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Strong demand to aid growth in ARRs

About the stock: EIH Ltd is the flagship company of the Oberoi group that manages 33 hotels (~11 owned and 22 under management contract) with room inventory of ~4247 rooms.

• The company operates the hotels under the brands Oberoi - super luxury brand, Trident-five 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

Q4FY23 Results: EIH’s standalone operational performance for Q4FY23 was better than our estimates on both revenue and profitability front.

• Revenues were up 112% YoY, 10% QoQ to | 563.4 crore (higher than I-direct estimate of | 527.8 crore). The revenue for the quarter was 31% higher than reported revenues during Q4FY19 • EBITDA margin came in at 40.1%, higher than our estimate of 34.8%. It was also far higher than EBITDA margin of 24.3% during Q4FY19. Absolute EBITDA came in at | 225.9 crore vs. I-direct estimated EBITDA of | 183.9 crore • The company reported exceptional expenses of | 10.5 crore mainly on account of impairment in the value of subsidiary investments. Despite this, EIH reported a net profit of | 147 crore vs. expected net profit of | 122 crore (Q4FY22: loss of | 7.3 crore, Q3FY23: profit of | 103.9 crore)

What should investors do? While the balance sheet provides strong immunity to weather the challenges, we expect profitability to remain healthy and margin profile to improve from FY23 levels. Strong ARRs and occupancy levels are likely to sustain given its sizeable presence in cities of Mumbai and Delhi, which are witnessing sustained demand.

• We revise our rating on the stock from HOLD to BUY

Target Price and Valuation: We value EIH at | 240 i.e. 19.0x FY25E EV/EBITDA.

Key triggers for future price performance:

• Rebound in foreign tourist arrivals to provide further fillip to leisure and business hotel room demand, going forward

• Looking at the strong performance in FY23, FY24 also appears promising due to many mega international events lined up (G20, CWC, etc). We expect revenue CAGR of 10% during FY23-25E. Margins are expected to stay at ~30-31% driving healthy profitability growth

Alternate Stock Idea: Apart from EIH, we also like Indian Hotels.

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

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