Indian Hotels books another quarter in growth suite, sees steady growth

Travel rebound and fresh keys steady the quarter; weddings and lean supply keep growth checked in

Indian Hotels Company (IHCL), the country’s largest listed hotel chain, delivered a solid performance in the April–June quarter (Q1) of 2025–26 (FY26), holding its ground even as it navigated booking disruptions and geopolitical hiccups. Powered by steady domestic travel and firmer room rates, the company clocked double-digit revenue growth. It expects this pace to hold through the year, supported by structural triggers and capacity expansion. The stock, however, has already rallied 31 per cent over the past year, raising valuation concerns.

   

At the consolidated level, sales rose 32 per cent from the year-ago quarter, supported by an 11 per cent rise in revenue per available room. Average room rates (ARRs) were up 12 per cent, while occupancy ratios dipped slightly — by 90 basis points (bps) year-on-year (Y-o-Y) — to 74.3 per cent in standalone operations. Growth held up well, considering booking cancellations stemming from Operation Sindoor (Indo-Pakistan conflict), flight disruptions, and global tensions during May and June. Excluding the impact of TajSATS (its in-flight catering arm), which was consolidated this quarter, revenue growth would have been 13 per cent — partly flattered by a low base. 

   

These headwinds shaved 2–2.5 per cent off hotel revenue growth, and operating profit took a 3–4 per cent hit. Even so, operating profit rose 28 per cent Y-o-Y, though margins slipped 80 bps, largely due to employee wage revisions. TajSATS accounted for 14 per cent of revenue and 10 per cent of consolidated operating profit. 

   

A packed wedding calendar, steady MICE (meetings, incentives, conferences, exhibitions) demand, and a rebound in international business all buoyed up Q1 results. But more critical going forward is the limited supply of rooms in key business hubs. New supply is expected to grow by less than 5 per cent annually over the next five years, likely allowing IHCL to absorb incremental additions without putting pressure on pricing, according to HDFC Securities analyst Amit Kumar.

   

IHCL is adding 500 greenfield rooms in FY26 and has earmarked ₹1,200 crore in investments this year. It expects long-term support for its double-digit revenue growth guidance from tight demand-supply dynamics, spiritual tourism, and growing MICE activity.

   

Foreign tourist arrivals could have added further lift, but demand from that segment may remain subdued due to elevated ARRs in India compared to peer destinations and ongoing geopolitical tensions. 

   

To tap into demand shifts, IHCL plans to add 20,200 rooms over the next five years — 82 per cent of which will be managed across 143 hotels. That’s a 75 per cent jump from its March 2025 inventory of 27,072 rooms across 249 properties.

   

Although the company has held up well, HDFC Securities maintains a ‘reduce’ rating on the stock, citing steep valuations, with a target price of ₹725. In contrast, Kotak Securities projects a 25 per cent growth trajectory between 2024–25 and 2027–28 (FY28), followed by 16 per cent between FY28 and 2029–30.

   

Analysts at the brokerage, led by Murtuza Arsiwalla, say: “Valuations are punchy, but the earnings trajectory is strong, and IHCL is the largest play on India’s hospitality sector, with a wide presence across the mid-to-premium segments and a footprint in both business and leisure destinations.” The brokerage has an ‘add’ rating with a revised target price of ₹850.

   

Motilal Oswal Research expects revenue growth to continue in the medium term, driven by a strong room addition pipeline in owned and managed hotels, favourable demand-supply dynamics, and rising MICE activity. It has a ‘buy’ rating with a sum-of-the-parts target price of ₹900.