Why This Tata Group Company Shares Are Rising Despite Soft Q1 Performance

Shares of Indian Hotels were rising on Monday despite the company posting soft Q1 performance as brokerages bet on strong demand coming for the hotel industry.

What Happened: Indian Hotels ‘s net profit increased 11.66% year on year to ₹248.39 crore. Its revenue from operations rose 5.71% from the previous year to ₹1550.23 crore.

The Tata Group company’s EBITDA jumped 8% year-on-year to ₹496 crore. EBITDA margin rose 70 basis points from the previous year to 31%. The company's portfolio now has over 325 hotels, with 16 hotels signed and 6 properties opened during the quarter.

Brokerage Views: Kotak Institutional Equities maintained “add” rating but reduced the target price to ₹625. The brokerage sees a 27% compound annual growth rate for earnings over FY24-27.

The overall occupancy of the company stood healthy at 76% though the average room rate (ARR) fell 26% sequentially to ₹12,906.

The research firm said the target price was reduced due to lowering the profit after tax estimates by 14% and 12% in FY25 and FY26. It added that the impact on revenue and EBITDA is limited due to consolidation of Taj SATS, the airline catering company from August 2024.

See Also: Kotak Mahindra Bank’s Poor Q1 Showing Drags Shares Down To Lowest In 3 Months

Motilal Oswal also kept “buy” call on the stock with a target price of ₹665. The research firm expects the strong momentum to continue in FY25 due to an increase in ARR amid healthy demand, asset management powered by hotel upgrades and corporate rate hikes.

Other encouraging factors include higher occupancy levels sustained by favourable demand supply dynamics, strong room addition pipeline till FY28 in both owned, leased and management hotels and higher income from management contracts.

Nuvama maintained “hold” call with a target price of ₹568 as it views the company as already trading at a premium compared to its historic valuation multiples. The slower revenue growth was due to slower meeting, incentives, conferences and exhibitions activities due to election and heatwaves, the research firm said.

Factoring in the consolidation of Taj SATs, the research firm revised revenue estimates by 12% and 20% for FY25 and FY26, respectively.

HDFC Securities maintained “reduce” rating with a target price of ₹540 as it believes in the growth story of the company but maintained the call due to sharp rise in stock price. The company is expected to ensure sustained occupancy above 75%, single digit growth in ARR which will ensure high-single-digit growth in revenue per available room in the next two years.

Axis Securities kept “buy” call with a target price of ₹670 on the back of continued upcycle in the hospitality industry. Horwath HTL predicts the hotel demand is expected to grow at a rate of 10% over the next three-four years, outpacing supply.

Price Action: Shares of Indian Hotels jumped 3.08% to ₹595.70 on Monday morning.

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