Recommendation from Hotels & Restaurants sector

This section gives a recommendation of a stock having a stock price below Rs 150 with sound fundamentals and expected to give handsome returns over a one-year time horizon.

ORIENTAL HOTELS: IN A PROFITABLE COMFORT ZONE

HERE IS WHY
✓  Impressive increase in revenue
✓  Boost in the tourism and hospitality sector
✓  Ambitious expansion plans

India with variety of cultures and geography makes it one of the leading countries in terms of international tourism expenditure. The travel market in India is projected to reach USD 125 billion by FY27 from an estimated USD 75 billion in FY20. The Indian hotel market, including domestic, inbound and outbound, was estimated at USD 32 billion in FY20 and is expected to reach USD 52 billion by FY27, driven by the surging demand from travellers and sustained efforts of travel agents to boost the market. The Indian government has estimated that India would emerge with a market size of 1.2 million cruise visitors by 2030-31.

Owing to this, our low-price scrip for this issue is Oriental Hotels Ltd., which is engaged in the business of owning, operating and managing hotels, palaces and resorts. Oriental Hotels Limited is an associate of The Indian Hotels Company Limited (IHCL) and owns seven hotels with an aggregate inventory of 825 rooms in South India. The hotels operate under the ‘Taj’, ‘Seleqtions’, ‘Vivanta’ and ‘Gateway’ brands. While the hotels are spread across six South India cities, the company’s two flagship properties – Taj Coromandel and Taj Fisherman’s Cove – both located in Chennai, contribute around 60 per cent of its revenues.

Apart from the standalone operations, the company also has a fully owned subsidiary, TAL Hotels and Resorts Limited (21.7 per cent share), and two associates, Taj Madurai Limited (26 per cent share) and Lanka Island Resorts Limited (associate of OHL International (HK) Limited, 23.1 per cent share). IHCL and other Tata Group firms control 39.1 per cent of the corporation, while family members of the Late D S Reddy (a Chennai-based businessman) possess 28.5 per cent.

In Q4FY23, Oriental Hotels’ consolidated revenue rose by 68.58 per cent YoY to Rs 111.40 crore compared to Rs 66.08 crore from the previous year’s same quarter. On a sequential basis, revenue grew by 5.39 per cent. PBIDT excluding other income increased by 175.84 per cent YoY to Rs 31.97 crore compared to Rs 11.59 crore from the previous year’s same quarter, while sequentially decreasing by 0.96 per cent. Net profit stood at Rs 18.01 crore compared to Rs 1.38 crore, a YoY growth of 1,205.07 per cent, while sequentially increasing by 20.23 per cent. 

The PBIDT excluding other income margins decreased by 1,116 bps YoY and 184 bps QoQ and stood at 28.70 per cent. Net profit margin grew by 1,408 bps YoY, and 200 bps QoQ and stood at 16.17 per cent. At TTM, Oriental Hotels is trading at a PE of 29.5 times, which is lower than its three-year median PE. The company has maintained healthy ROE and ROCE of 11.1 per cent and 13.6 per cent, respectively. The company has a three-year compounded sales and profit growth of 11 per cent and 108 per cent, respectively.

The company also has a debt-to-equity of 0.40 times with an interest coverage ratio of 4.99 times. The hospitality industry is expected to grow in the coming years, and Oriental Hotel is well-positioned to capitalise on this growth. The hotel has a strong brand, a loyal customer base and prime locations. Additionally, the company has total capital expenditure plans of around Rs 65 crore over the period H2 FY 2023 to FY 2025 and this is likely to be funded through internal accruals. Considering all these factors, we recommend BUY.