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About the stock: With room inventory of 178 hotels with 20,826 rooms, Indian Hotels has a diversified position in the hotel industry through brands such as Taj, Vivanta, SeleQtions and Ginger brands.

* The company also has a selective presence in the luxury segment in the US, the UK, Africa, UAE and Maldives through owned/managed properties

* The company enjoys strong support from its promoter Tata Sons and is also an important strategic business for the Tata Group.

Q4FY23 Results: IHCL reported strong revenue growth in Q4FY23 on a favourable base.

* Revenue grew 86% YoY to | 1625 crore (I-direct estimate: | 1585 crore) and was up 52% vs. pre-Covid levels (Q4FY20) led by strong performance from the domestic segment

* EBITDA margin also expanded 1330 bps from pre-Covid levels to 32.9% • This led to a sharp rebound in PAT, which was up 4.4x from pre-Covid levels to | 328.3 crore

What should investors do? Along with the improved outlook, the company is also focusing on driving more efficiencies through cost optimisation.

* We remain positive on the company and retain our BUY rating

Target Price and Valuation: We value IHCL at | 405 i.e. 23x FY25E EV/EBITDA.

Key triggers for future price performance:

* Revival in foreign tourists, wedding season, G20 summit 2023 to provide further fillip to leisure and business hotel room demand, going forward

* The company plans to have a 300+ hotel room portfolio with zero net debt status. IHCL also aims to achieve 33%+ margins (35% for new businesses) through cost efficiencies

* We expect revenue CAGR of 10.7% in FY23E-25E on a higher base. The domestic business has now recovered fully. Now, growth is expected to be driven by foreign tourists and rebound in international business; margins are expected at ~ 33% in FY24E, FY25E

* Improved cash flows and divestment of non-core assets to strengthen b/s

Alternate Stock Idea: In our hotel sector coverage, we also like EIH.

• It is the premium segment key domestic hotel player. Like Taj, it also has strong hotel brands like Oberoi and Trident. It has a strong balance sheet

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