in an interview with ET NOW that he would prefer hotel stocks rather than airline counters. While EIH and IHCL were his top picks, Lemon Tree was another favourite.
Samir Arora of Helios Capital also bought Lemon Tree Hotels a few months back. “The idea is that the hotel business is a big opening trade. It got a little bit punctured in January because of this Omicron, but if nothing else happens, the opening itself will be strong,” he said.
In the beginning of April, brokerage house ICICI Securities also gave a buy call for IHCL with a target price of Rs 285 per share and Lemon Tree Hotels with a target price pegged at Rs 80. According to Trendlyne, the consensus recommendation from 11 analysts for Lemon Tree Hotels is Buy.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)