Fundamentally Strong Stock || Bought by Mutual Funds || Target ₹400

Fundamentally strong stocks are associated with companies that have solid financials, strong management, and a competitive edge in their industry.

Characteristics Of Fundamentally Strong Stocks

Investing in Fundamentally Strong Stocks stocks increases the likelihood of long-term capital appreciation. These Stocks are better equipped to withstand economic downturns and market volatility. Also, these companies are likely to exhibit consistent earnings growth and pay dividends to their shareholders.

These companies are typically led by competent and experienced management teams. They would usually have competitive advantage, whether it’s through technological innovation, strong brand recognition, or a dominant market position.

Smart investors identify such fundamentally strong stocks trading at attractive valuations, especially during market corrections. Buying high-quality stocks at discounted prices can offer the potential for capital appreciation as the market recognizes their intrinsic value.

In this article, we will review one such Fundamentally Strong stock. This is not a stock recommendation. Investors to go through the disclaimer at the end of the article.

Mutuals Bought EIH Ltd in Dec 2023

Mutual Funds usually engage several research analysts to identify Fundamentally Strong Stocks for investment opportunities. Buying interest from the Mutual Funds in a company, therefore, is seen as a very good sign for the company.

In this context, it is to be noted that Mutual Funds have increased their holdings in EIH LTD from 12.05% to 12.57% in Dec 2023 Quarter. Number of MF schemes invested in EIH Ltd have also increased from 11 to 13.

In this article, we will review this fundamentally strong stock and its technical aspects.

Fundamentals Of EIH LTD Stock

About The Company

“EIH Ltd”.  BSE: 500840 NSE : EIHOTEL

EIH Limited (EIHL) is primarily engaged in owning and managing premium luxury hotels and cruisers under the luxury Oberoi, Trident and Maidens brands. The Company is also engaged in flight catering, airport restaurants, project management and corporate air charters.

EIH Ltd, the esteemed flagship enterprise of the Oberoi Group, traces its origins to the inspirational vision of its founder, the Late Rai Bahadur M.S. Oberoi. The Oberoi brand has been synonymous with the hospitality industry in India for over six decades, demonstrating an unwavering commitment to service excellence and customer satisfaction.

The Oberoi Group has expanded its operations beyond the Indian subcontinent, marking its global footprint in enchanting destinations such as Indonesia, Mauritius, Egypt, and the United Arab Emirates. The group oversees 29 lavish hotels and resorts, each showcasing the Oberoi’s signature blend of grandeur and innovation. With a collective room inventory of 4,269, the properties are strategically located across 15+ distinct locales in 6 countries.

EIH Ltd was honored with the title of “Best Hotel Brand in the World” at the renowned Travel + Leisure World’s Best Awards in 2022.

Financials Of The Company EIH LTD

Following are the Financial metrics of EIH Ltd.

EIH LTD is a Midcap company (Market Cap is approx. ₹19,500 Cr) with very good return ratios i.e., ROCE at 15.6% and ROE at 11.4%. Operating Profit Margin (OPM) is 31.6%. Company’s current ratio and Interest Service coverage ratio are also very good at 1.56 and 22.7 respectively.

Further, these ratios and profit margins are consistent over the years except during the COVID period. During the COVID period, the company Hotel business is shaken up badly due to lockdown imposed in the country.

Promoters have not pledged any shares and Management is declaring dividends to its shareholders with Div yield of 0.35%. This is the percentage of Dividend that the shareholders receive on their investment per year if they invest in the stock at current market price.

Credit Rating agencies reported that company is witnessing stronger demand recovery together with sustained cost control measures and operating leverage. For FY23, company reported highest ever PBT (Profit Before Tax) of ₹454 Crore and in the Trailing Twelve Months (TTM), reported a PBT of even higher ₹617 Crore.

The strong surge in revenue profile has been supported by sustenance of domestic leisure demand, improvement in business travel, weddings, and corporate events, making it a “Fundamentally Strong Stock”.

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Debt and cash position

By the end of FY 2020, Company had a debt of ₹647 Crore. With its prudent financial management and debt reduction strategies, the company has only ₹198 Crore by the end of Q2FY24 and turned itself into a Net Cash Positive Company.

Tailwinds for Hospitality Industry

As per World Travel & Tourism Council (WTTC), Hospitality Industry is expected to grow at 8.4% in the coming decade generating incremental 19.4 million jobs.

As per World Economic Forum’s Travel & Tourism Development Index, India ranks on top in South Asia and 54th globally.

Government’s Tourism policy aims to design India as:

• One of top 5 global tourist destination by FY30
• USD 1 trillion tourism economy with over 100 million international visitors by FY47.
• Development of large convention centers to compete with Global destinations

Future Plans and Performance Expectations

Company has plans to add 50 hotels by the year 2030. Management has further guided that going ahead the overall gearing at consolidated levels shall not exceed 0.2x even if the capex plans is accounted for. In the absence of any major debt funded projects, the coverage and leverage indicators are expected to remain comfortable going forward as well.

Over the medium term, healthy pickup in demand, strong room rates and expansion of EIHL’s hotel portfolio are likely to aid revenue growth for the company. EIHL’s management has also indicated that they have future plans on expanding the portfolio through multiple routes of owned and managed contracts, etc.,

EIH Dominance in Hotel Industry

EIH’s RevPAR (Revenue Per Available Room) Year-On-Year growth is accelerating faster than Industry. During Q2 FY24, its RevPAR surged by about 20% compared to last FY. Also, it is much higher than the Industry’s average. Following table compares company’s performance vis-a-vis the Industry upto Q2FY24.

It can be seen that EIH’s performance is quite above the Industry’s average in all parameters.

Strong Bounce Back is seen during Q2 in Flight Catering & Airport Lounge Business. The revenue touched ₹100 Crore with a margin gain of ₹37 Crore.

With the adoption of cutting-edge technology and a customer-centric approach, the company witnessed a phenomenal 58% year-over-year growth in online bookings in FY2023.

Technical analysis of EIH LTD

Here is the weekly price chart of EIH LTD. The stock has consolidated in ₹50-₹225 price zone (Zone marked between two blue lines) for about 16 years (2007 to 2023).

The stock has comfortably broken out of the consolidation zone and is currently trading at ₹310.

By the Technical analysis thumb rules, the stock can expect to attain a target of ₹400 which is 30% from current levels. Currently, stock is seen trading at a PE of 42.4 which is much lower than its own median PE of 60.5 and almost close to Industry level PE of 40.79. The stock may be accumulated during corrections.

Opinion of NSEOptions.in on EIH LTD

EIH Ltd has been displaying robust physical and financial performance. Keeping in view of the Management guidance and its expansion plans, the target seems achievable.

Disclaimer:

The above content provided regarding Fundamentally Strong Stock, in this web post is for informational purposes only and should not be construed as financial advice. Readers are encouraged to consult with financial professionals before making any significant financial decisions.