Best Hotel Stocks To Buy Now For Up To 54% Gain By IIFL

Royal Orchid Hotels

CMP: Rs 137; 1-Year Target: Rs 211

Key highlights

 Royal Orchid Hotels (ROHL) has delivered stable earnings performance in Q1FY19 with maintenance of expansion strategy through the management contracts.

 The standalone revenue increased by 18.1% yoy with an EBITDA margin expansion of ~692bps on account of increase in revenue per available room and new management contracts.

 ROHL has 48 properties as on June 30, 2018 and expects 15 hotels under management contracts in FY19. It is also planning to add few hotels under revenue share/lease model in FY19.

Investment rationale

 Our investment rationale for ROHL based on expansion through asset light strategy and de-leveraging of financial position continues to remain intact.

 ROHL continues to remain attractively positioned across tier-II and tier-III markets with implementation of its new brand.

 ROHL aims to have a portfolio of 75 hotels by 2020.

Outlook & Valuation

We remain positive on the stock and make adjustments for ROHL’s quarterly performance and management guidance. We reiterate BUY on the stock and revise our target valuation to ~10x FY20E EV/EBITDA considering the recent correction in the stock price. We revise our target price from Rs 264 to Rs 211.

Oriental Hotels Limited

CMP: Rs 42.5; 1-Year Target: Rs 61

Key highlights

 Oriental Hotels Ltd (OHL) reported strong set of operating performance during Q1FY19. The standalone revenue increased marginally by 3.6% yoy during the first quarter. However, the EBITDA margin expanded significantly by ~292bps yoy.

 The standalone net loss narrowed down significantly to Rs 3.6cr in Q1FY19 vs. Rs 5.3cr in Q1FY18.

 It has completed renovation of three floors (76 rooms) of Taj Coromandel and 48 rooms of Taj Fisherman’s Cove.

Investment rationale

 OHL is expected to witness improvement in occupancy on account of completion of renovation across its key properties.

 OHL remains a key beneficiary across south Indian market with strong brands like Taj, Vivanta and The Gateway Hotel.

Outlook & Valuation

We remain positive on the stock and make adjustments for OHL’s quarterly performance in our estimates. We maintain our BUY rating on the stock. However, we trim our valuation considering the drawdown in the stock. We revise our valuation to Rs 1cr FY20E enterprise value per room for standalone properties and relatively value its subsidiaries and other financial assets. We revise our target price to Rs 61.

Indian Hotels Company

CMP: Rs 126; 1-year Target: Rs 178

Key highlights

 Indian Hotels Company Ltd (IHCL) reported stable earnings performance broadly in-line with the estimates for Q1FY19.

 The consolidated revenue increased by 7.5% yoy with an EBITDA margin expansion of ~136bps, which was majorly driven by growth in the overall industry and market share gains.

 The improvement in EBITDA margin in a seasonally slower first quarter was backed by higher occupancy levels and rise in average room rent (ARR). IHCL reported an adjusted consolidated net profit of Rs 15.26cr in Q1FY19 vs. net loss of Rs 24.96cr in Q1FY18.

Investment rationale

 Our rationale for IHCL continues to remain intact based on improvement in the operations and strategy for expansion of market share in the midst of stable financial position.

 IHCL has signed 10 new properties in FY19 YTD with expected inventory addition of ~1,284 rooms.

Outlook & Valuation

We remain positive on the stock and make adjustments for IHCL’s new signings made in FY19 YTD in our estimates. We reiterate BUY on the stock with target of `178. We maintain our valuation of FY20E enterprise value of `3.2cr per room for IHCL’s standalone hotels and relatively value its subsidiaries, joint ventures and associates.

EIH Limited

CMP: Rs 173; 1-Year Target: Rs 211

Key highlights

 EIH Limited posted a strong set of quarterly performance in Q1FY19. The standalone revenue increased by 17.9% yoy with an increase in EBITDA margin by 459bps during the quarter.

 The strong operating performance is backed by reopening of The Oberoi, New Delhi, which was under renovation during the corresponding quarter previous year. The rise in EBITDA margin is on account of higher occupancy and rising average room rent.

 The standalone net profit, however, came below our estimate on account of lower other income and increase in finance cost.

 The management stated that it would now focus on management contracts following an asset light strategy.

Investment rationale

 Our rationale for EIH continues to remain intact based on improvement in the operating performance coupled with reopening of The Oberoi, New Delhi.

 EIH’s presence across key market areas with a stable financial position augurs well for the company.

Outlook & Valuation

We remain positive on the stock and make adjustments for EIH’s operating performance based upon FY18 and Q1FY19 performance in our estimates. We maintain BUY rating on the stock and valuation of an enterprise value of Rs 2.2cr per room in FY20 with target of Rs 211.