How Indian Hotels Outperformed the Market

Indian Hotels Co. Ltd.’s 7,500+ room pipeline. at the end of FY22 is expected to be supported by the strong recovery in demand thanks to an increase in leisure travel, corporate events and business conferences. This pipeline is spread across its brands such as Taj, SeleQtions, Vivanta and Ginger. In the last fiscal year, the company added 1,156 operational rooms, bringing the total number to 20,581 at the end of fiscal year 22.

From now on, FY23 should improve. Analysts estimate freestanding occupancy in FY23 will reach/exceed the pre-covid or FY20 level of 67%. This figure was approximately 53% in FY22. In addition, the average room rate, which was 9,717 in FY22, is expected to improve amid growing demand.

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The recovery in international travel also bodes well, as overseas operations contributed approximately 19% to Indian Hotels’ consolidated operating revenue in FY22.

April 2022 business performance is better than April 2019, the company said in its recently released annual report. “April/May 22 revenue for Indian hotels is 10% above pre-covid levels and with a sustained recovery in business travel as well as leisure, we expect FY23E and FY24E revenue at 104% and 122% from pre-covid (FY20) levels, respectively,” ICICI Securities analysts said in a June 22 report.

Additionally, remote working has led to emerging trends such as workation (work plus vacation), which is pushing hotels to offer homestays as demand increases. Indian Hotels is strengthening its presence in this segment under the amã Stays & Trails brand. This portfolio, as at the end of FY22, consisted of 80 amã bungalows with 47 operating homestays.

Indian Hotels’ annual report reiterated its targets under the Ahvaan 2025 strategy. It aims to increase the total number of hotels to over 300 and achieve a 50/50 ratio of owned/leased hotels and managed. The number of hotels in operation at the end of FY22 was 175. The company continues to focus on increasing the portfolio of light assets and growing through management contracts.

“Its asset-light model and new, redesigned revenue-generating paths, with higher Ebitda (earnings before interest, tax, depreciation and amortization) margins, bode well for an expansion in return on capital employed.” , Motilal Oswal Financial Services analysts said in a June 22 report.

As part of Ahvaan’s strategy, it plans to achieve a consolidated Ebitda margin, which includes other revenue, of 33% by FY26, with 35% of Ebitda’s share coming from management contracts and new activities. This is supported by cost control efforts such as reducing corporate overhead as a percentage of consolidated revenue to 5% by FY26 from 8% in FY20 For FY20 and FY22, Ebitda margin was 24% and 17.4%, respectively.

Indian Hotels also aspires to maintain a net cash balance sheet. The company was net debt free as of March 31, aided by funds raised through the qualified institutional placement and rights issue. However, all is not perfect. The re-emergence of covid cases in business and tourism hubs like Mumbai and Kerala would weigh on the rebound in demand. In the event of a severe disruption to operations, Indian hotels’ growth plans are likely to take a back seat.

Additionally, high levels of inflation are a cause for concern as this could lead to lower discretionary spending. In addition, the margin could be impacted as training and recruitment costs would increase with the increase in demand.

For now, investors appear to be pricing in the bright outlook, with stocks so far up 23.7% in calendar year 22, versus a 12% drop in the Nifty 500 index.

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