Should you buy EIH Limited Now?
The hotel industry is thriving right now. EIH Ltd (CMP: Rs 223; Nifty level: 19,524) is our top pick this week. Here's why:
1. Strong Industry Demand: The hotel industry is experiencing robust demand due to increased travel trends, rising income levels, government efforts to boost tourism, and improved infrastructure and connectivity.
2. Diverse Travel Demand: Sporting and political events in the country, along with heightened awareness, are generating travel demand for both domestic and overseas visitors.
3. Bleisure and Extended Weekends: Trends like bleisure (combining business with leisure) and extended weekends are benefiting the hotel industry. Rising income levels and a willingness to spend more on travel are reducing seasonality.
4. Resurgence in Foreign Tourist Arrivals: Foreign tourist arrivals, previously hampered by COVID-19 travel restrictions, are set to make a strong comeback. Overseas tourists prefer India in the second half of the year due to pleasant weather conditions. EIH, with its luxury and premium offerings like Oberoi and Trident, is a preferred destination for foreign visitors.
5. International Events: Recent events like the G-20 summit and Moto GP in Noida have contributed to strong demand. Hosting the ICC Men’s Cricket World Cup next month is expected to sustain this momentum.
6. Growth Outlook: The industry demand is expected to grow by about 10 percent from FY23 to FY27, while supply lags behind, growing at a slower 5 percent pace. This favorable demand-supply balance will boost pricing and improve margins.
7. Pricing Potential: Indian luxury hotel room rates (ARR) are significantly lower (about 60-80 percent) than South-East Asia, Europe, and the US, despite similar service quality. We anticipate Indian hotel companies' pricing catching up with their peers, presenting substantial growth opportunities.
8. Strong Financial Position: EIH has become net cash-positive in FY23, thanks to strong demand and margin improvement. Expansion plans rely mainly on internal accruals, reducing dependence on debt. A robust balance sheet will support EIH's valuations.
9. Attractive Entry Point: EIH's stock has corrected by approximately 19 percent in the past month. Currently, it trades at an EV/EBITDA of 16 times FY25 projections, offering a discount compared to historical averages. This presents an attractive entry point for investors.
EIH Ltd stands out in the hotel industry's current sweet spot. Strong industry demand, international events, favorable supply-demand dynamics, pricing potential, and a solid financial position make it a compelling pick.
With its luxury and premium offerings, EIH is well-positioned to benefit from the resurgence in foreign tourist arrivals and the broader travel trends. Investors may find the current market price an opportune moment to consider EIH for their portfolio.