In June-end of CY25, when shares of luxury hotel chain EIH were trading at ₹359, we had recommended that investors book profits when stock was trading at a one-year forward PE of 31 times. The stock has corrected to around ₹296 since then, which is a fall of 17.5 per cent versus 10.1 per cent dip for the broader market. In fact, the fall from its 52-week high of ₹434 hit in September 2025 is around 32 per cent so far. Following this performance and changing fundamentals, we now believe the stock now deserves a relook.

EIH is no longer a relatively-expensive luxury hotel stock with weak near-term earnings visibility. Valuations have cooled to 21x Price to Earnings (P/E) based on FY27 estimates, which is at an attractive discount to 43x for sector leader Indian Hotels (accumulate on dips), 32x for ITC Hotels (accumulate on dips) and 29x for luxury peer Leela Palaces Hotels & Resorts, formerly Schloss Bangalore (avoid rating for IPO). As per Bloomberg consensus estimates, FY27-28 earnings estimates show decent recovery with earnings CAGR at 18.1 per cent, and the company has given better visibility on its expansion and renovation plans.

Thus, investors can accumulate the stock on dips with a four-five year horizon. This is not a plain ‘buy’ because the operating recovery is still uneven. EIH is a small-cap hospitality stock with a market capitalisation of about ₹18,500 crore. If broader markets remain weak, small-caps correct further, or global tensions hurt foreign tourist arrivals, the stock can still drift lower. West Asia-related uncertainty has already affected foreign tourist arrivals in some markets. So, while EIH is less expensive than before, investors should not chase it in one shot. The better route is staggered accumulation on market-led declines.

Business

EIH is the owner and operator of the Oberoi and Trident hotel brands. The 30-hotel room portfolio of 4,209, including 408 international keys (March 31, 2026), is smaller than some listed peers, but it sits higher on the luxury curve.

The company’s domestic hotels continue to command strong positioning in their markets. The management has indicated that most of its hotels rank first or second in their competitive set. This is important because it gives EIH the ability to protect rates. In Q4FY26, the company’s domestic portfolio saw ARR or Average Room Rate (average price paid for rooms sold) rise 12.2 per cent year on year to ₹26,536 per day (vs. ₹10,200 for industry). Revenue Per Available Room or RevPAR (average revenue generated per available room, regardless of whether it is occupied) grew 7.6 per cent to ₹20,758 per day, even though occupancy fell 400 basis points (bps) to 78 per cent. This shows the strength and the risk of the current cycle. EIH can push rates. But the occupancy cushion is not unlimited.

The luxury hotel cycle is still favourable. Per HVS Anarock, supply in the luxury hospitality sector in India is expected to grow at a CAGR of 5.9 per cent  over FY24-28, while demand is expected to grow at a CAGR of 10.6 per cent. Domestic travel demand remains strong. The management also believes Indian luxury hotel rates are still low versus global benchmarks in Europe, North America and parts of Asia. This gives EIH room to increase ARR over time.

The balance sheet is another strength. EIH is net-debt free and remains cash-rich with net cash of ₹860 crore (4.65 per cent of m-cap). This is useful at a time when the company is spending on renovations and expansion. Hospitality assets require constant upkeep. Weak balance sheets struggle during renovation cycles because rooms go out of inventory and capex rises at the same time.

What has changed

Firstly, one of the most important changes is the stock price. At ₹359 in June 2025, the prevailing valuation at that time (31x forward P/E) offered little room for disappointment. That was the main reason to book profits. The company was strong, but the earnings growth was not likely to match the stock’s optimism. That has played out. FY26 was not a bad year operationally, but earnings momentum was poor. For FY26, revenue (adjusted) grew 7.2 per cent, adjusted EBITDA grew 6.4 per cent but adjusted PAT fell 8 per cent. Before this, profitability had improved continuously annually from FY22, until now. The correction has made valuation reasonable. Based on Bloomberg estimates, the stock trades at about 21 times FY27 earnings and around 18.5 times FY28 earnings. That is not demanding for a net-debt-free luxury hospitality business, especially one with strong brands and a visible pipeline.

The second change is pipeline visibility. EIH now has a development pipeline of 31 hotels with about 2,700 keys (64 per cent addition from current level). This includes seven owned hotels with 825 keys and 24 managed hotels with 1,893 keys. The owned pipeline includes Visakhapatnam in 2027, Goa and London in 2028, Tirupati in 2029, and Gandikota and Hebbal in 2030.

The managed pipeline is even larger, but it is heavily back-ended. A major part of the managed additions comes in CY29 and CY30. The company’s room-led growth will also take time. For the next two years, the main driver is ARR growth, renovation-led repricing and better cost control.

Renovations are the third change. The Oberoi Grand in Kolkata, The Oberoi Bengaluru, Trident Nariman Point, The Oberoi Mumbai and Trident BKC are all part of the asset upgrade cycle. These projects can cause near-term disruption, but they can also raise the ARR ceiling once completed. The Oberoi Grand is expected to partly reopen with 50 keys by September 2026. The management expects a fast ramp-up because of the property’s brand recall and customer base.

Fourthly, EIH now appears decently placed in terms of immediate two-year growth going by Bloomberg estimates. It is expected to deliver two-year adjusted EPS growth of 18.1 per cent CAGR versus 31.6 per cent for Indian Hotels and 17.5 per cent for ITC Hotels. EIH’s margins at 37 per cent are also expected higher than Indian Hotels and ITC Hotels.

What needs to get better

EIH’s next leg of re-rating needs better operating leverage. ARR growth alone is not enough if expenses rise faster. FY26 showed this clearly. Cost inflation, staff costs, other expenses and higher levies in some businesses (like Oberoi Flight Services) hurt margins. The company has spoken about cost optimisation and waste reduction. Investors need to monitor this and see if it actually shows up in margins.

Occupancy also needs monitoring. A 12 per cent ARR increase with a 400-bp occupancy decline is acceptable if RevPAR keeps growing. But if occupancy falls further, pricing power will be questioned. We have seen Leela Palaces report 580-bp occupancy drop in Q4FY26, partly due to West Asia conflict impact. While luxury hotels can hold rates better than mass-market hotels, they are not immune to macro shocks.

The timing of the pipeline is another key variable. The long-term plan is attractive, but the bulk of additions is closer to 2029 and 2030. Till then, investors must rely on existing assets, renovations and rate hikes. The stock may not reward investors immediately if FY27 growth remains moderate.

Capex also needs watching. EIH incurred about ₹690 crore of capex in FY26. Annual capex is expected to stay around ₹600-700 crore over the next one-two years. The balance sheet can handle it, but free cash flow (four-year average is ₹450 crore) may remain modest during this phase.

Risks to the call include a broader small-cap correction, escalation in West Asia or other geopolitical tensions, weak foreign tourist arrivals, slower domestic luxury travel demand, lower weddings or MICE (Meetings, Incentives, Conferences, and Exhibitions) activity. Upside risks include stronger ARR growth, faster reopening benefits, higher foreign tourist arrivals and any corporate action given EIH’s low promoter holding (32.85 per cent) and strategic shareholders, including Reliance Strategic Business Ventures (18.8 per cent) and ITC (16.1 per cent).

Published on June 13, 2026