Top broker picks: Indian Hotels Company & Dr Reddy Laboratories Ltd

Indian Hotels Company

The Taj Mahal Palace & Tower, in Mumbai, was the first hotel owned by Indian Hotels Company (IHCL), which was founded in 1903. IHCL is a part of the Tata Group, which operates 57 hotels in 40 cities in India. It has 18 hotels in the Maldives, Mauritius, Malaysia, Australia, United Kingdom, United States, Bhutan, Sri Lanka, Africa, and the Middle East in addition to India.

Hotel chains under several brands, including Taj Hotels, Taj Safari, Taj Exotica, The Gateway Hotel, and Ginger, have been developed by IHCL.

Broker’s Call

Broker House	ICICI Securities	Motilal Oswal	IDBI Capital
BUY (INR)	214	215	231
Target (INR)	284	278	278
Upside	+32%	+30%	20%
Time Period	12 Months	12 Months	12 Months

ICICI Securities’ View on IHCL

Revenue Growth & Margin Expansion:

By FY26E, the business anticipates management contracts and new brands (Ginger/Qmin/ama and Chambers) would contribute 25% of total revenue, up from 10% in FY20. With cost savings, a focus on the ideal staff-to-room ratio, and a rationalization of hotel level expenditures, the management is aiming for EBITDA margins of 33% by FY26E.

Funding, capitalization, and simplification:

Through a rights issuance and a QIP, the Company added Rs39.8 billion in equity during the year. The company’s key interests were consolidated with the money raised from these offerings to streamline its holdings and pay off debt. This has enhanced the company’s capital structure and strengthened its balance sheet.

New development bids won in FY22:

During the year, the business won a contract for the development (including management and maintenance) of two hotels, a 4-star hotel and a 3-star hotel, in Kevadia, Gujarat, the location of the Statue of Unity. The winning bidder must form new businesses to serve as incubators for these initiatives in accordance with the bid requirement.

Motilal Oswal’ View on IHCL

Traditional & Innovative Business growth:

The Chambers, the private business club of Taj, has more than 2,200 members as of this writing. It made Rs 850 million in revenue in FY22 and has the potential to reach Rs 1.5 billion by FY26. With a flow through of 75%, “The Chambers” has a larger profit margin.

 

Massive expansion plans

Indian Hotels has a pipeline of 60 Hotels (over 7,500 rooms) with a well-diversified mix of Taj (32%), SeleQtions (9%), Vivanta (19%), and Ginger (40%). Under this robust Hotel pipeline, the share of management contracts is 74%. The remaining 26% is owned by the company. And 92% of the owned hotels belong to the Ginger brand.

 

IDBI Capital’ View

• IHCL unveiled AHVAAN 2025, which focuses on the company’s strategy for profitable expansion through FY2025/26.

• With 100 Taj, 75 Vivanta & Seleqtions, 125 Ginger, and +500 Ama stays, the firm will increase its portfolio of hotels to +300. It would aim for an EBITDA margin of 33% and anticipates a 35% EBITDA from new brands and management fees. It aims to have a 50-50 hotel portfolio and concentrates on having no net debt.

• Company stated by leveraging the Tata ecosystem it has potential to contribute 30% of IHCL’s enterprise revenue in 3 years and synergize with Tata group aviation companies for driving base occupancies, curated trips ,Joint promotions and Air Catering.

 

Dr Reddy Laboratories Ltd

Dr Reddy’s Laboratories Ltd (DRL) is an integrated worldwide pharmaceutical corporation. The primary therapeutic areas on which the firm focuses include dermatology, cancer, diabetology, gastroenterology, and diabetology. Markets all around the world are served by Dr Reddy’s. The USA, India, Russia & CIS nations, and Europe are some of its key markets.

Broker’s Call

Broker House	ICICI Direct	Prabhudas Lilladhar
BUY (INR)	4200	4269
Target (INR)	4960	4900
Upside	+18%	+14%
Time Period	12 Months	12 Months

ICICI Direct’ View

Emerging Markets-

In the next five years, Dr Reddy’s wants to increase sales in China by 2-3 times. The business aims to win Chinese GPO bids. In the present, 17 files are awaiting clearance, and 15 more are anticipated in FY23. With a particular focus on cancer and institutional business, Dr. Reddy’s seeks to grow 4-5 times in Brazil in the next five years.

Productivity Increased-

Operational productivity in the last four years has improved in the following areas – a) API: 35% lower operating expenditure as percentage of sales, b) OSD: 39% lower US$/000’ units and c) sterile: 83% lower US$/unit.

Prabhudas Liladhar’s Views

New growth avenues:

Company is planning to build its Immuno-oncology in NCEs, Biologics & CGT, Nutraceuticals, CDMO, new disease management and digital services which will start contributing meaningfully from 2027. We believe, investments in these avenues will lead to overall 50-100bps increase of expenses. the-counter drugs, and inorganic routes will expand the local formulation industry.

US –robust pipeline:

Dr Reddy’s has robust pipeline of 175 products with 90 filed, out of which 40% are injectables/sterile products. Filings for complex products will continue to focus on +25 products across Drug-device combos, peptides and long-acting Injectables. Contribution from US has come down from 50% in FY16 to 37%. In the near term non US markets will continue to grow faster than US generics.