tata group: Multiple triggers to drive rally in this Tata Group stock, but upside may be capped. Here’s why – Blue Barrows

Service related sectors have got their mojo back after two years of the Covid-19 pandemic with the rise in consumption from India. One of the biggest beneficiaries of this is travel and tourism space. This has put the hotel sector at a sweet spot.

Brokerage firms, both domestic and global, have turned positive on the sectors and see a standout performer in the

Company (IHCL), part of the Tata Group enterprise, and have a buy call for the counter.

IHCL, along with its subsidiaries, offers a fusion of warm Indian hospitality and world-class service with renowned brands including Taj, SeleQtions, Vivanta and Ginger.

After hosting the company management, Jefferies has pointed out key triggers for the company including higher occupancies, better margins and robust free cash flows which improve the outlook for the company in the longer term.

July-September is considered to be the weakest quarter for the hotel industry as occupancy fell sharply after the summer holidays and ongoing monsoon season in India, spoiling the mood.

However, brokerage firm

believe that hotels are now consciously looking to keep rates higher even in the seasonally weakest quarter of the year and sacrifice a bit of occupancy in preparation for a strong demand surge in H2FY23.

Jefferies said that occupancies holding up and room rates are trending much higher for the second quarter driven by better than expected occupancy and leisure demand sustaining at higher levels.

Resumption of foreign travel, sustained revival in corporate travel and large MICE events, wedding season could continue to support growth in seasonally stronger second half, the brokerage added.

India is scheduled to host G20 for a year, which is December 2022 to November 2023 and there are likely to be around 200 meetings in Mumbai and New Delhi, as per the Ministry of External Affairs.

This could fillip growth in the travel and hospitality segment during this period, the foreign broker said. “The business segment, which contributed more than 50 per cent of its portfolio, is expected to come back significantly.”

“Leisure demand was early to pick up post-Covid and the trends have sustained, despite the pent-up component being largely behind,” it added. “Company had a net cash position of Rs 270 crore bn as of 1QFY23 end and is looking to build up the cash reserve for adversities.”

Questions remain on international operations and Searock investment in India, the brokerage said. International expansion, if any, would be on an asset-light basis.

“The company continues to target reduction in cash losses at the New York property (The Pierre), with a material reduction in costs. Operations at other international properties remain cash positive,” it said.

Jefferies has a buy rating on the Indian Hotels Company with the target price of Rs 380 on the stock, whereas Axis Securities had initiated the coverage earlier this month the same call with a target price of Rs 360 on the counter.

Assuming no further Covid induced disruptions and countries easing international travel restrictions, ICICI Securities believe that inbound travel demand can surprise on the upside. It has a buy rating for IHCL.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)