IGI Logo

Strengthens midscale presence

Indian Hotels (IHCL) is rapidly expanding its footprint in India’s hospitality sector with its ambitious ‘Accelerate 2030’ roadmap. This strategic vision aims to unlock the full potential of India’s diverse tourism landscape by deepening IHCL’s presence across key market segments, with a particular focus on the fast-growing midscale category. To align with this vision, IHCL has acquired two companies operating ~135 hotels (6,800 keys, including pipeline) in the midscale category.

• IHCL has announced the acquisition of a 51% stake in each of ANK Hotels and Pride Hospitality for a total investment of INR2.04b. It has paid INR1.34b upfront and will pay the balance amount by Jun’26.
• The partnership will double IHCL’s midscale presence to 240+ hotels, reinforcing its leadership. The company plans to convert these hotels majorly into Ginger brand to further strengthen its midscale presence.
• The deal’s enterprise value is INR2.4b, valuing the transaction at 12x EV/EBITDA based on FY27E EBITDA of INR200m.
• We expect IHCL to deliver a CAGR of 16%/20%/17% in revenue/EBITDA/adjusted PAT over FY24-27. We maintain BUY with our FY27 SoTP-based TP of INR900.

Key contours of the deal

• IHCL has acquired a 51% stake each in ANK Hotels and Pride Hospitality for a total investment of INR2.04b, including a primary investment of INR1.59b and a secondary investment of INR450m.
• IHCL will pay INR1.34b upfront upon the deal closure and the balance by Jun’26.
• The acquisition adds a sizable midscale portfolio of 135 hotels with 6,800 keys (80 hotels/3,100 rooms are operational) across 100+ locations, predominantly managed properties, and a strong growth pipeline, significantly enhancing IHCL’s scale and reach in the segment.
• The integration will leverage brand unification, operational efficiencies, and IHCL’s strong sales, loyalty, and procurement capabilities to boost revenue and profitability from the expanded midscale portfolio.
• FY27 will mark the first full year after the deal completion, with management projecting revenue of ~INR600m and EBITDA of ~INR200m for the target companies. The enterprise value of combined entities is ~INR2.4b, implying a valuation of ~12x FY27E EV/EBITDA. We believe this to be a fair valuation for a midscale hotel with a large chunk of its properties under management contracts.

IHCL doubles midscale segment footprint

• The midscale segment remains the fastest-growing category in the hospitality industry, accounting for 43% of total branded keys in CY24, up from 39% in CY14. To capitalize on this growth, IHCL acquired these companies. ? This partnership is a multi-pronged approach toward addressing India’s heterogeneous market landscape and is in line with IHCL’s five-year roadmap, Accelerate 2030, aimed at unlocking India’s tourism potential.
• Expanding IHCL’s leading presence in the midscale segment, along with the successful transformation of Ginger, this partnership will double the company’s presence in the midscale segment to 240+ hotels (from 105), reinforcing its leadership position.
• A majority of the 135 hotels acquired through this transaction will be rebranded under the Ginger brand, enhancing brand awareness and significantly expanding its geographical presence. Approximately 70% of these properties are located in new markets across India, further strengthening Ginger’s brand equity.
• Scaling up the Ginger brand remains a top priority, with the company not intending to launch or invest in another mid-market brand until Ginger hotel count reaches 400, focusing on building one clean, pure, and well-positioned brand rather than diluting its presence.

Financial implications

• With total revenue of INR330m in FY25, management projects the target companies’ revenue to reach ~INR600m in FY27 and ~INR1b by FY30, representing a CAGR of 25%.
• While EBITDA margins stood at ~9% in FY25, management anticipates a substantial improvement, projecting margins of 17%/25%/40% in FY27/FY28/FY30, with further expansion expected to reach levels comparable to other Ginger properties at around 50%.
• The company will deploy cash primarily for converting select properties from a revenue-sharing model to management contracts and for replicating the Ginger big-box model. The bulk of the capex for aligned hotels with the Ginger brand will be borne by the property owners, with some help from IHCL.
• Apart from management fees, IHCL will generate incremental revenue in the form of sales and distribution fees on all the hotels at ~1.5-2.5% of enterprise revenue. Incremental fees estimated by the company starting FY27 will be INR100m, which will double by FY30.
• Total incremental EBITDA earned by IHCL through this deal will be INR200m/INR350m/INR600m in FY27/FY28/FY30, growing at 60% CAGR.

Valuation and View

• IHCL’s growth outlook remains strong, led by healthy traction in the core business and an accelerated growth trajectory in the new and reimagined businesses.
• With this acquisition, the company has moved one step closer to its Accelerate 2030 vision.
• We expect IHCL to deliver a CAGR of 16%/20%/17% in revenue/EBITDA/adj. PAT over FY24-27. We maintain BUY with our FY27 SoTP-based TP of INR900.

For More Research Reports : Click Here 

For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH000000412