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* Indian Hotels (IH) reported another strong quarter, with robust growth in consolidated revenue/EBITDA (up 53%/2.6x v/s 4QFY20) aided by strong ARR growth (up 33%/9% v/s 4QFY20/QoQ) and improvement in occupancy (up 1,280bp/260bp v/s 4QFY20/QoQ). Management contract revenue surged 88%/2.2x YoY to INR4b/INR1.2b in FY23/4QFY23.

* Factoring in the 4QFY23 performance, we raise our FY24/FY25 EBITDA estimates by 5%/3%, aided by better-than-expected ARR, addition of new owned/leased and management hotels, and the normalization of inbound travel. Maintain BUY with an SoTP-based TP of INR420.

ARR inched up further with OR improvement

* IH’s consolidated revenue in 4QFY23 grew 86% YoY but declined 4% QoQ to INR16.3b (est. INR15.8b). EBITDA jumped 3.4x YoY but fell 10% QoQ to INR5.35b (est. INR5.1b). Adjusted PAT surged 5.3x but dropped 14% QoQ to INR3.3b (est. INR2.7b). IH witnessed an EBITDA flow-through of 58% from 4QFY20 levels.

* Standalone revenue/EBITDA in 4QFY23 surpassed pre-Covid levels by 57%/ 24% to INR11.3b/INR4.8b (up 91%/2.9x YoY and 7%/9% QoQ), propelled by strong ARR growth (up 33% v/s 4QFY20) to INR16,915, while occupancy stood at 74.7% (up 1,280bp v/s 4QFY20). IH witnessed an EBITDA flowthrough of 64% from 4QFY20 levels.

* Subsidiary (consolidated less standalone) sales grew 77% YoY but fell 21% QoQ to INR4.9b, while EBIDTA declined 63% QoQ to INR582m (v/s an operating loss of INR44m in 4QFY22). Revenue from PIEM/Roots/Benares jumped 29%/44%/49% in FY23 v/s FY20 levels.

* For FY23, revenue/EBIDTA grew 90%/4.5x YoY to INR58.1b/INR18b. Adj PAT stood at INR10b v/s a net loss of INR2.6b in FY22.

* CFO stood at INR16.5b in FY23 v/s INR6.7b in FY22. Net cash stood at INR10b as of Mar’23 v/s INR1.1b as of Mar’22.

Highlights from the management commentary

* The management expects the domestic business to see strong demand in FY24, with large events such as G20 and ICC ODI Cricket Men’s World Cup, along with foreign tourist arrivals touching pre-Covid level by Oct’23 (60% now).

* As per STR, overall industry demand growth in FY23 was 11.1% v/s FY20, which is faster than supply growth of 4.5% in FY23 v/s FY20.

* The management expects margins to be in line with its target of ~33%. Margins are likely to be lower in Q1/Q2FY24 (seasonality factor) but expected to be stronger in Q3/Q4FY24.

* The occupancy rate in the US/UK regions was low at 59%/71% in FY23 v/s 75%/79% in FY20; however, the management expects it to improve in FY24.

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