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Leveraging brands leading to diversified business

Indian Hotels (IH) FY22 annual report highlights the company’s efforts to grow its existing and new businesses, improve its margins, and deploy its capital efficiently to generate better returns.

Expansion in traditional and new businesses to drive growth

* Hotel Brands (Traditional business): IH has introduced AHVAAN 2025 strategy, under which it expects to reach a portfolio of 300 hotels, comprising Taj (100), Vivanta and SeleQtions (75), and Ginger (125). For details on AHVAAN 2025, refer to IH Analyst meet report.

* As on 31st March 2022, IH has 20,581 rooms, after adding around 1,156 rooms in FY22. While owned rooms increased from 10,202 in FY21 to 10,364 in FY22, the managed rooms increased from 6,496 to 7,439 over the year.

* IH has a pipeline of 60 Hotels (over 7,500 rooms) with a well-diversified mix of Taj (32%), SeleQtions (9%), Vivanta (19%), and Ginger (40%). Under this robust Hotel pipeline, the share of management contracts is 74%. The remaining 26% is owned by the company. And 92% of the owned hotels belong to the Ginger brand.

* Further, with an increasing asset light portfolio, IH is expected to continue to grow through management contracts. While the management fees grew to INR2.31b in FY22 from INR1.77b in FY17, the company expects to register a CAGR of ~15% to over INR4b in the next four years.

* Beyond Hotels (new business): IH has taken its business model beyond the traditional hotel business and is expanding into homestays under amã Stays & Trails brand. Under amã Stays & Trails, it has already signed up for 90 homestays and is planning to take the total to over 500 by FY25-26.

* Further, Qmin is present in over 20 cities with expected expansion to over 25 cities, delivering food from over 40 hotels and 90 IHCL restaurants. Further, IH has launched 4 lifestyle gourmet Qmin stores in Mumbai and Delhi combined and 11 Qmin cafes in Bengaluru. The management plans to diversify further into cloud kitchens to reduce dependence on its Hotel portfolio. The GMV for the Qmin brand was upwards of INR660m in FY22.

* Taj’s exclusive business club ‘The Chambers’ was re-imagined and has over 2,200 members currently. It has generated revenue of INR850m in FY22 with a potential to reach INR1.5b by FY26. ‘The Chambers’ is a higher margin business, with a 75% flow through.

Strong recovery in subsidiaries driving robust revenue growth of IH

* In FY22, revenues of subsidiaries (consolidated less standalone) grew 2.4x to INR10.5b. EBITDA stood at INR165m against EBITDA loss of INR2.65b in FY21.

Valuation and view

* Its asset-light model, and new and reimagined revenue-generating avenues, with higher EBITDA margins, bodes well for an expansion in RoCE.

* Like FY22, we expect a strong recovery in FY23 and FY24, led by: a) an improvement in ARR once economic activity normalizes; b) improved occupancies, led by business travelers as well as the Leisure segment; c) cost rationalization efforts; d) an increase in F&B income as banqueting/conferences normalizes; and e) higher income from management contracts. * We reiterate our Buy rating with a SoTP-based TP of INR278

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