What Will Drive Indian Hotels Co’s Sustained Growth? Jefferies Weighs In

The Indian Hotels Co.'s shares have seen a surge of 68% in the calendar year to date, tripling in value since May 2022. This growth follows the company’s ambitious Ahvaan 2025 strategy, which targeted re-engineered margins, an expanded portfolio, and re-imagined brand positioning. 

Jefferies Equity Research, in a recent note, highlighted key drivers that could ensure IHCL's consistency in the next growth phase, particularly as the company refrains from setting new margin guidance.  

IHCL unveiled the Ahvaan 2025 strategy in May 2022, setting goals for a portfolio of 300+ hotels, a 33% Ebitda margin, and contributions from new businesses and management fees to total Ebitda by 2025. The company has already surpassed the margin target, achieving over 33% Ebitda margin in fiscal 2024, and boasts a pipeline of ~350 hotels, supported by accelerated signings in the last 18 months.  

Jefferies noted that these achievements reflect IHCL’s focused efforts in portfolio restructuring, productivity enhancement, and a pivot toward higher-margin businesses, including management contracts and ancillary revenue streams.  

Before Ahvaan 2025, IHCL implemented its Aspiration 2022 strategy, launched in 2018, to achieve a 25% Ebitda margin and streamline its operations, Jefferies noted. The pandemic posed challenges, but the company responded with R.E.S.E.T 2020, a framework to stabilise revenue, optimise costs, and strengthen the balance sheet. Initiatives such as Qmin, Hospitality@Home, and targeted campaigns like Urban Getaways helped IHCL navigate the crisis and build resilience, according to the brokerage.

To hedge against industry cyclicality, IHCL has diversified its revenue streams by expanding businesses like Ginger, Ama, and Tree of Life, Jefferies noted. These ventures are expected to contribute over 35% margins, it said.

Management fees and membership programs have further bolstered non-room revenue, while steady same-store performance and growth in room count remain core contributors.  

Looking ahead, Jefferies put forth key questions as IHCL embarks on its next growth phase:  

• Drivers of occupancy and average room rate growth in a healthy hospitality market.  

• Strategies to sustain double-digit profit growth despite refraining from new margin guidance.  

• Scaling initiatives for newer brands like Ginger and Qmin.  

• Updates on high-profile projects, including SeaRock and international expansion.  

• Deployment of cash reserves to fuel strategic goals.  

IHCL reported a consolidated net profit of Rs 582.7 crore in the September quarter, more than triple year-on-year and surpassing analysts’ estimates of Rs 248 crore.

The stock was trading 12.75% higher at Rs 749.95 apiece, compared to an 1.14% advance in the benchmark Nifty 50 as of 10:34 a.m. It has risen 82.16% in the last 12 months and 70.88% on a year-to-date basis.