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Leisure stays strong; corporate demand recovering…

About the stock: EIH Ltd is the flagship company of the Oberoi group that manages 33 hotels (~11 owned, 22 under management contract) with room inventory of ~4512 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 as well as in air charter and car hire services

Q3FY22 Results: EIH’s performance in Q3FY22 was far ahead of our estimates. The company reported first ever positive EBITDA and net profit after Q4FY20.

Revenues were up 101.6% YoY to | 314.4 crore (i.e. 62% of pre-Covid levels), mainly boosted by strong demand from the leisure segment

EBITDA came in at | 68.3 crore (vs. I-direct estimate: EBITDA | 1.5 crore)

PAT came in at | 32.6 crore vs. net loss of | 41.5 crore last year and net loss of | 50.4 crore last quarter

What should investors do? The balance sheet provides strength to weather the challenges while strategic property locations provide visibility to ride on the longterm tourism growth story

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

Target Price and Valuation: We value EIH at |185 i.e.30x FY23E EV/EBITDA

Key triggers for future price performance:

Likely moderation in the industry room supply growth over the next two to three years to augur well for branded players like EIH

Expect business to recover to ~98% of pre-Covid levels (vs. ~94% projected earlier) with EBITDA surpassing pre-Covid levels by FY23E; margins are seen at 24%+

The recent venture into premium café business could lead to potential value unlocking of its F&B segment in the long run. Strong b/s to support growth

Alternate Stock Idea: Apart from EIH, in our hotel 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 a larger presence in the midscale and economy segment

BUY with a target price of | 250/share

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