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.
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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.
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