Howard Hotels Ltd Upgraded to Hold on Improved Technicals and Financial Performance

Quality Assessment: Mixed Fundamentals with Signs of Improvement

Howard Hotels operates within the Hotels & Resorts sector, an industry known for cyclical volatility and sensitivity to economic conditions. The company’s long-term fundamental strength remains moderate, with an average Return on Capital Employed (ROCE) of 4.12%, which is below the sector average. This weak ROCE indicates limited efficiency in generating returns from capital investments over time.

However, recent quarterly results for Q3 FY25-26 have shown a marked improvement. Profit Before Tax excluding Other Income (PBT LESS OI) surged to ₹1.16 crore, representing a 603.0% increase compared to the previous four-quarter average. Similarly, Profit After Tax (PAT) rose by 541.1% to ₹1.17 crore. These figures suggest that operational performance is gaining momentum, which partially offsets concerns about the company’s longer-term fundamental weaknesses.

Despite these gains, the company’s ability to service debt remains a concern, with an average EBIT to Interest coverage ratio of just 0.50, signalling potential vulnerability to interest rate fluctuations and financial stress. Promoters continue to hold the majority stake, which may provide some stability but also concentrates control.

Valuation: Attractive but Cautious

Howard Hotels is currently trading at ₹26.70, up 3.29% on the day, with a 52-week range between ₹18.00 and ₹33.90. The stock’s valuation metrics are relatively attractive compared to peers, with an Enterprise Value to Capital Employed (EV/CE) ratio of 2.1, indicating that the market is pricing the company at a discount to its capital base.

The company’s Return on Capital Employed of 8% in the latest quarter further supports this valuation, suggesting improved capital efficiency in the short term. Additionally, the Price/Earnings to Growth (PEG) ratio stands at zero, reflecting the recent surge in profits relative to the stock price, which may appeal to value-oriented investors.

However, the stock has underperformed the broader market over the past year, delivering a negative return of -0.74% against the BSE500’s 13.16% gain. This underperformance tempers enthusiasm and suggests that while valuation is attractive, investors should remain cautious given the company’s mixed financial trends.

Financial Trend: Positive Quarterly Growth Amidst Long-Term Challenges

The recent quarterly financials have been the standout catalyst for the rating upgrade. The company’s PBT excluding other income grew by over 600%, while PAT increased by more than 540% compared to the previous four-quarter average. This sharp rise in profitability indicates operational improvements and better cost management.

Over the longer term, however, the company’s financial trend is less encouraging. Despite a stellar 3-year return of 231.27% and a 5-year return of 468.09%, the stock’s 1-year return is negative, reflecting recent volatility and sector headwinds. The company’s profit growth of 51% over the past year contrasts with its share price performance, suggesting a disconnect between fundamentals and market sentiment.

Investors should note that while short-term financial trends are improving, the company’s weak debt servicing capacity and modest ROCE highlight ongoing risks that could impact sustainability.

Technical Analysis: Shift to Mildly Bullish Signals

The most significant driver behind the upgrade to Hold is the change in technical indicators. The technical trend has shifted from sideways to mildly bullish, signalling a potential positive momentum in the stock price.

Key technical signals include a bullish weekly MACD and Bollinger Bands on both weekly and monthly charts, suggesting upward price momentum and volatility expansion in a positive direction. The KST indicator is bullish on a weekly basis, while the Dow Theory also indicates a mildly bullish weekly trend.

However, some indicators remain cautious: the monthly MACD and KST are mildly bearish, and daily moving averages show a mildly bearish stance. RSI readings on weekly and monthly charts provide no clear signals, indicating that momentum is not yet fully confirmed across all timeframes.

Price action supports this mixed technical picture, with the stock closing at ₹26.70, near the day’s high and above the previous close of ₹25.85. The 52-week high of ₹33.90 remains a resistance level to watch, while the 52-week low of ₹18.00 provides a significant support base.

Comparative Returns: Outperformance Over Long Term but Recent Underperformance

Howard Hotels has delivered exceptional returns over the long term, with a 10-year return of 281.43% compared to the Sensex’s 255.80%, and a 5-year return of 468.09% versus the Sensex’s 67.42%. This demonstrates the company’s ability to generate significant wealth for investors over extended periods.

However, the stock’s recent performance has lagged behind the broader market. Over the past year, the stock returned -0.74%, while the Sensex gained 10.60%. Similarly, year-to-date returns stand at 15.28% for Howard Hotels, outperforming the Sensex’s -2.26%, indicating some recovery in 2026.

This mixed performance underscores the importance of monitoring both short-term technical signals and longer-term fundamental trends when assessing the stock’s outlook.

Conclusion: Hold Rating Reflects Balanced Outlook Amid Mixed Signals

The upgrade of Howard Hotels Ltd’s investment rating from Sell to Hold reflects a nuanced assessment of the company’s current position. Improved quarterly financial results and a shift to mildly bullish technical indicators have prompted a more optimistic view, while valuation remains attractive relative to peers.

Nonetheless, the company’s weak long-term fundamental metrics, including modest ROCE and poor debt servicing ability, alongside recent underperformance relative to the market, counsel caution. Investors should weigh the positive momentum and operational improvements against these risks.

Overall, the Hold rating signals that Howard Hotels is no longer a sell candidate but requires further confirmation of sustained financial and technical strength before a more bullish stance can be adopted.

Limited Period Only. Start at Rs. 9,999 - Get MojoOne for 1 Year + 3 Months FREE (60% Off) Get 71% Off →