IHCL's Q2 results fell short of market expectations, leading Nuvama Institutional Equities to downgrade the stock's rating to Reduce. The target price has been lowered from ₹743 to ₹636. Slow growth in the hotel business and weak RevPAR were the main reasons.
Q2 Result: Indian Hotels Company Limited (IHCL), which operates Taj Hotels, has announced its September quarter results. While the company's revenue and profit increased, this growth did not meet market expectations. Consequently, brokerage firm Nuvama Institutional Equities has changed its stance on the stock, assigning it a 'Reduce' rating.
Nuvama states that, given the current circumstances, there is a possibility of the stock price declining in the coming months. Previously, the target price for this stock was ₹743, which has now been reduced to ₹636. This indicates that the brokerage firm believes it is a time for investors to exercise caution.
Details of Weak Quarterly Performance
The company's total revenue grew by 12% to reach ₹2,041 crore. While this growth appears positive, the company could not achieve the level of results that the market was expecting.
IHCL's operating profit (EBITDA) increased by 14%, and net profit (PAT) saw a 15% rise. However, the actual growth in the hotel business was only 7%. Such slow growth in the hotel industry is considered lower compared to the past few quarters.
The company stated that several external factors impacted its business. These included heavy rainfall, flight disruptions, global geopolitical tensions, and renovation work at some major hotels. Key hotels such as Taj Palace Delhi, President Mumbai, and Fort Aguada Goa were affected by these renovation activities.
As a result, the company's RevPAR (Revenue Per Available Room) remained weak. The primary reason for the decline in RevPAR was a decrease in room rates, i.e., ARR (Average Room Rate). This is considered the slowest growth in the last three years.
Impact of Operations and Market Conditions
This quarter saw several circumstances directly impacting the hotel industry. Travel was affected in many cities due to weather-related reasons. Flight cancellations and delays led to a reduction in the number of tourists and business travelers.
Furthermore, tense situations persisted in several regions globally, impacting the flow of international tourists. During such times, the performance of the hotel business typically slows down as tourists postpone or reduce their travel plans.
Another challenge for IHCL was the renovation of hotels that have long been integral to the company's brand identity and appeal. During the renovation of large, branded hotels, their availability decreases, limiting the number of rooms and affecting revenue.
Domestic Business Performance
In India, most of IHCL's hotels did not perform as expected this quarter. The company recorded an approximately 1% decline in room revenue. However, revenue from the Food & Beverage (F&B) segment saw an increase of about 2%.
This means there was a decrease in room bookings and the number of guests staying, but a partial improvement was observed in hotel restaurants and event-based services.
The company's TajSATS segment, which focuses on catering services, continued to perform well this quarter. Revenue from this business grew by 14%. However, the EBITDA margin here slightly decreased to 24.2%.
This decline can be attributed to rising costs and increased operating expenses, but the company has not provided any detailed comments on this.
International Business Performance
IHCL's performance in international markets was mixed this quarter. Some of the company's hotels in the UK and US performed better, with an improvement in revenue particularly noted after renovations in London.
However, overall, the company incurred a loss of ₹4 crore from its international business. In the previous quarter, the company had reported a profit from this segment. This shift indicates that the recovery of international travel and tourism has not yet reached a stable level.
Current Status of Network Expansion
IHCL is continuously expanding its hotel chain. Currently, the company has a network of 435 hotels, comprising over 50,000 rooms. Of these, 268 hotels are already operational, while the remaining are under new agreements or in various stages of development.
In the first half of fiscal year 2026 (H1FY26), the company signed agreements for 46 new hotels and commenced operations for 26 new hotels. This clearly indicates that the company is maintaining its expansion pace.
The company is also striving to increase its presence in international markets. IHCL's Taj Frankfurt hotel is expected to open by the end of this fiscal year. The company believes that brand expansion will improve both revenue and market share in the long run.
Brokerage House Rating and Target Price
Nuvama Institutional Equities states that, in light of this quarter's weak performance, the company's revenue and profit estimates have been revised downwards.
Revenue estimates for FY26 have been cut by 1.4%, and profit estimates by 4.6%. Based on this, IHCL's target price has been reduced from ₹648 to ₹636.
Nuvama notes that competition in the hotel industry has currently intensified, and the pace of demand does not appear as robust as before. Therefore, a significant immediate improvement in IHCL's performance cannot be expected.
