This Tata Group stock has zoomed 109% against its rights issue price

Shares of Indian Hotels Company (IHCL) hit a new high of Rs 313.70 after rising nearly 3 per cent on the BSE in Wednesday’s subdued market. The upmove came on the back of improved business outlook of the company.

The stock of the Tata Group firm has rallied 10 per cent in the past one week as compared to a 0.87 per cent decline in the S&P BSE Sensex.

In the past three months, IHCL has outperformed the market by surging 35 per cent vs a 7 per cent rise in the Sensex. Moreover, over the last six months, it has appreciated by 65 per cent as against a 12 per cent gain in the benchmark index.

The stock has more-than-doubled (up 109 per cent) from its rights issue price of Rs 150 per share. In November 2021, IHCL had raised Rs 1,982 crore through a rights issue of 132 million equity shares.

Meanwhile, the stock has surged 55 per cent against its qualified institutional placement (QIP) price of Rs 202 per share. In March 2022, the company had raised Rs 2,000 crore by issuing 99 million equity shares to eligible qualified institutional buyers.

With the aim to strengthen its balance sheet, IHCL had raised around Rs 4,000 crores through rights issue and QIP, thereby becoming net cash positive.

The company in its FY22 annual report said that it will continue to monetise non-core and non-productive assets into releasing cash to fuel growth and support focused initiatives that drive long-term value creation.

“We will leverage our strong partnerships within the Tata group and with key partners like GIC to ensure that capital outlay is optimised without compromising on growth opportunities,” the company said.

IHCL also reported its highest ever Q1 operating profit margin of the last 10 years at 29.8 per cent in the April-June quarter (Q1FY2023), aided by sustenance of cost saving initiatives undertaken in the last two years and benefits accruing from demand pickup and consequent operating leverage.

The revenues and operating profits are also likely to witness healthy improvement on a full-year basis in FY23.

Over the medium term, healthy pickup in demand and expansion of IHCL’s hotel portfolio are likely to aid revenue growth. Further, the expansion is likely to be asset-light with majority of the incremental properties being through the management contract route, said rating agency ICRA in its rationale dated September 1, 2022.

The Tata Group holds 38.19 per cent stake in IHCL through Tata Sons (35.74 per cent stake) and other Group companies. Tata Sons has demonstrated its financial support to IHCL over the years by subscribing to various equity-raising activities of the company and ICRA expects the same to continue going forward as well, should there be a need.

"The company also enjoys considerable financial flexibility and significant lender/investor comfort by virtue of the Tata Group lineage", the rating agency said.