Indian Hotels Company Limited’s (IHCL) progress towards the goals set under Aahwaan Strategy 2025 is encouraging. FY23 margins close to target. What’s more, in the recently held annual analysts and investors meet known as Capital Markets Day, IHCL revised some of the guidance under call target slightly upwards. While it is on track to reach its stated target of more than 300 hotels, it also sees the potential to increase the count to more than 325. In addition, the company has increased the management fee target. 550 crores to 400 crores ago.
However, IHCL has retained a consolidated EBITDA margin (including other income) target of 33% by FY26. The company is focusing on diversification rather than expanding its margins as this will help it deal with the cyclicality of the hotel business. ICICI Securities expects the company to meet its margin target in FY24E itself, assuming the current demand momentum is sustained. In FY23, IHCL had an EBITDA margin of 32.7%.
Besides, IHCL’s premiumization efforts will further help in earnings growth. Premiumization of its portfolio has further expanded revenue per available room (Revpar) premium for the industry. In line with this strategy, IHCL plans to make amã Stays a more premium brand and has reduced the target of adding properties here.
For now, it looks like the favorable factors for the sector are likely to continue in FY24 as well. Big global events such as the G20 Summit and the ICC Cricket Men’s World Cup in 2023 will boost occupancy levels. In FY23, IHCL’s home occupancy rate stood at 66%, higher than the 63% seen in FY20, the pre-pandemic year. Also, the RevPAR in FY23 was much higher than the pre-Covid levels.
Management notes that demand growth is outpacing supply. This will support pricing and, in turn, drive the average room rate trajectory upwards in the medium term. The company said RevPAR was up 11% year-over-year in April. Despite a higher base in FY23, IHCL expects RevPAR growth to remain healthy in FY24. It remains a key watchdog for the stock, which has gained as much as 62% in the past one year and is now hovering near its 52-week high. 377.95 per share as seen on May 9. Investors seem to be factoring in the optimism enough.
“The recent run-up in the stock leaves limited upside potential,” said analysts at Nuwama Research.
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