Indian Hotels Company stock surges over 8% on strong Q1 earnings; should you buy?

Shares of Indian Hotels Company (IHCL) surged over 8 percent on Monday, July 22, following the company’s strong performance in the quarter ending June 2024 (Q1FY25).

In Q1FY25, IHCL's PAT increased by 12 percent year-on-year to ₹248 crore, up from ₹222 crore in the same quarter last year. Revenue grew by 5 percent year-on-year to ₹1,596 crore, compared to ₹1,516 crore in the previous year. Operationally, EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) rose by 9.6 percent year-on-year to ₹496 crore, with margins expanding by 70 basis points to 31 percent.

During this quarter, IHCL opened six new hotels, including a SeleQtions hotel in Mahabaleshwar, a Vivanta in Jamshedpur, Ginger hotels in Nagpur and Jamshedpur, and Tree Life Resorts in Gangtok and Srinagar.

On Monday, the stock gained as much as 8.3 percent in intra-day trading, reaching a high of ₹625.30. It has now rallied over 68 percent from its 52-week low of ₹371.45, recorded in October last year, and is just 5.7 percent away from its peak of ₹663.40, hit last month. Over the past year, the stock has gained almost 47 percent and it is up 43 percent in 2024 year-to-date, providing positive returns in four of the seven months so far.

Following the release of the company’s earnings, MD and CEO Puneet Chhatwal said, “IHCL consolidated reported a strong financial performance for the first quarter with an all-time high revenue of ₹1,596 crore and a healthy EBITDA margin of 31 percent. Our performance was enabled by a diversified top line, with new businesses growing at 37 percent over the previous year and incremental revenues from the not-like-for-like growth.”

IHCL also outperformed the industry on domestic same-store RevPAR, achieving a premium of 60 percent compared to competitors. The company's new business verticals, including Ginger, Qmin, and amã Stays & Trails, reported revenue of ₹162 crore, a growth of 37 percent over the previous year.

Despite the strong performance, analysts at HDFC Securities issued a 'reduce' rating for IHCL, citing high valuations, and set a target price of ₹540 per share. They noted challenges such as heatwaves, general elections, and fewer auspicious wedding dates impacting the quarter but believe that the supply-demand mismatch will continue to favor IHCL in key locations over the next two years. This, along with IHCL's asset-light growth strategy, should sustain high occupancy rates and growth in average room revenue and RevPAR.

Meanwhile, global brokerage Jefferies maintained its ‘buy’ rating on the stock with a target price of ₹690, implying a 20 percent upside from the last close. Morgan Stanley also maintained an ‘overweight’ rating with a target of ₹595, highlighting the impact of pent-up demand and favorable industry dynamics driving growth.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.