Expect 35% rise in Indian Hotels stock in 15 months

Expect 35% rise in Indian Hotels stock in 15 months

By Rajiv Kapoor | 15 April, 2017

The Indian travel and tourism industry is one of the largest service sectors in the country, contributing significantly in employment opportunities. The industry’s total contribution to employment is expected to go up to 9% by 2026, drive economic growth and bring about inclusive social economic progress. Rising disposable income and affordable air travel options provided by low cost flights augur well for the domestic travel industry, plus the government’s focus on building a stronger eco-system for the travel and tourism industry will benefit the hospitality industry significantly. The tourism industry has been allocated a large amount towards infrastructure development and the focus on revamping roads and airports across the country will enhance connectivity to smaller cities and encourage people to travel. Additionally, programmes such as Make in India and the Smart Cities initiative have highlighted the government’s support to skill development and investments in hospitality and tourism sectors. With the increasing number of working women, double-income households are on the rise, leading to an increase in disposable income. The increased propensity to spend by the middle class and the growing affluence of India’s upper middle and high income classes have led to growth in the tourism sector in India. Domestic travel has been boosted by competitive airfares and a depreciating rupee, which has prompted domestic vacationing as a preferred option over foreign destinations.

Financial results of the quarter ending December 2016 of Indian Hotels Company Ltd IHCL improved structurally on the back of recovery in margins and profitability. Even though consolidated revenue declined 3% year-on-year, due to the sale of its property Taj Boston in the US, the EBIDA margins improved considerably. Moreover, interest cost declined 24% due to a debt reduction of nearly Rs 932 crore, resulting in an improved net profit of Rs 87.5 crore. All the major cities witnessed improved occupancy levels due to the slowing down of capacity additions, coupled with a rise in spending by domestic travellers. Indian Hotels is taking measures to reduce cost of finance by refinancing high cost debt with low cost debt and the first step of debt reduction has been taken by the company management in the disinvestment of Taj Boston. Since the company owns over 900 acres of prime land, these can be used to reduce debt significantly and improve liquidity. There is a good possibility of Oriental Hotels Ltd, another Tata group Taj Hotels company getting merged with Indian Hotels in the near future, improving the financial status of the company and the Tata group. Better valuation can be expected of Indian Hotels in the stock exchanges in the near future and hence the Indian Hotels stock is a buy with at least 35% price appreciation in 15 months.

Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.

 

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