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Passing through medium term challenges…

About the stock: EIH is the flagship company of the Oberoi group that manages 33 hotels (~11 owned, 22 under management contract) with room inventory of ~4525.

* The company operates the hotels under the brands Oberoi - super luxury brand, Trident-5 star brand and Maidens (heritage)

* EIH also provides catering/kitchen services to airlines and operates restaurants/lounges at airports and is also into air charter and car hire services.

Q1FY22 Results: Results stayed weak, directly impacted by second Covid wave.

* Revenues were down 57.8% to | 79.3 crore. On a YoY basis, revenues were up 178% on a very low base

* Operating cost declined 18% QoQ only as more than 70% of expenditure is fixed in nature. This led to EBITDA loss of | 97.1 crore (vs. I-direct estimate: loss of | 37.2 crore)

* Net loss came in at | 93 crore (vs. net loss of | 68.1 crore in Q4FY21)

What should investors do?

The b/s provides strong immunity to weather the challenges while strategic property locations provide visibility to ride on long-term tourism growth story

* Hence, we remain positive on the company with a BUY rating on the stock

Target Price and Valuation: We value the stock at | 150 i.e. 28x FY23E EV/EBITDA.

Key triggers for future price performance:

* Expect resumption of normalcy with settling down of Covid cases that should drive strong tourism demand from Q3, Q4 FY22E onwards

* Benefit of efficiency measures taken during challenging times to get visible from FY23E with likely strong traction in margins

* Strong b/s to help weather medium-term challenges.

Alternate Stock Idea: Apart from EIH, in our cement sector coverage, we also like Indian Hotels that has a mix of domestic and international room portfolio.

* It has the strong “Taj brand” in the premium segment along with having a larger presence in the midscale and economy segments

* BUY with a target price of | 150/share

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