Stocks to buy: Axis Securities assigns ‘Buy’ to Juniper Hotels and Chalet Hotels shares

The Hotels sector in India is experiencing structural tailwinds and the up-cycle in the industry is expected to continue, analysts said. The total hospitality industry in India currently comprises 212,000 rooms, translating to an industry size of ₹82,000 crore.

The hospitality industry is projected to experience a CAGR of 10.5% over the next three financial years and this growth is expected to generate an annual incremental demand of ₹8,200 crore, according to Axis Securities.

Given the limited supply of luxury rooms in the market, this growth cycle has the potential to extend further, ensuring robust demand and expansion in the industry, it said.

Hotels sector occupancy is anticipated to improve by 500 basis points, with the Average Room Rate (ARR) expected to grow at a CAGR of 7-8% over the coming years. The brokerage also expects the sector’s high FCFF/EBITDA ratio to improve further to 70% over the next three years. It believes that valuations for the Hotel Sector will remain sustainable in the future.

“With continuous improvement in ARR and minimal capital expenditures, RoIC could improve by 400 basis points over the next three years, potentially keeping Valuations (EV/EBITDA) elevated for the sector. The Hotel Sector trades at relatively low valuations, with EV/EBITDA ratios of 20.7x for FY26E and 17.2x for FY27E. We believe there is room for valuations to increase, given the improvements in RoIC and FCFF generation,” Axis Securities said.

The brokerage firm has recommended two stocks to buy in the hotels sector. It has initiated coverage on two hotel stocks - Juniper Hotels and Chalet Hotels. It has a bullish view on these stocks and expects up to 17% upside potential. Here are the two hotel stocks to buy:

Juniper Hotels | Buy | TP: ₹475

Axis Securities initiated coverage of Juniper Hotels with a ‘Buy’ recommendation and a target price of ₹475 per share.

“Juniper Hotels presents a strong investment case, driven by impressive revenue growth projections and solid financial performance. The expected improvement in occupancies, coupled with rising ARRs, along with the company’s strategic expansion at the Grand Hyatt Mumbai, is set to significantly enhance profitability,” said the brokerage firm.

Juniper Hotels’ effective debt reduction, which is projected to improve its ROCE to approximately 13%, along with maintaining a high FCFF/EBITDA ratio, further underscores its financial strength, it added.

Chalet Hotels | Buy | TP: ₹975

The brokerage firm initiated coverage on Chalet Hotels shares with a ‘Buy’ rating and a target price of ₹975 per share, based on a multiple of 24x EV/EBITDA for Q1FY27E.

Chalet Hotels has one of the highest FCFF/EBITDA generation rates in the industry, ranging from 60%-70%, which supports its elevated valuations. The company also boasts some of the highest ARRs in the sector, making it a preferred choice for business travelers. This strong positioning provides the potential to improve its current RoIC from 10% to 17% over the next three years, marking a significant 700 bps improvement, Axis Securities said.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.