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Company Background

EIH Ltd, which has The Oberoi and Trident group of hotels in its stable, was promoted by Late Mr. Mohan Singh Oberoi and is currently managed by his grandson, Mr. Vikram Oberoi. The overall portfolio encompasses 30 hotels (including seven overseas hotels), and two luxury cruiser boats, with 4,572 room operational inventory. It currently has over 700 rooms in development pipeline.

Quicker recovery inspires stronger H2 visibility

Since Q1FY21 was a lockdown affected period, we instead compare Q1FY22 performance with Q1FY20. EIH reported a 72% YoY decline in consolidated revenue in Q1FY22. Pace of recovery has been affected by travel restriction and state wise lockdowns amidst second wave in April & May 2021. Albeit it was the sharper industry wide recovery in June’21 (Exhibit 1) we like, which was also the case for EIH. Q1FY22 performance in terms of occupancy and RevPAR recovery sit in between Q2 and Q3FY21, implying the 6 months occupancy recovery period it took during First Wave materialized in a months’ time in Second Wave. Further the domestic RevPAR for July’21 is 9% higher than Q4FY21 RevPAR, implying a sustained pickup. If not for subsequent Covid waves, we estimate the annual FY22 EBITDA loss to be equivalent to the Q1FY22 losses. On a broad basis Oberoi Leisure portfolio continued to lead the recovery for EIH while everything else was in 20-25% RevPAR levels as compared to Q1FY20. Consolidated EBITDA loss (excluding Other Income) increased to Rs1,015mn in Q1FY22 vs Rs242mn, Rs268mn, Rs.1,000mn and Rs.1,408mn in Q4/Q3/Q2/Q1FY21 respectively.

F&B revenue:

FY21 saw contribution from F&B rise to 54% of the revenue from historical levels of 40%. Q1FY22 witnessed normalcy returning back with F&B contribution in domestic hotels business trickling back to 40% of the revenue at Rs411mn.

Subsidiaries and Associates performance:

Loss contribution from subsidiaries was materially lower at Rs10.2mn in Q1FY22 vs a loss of Rs27.8mn in Q1FY21. Share of losses from associates was at Rs173mn in Q1FY22 vs a loss of Rs219mn in Q1FY21.

Cost savings continues:

Here again we compared Q1FY22 against Q1FY20. Employee cost, the largest cost head in a hotels’ P&L, was down 23% while power & fuel cost was down 40% Q1FY22. Management reiterated to have a permanent saving of ~15%. Further from the annual report it is seen that the count of permanent employees has come down from 3,929 in FY20 to 32,04 in FY21, a 19% reduction or trimming the workforce by 750 permanent employees.

Capex:

Management indicated that they are eyeing to finish the three owned projects by FY25 (Exhibit 11). There have not been many changes in the announced projects over the last few areas barring the target launch date revision (which is prevalent in hotel industry projects). We have not factored in the capex and revenue from these assets in our projections due to lack of visibility on the timeline and source of funding.

Valuation

We like EIH for its Mumbai-Delhi exposure, considering it draws over 50% of its revenue from these two markets. We believe Mumbai-Delhi should be the earliest participant in business travel recovery. EIH’s history of maintaining low-financial leverage and high dividend payout ratio is a rarity in the hotel space. We like the reduced time to RevPAR and occupancy recovery seen in Q1FY22 and July’21 for the industry as a whole and EIH, hence we upgrade the numbers for FY22 & FY23. On the international portfolio we are maintaining our estimates unchanged.

On EV/room basis EIH is trading at Rs26mn vs last 5 years’ average of Rs30mn. This metric is not adjusted for any value assigned to the flight catering business. We value EIH using the SOTP method, assigning a 15x EV/EBITDA, to FY23E EBITDA, arriving at a revised target price of Rs136 per share (earlier Rs120 per share), implying a 22% upside from the CMP. Reiterate BUY.

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