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Cost savings boost EBITDA performance

Recovery post lifting of COVID-related restrictions key to watch out for

* IH’s performance improved sequentially on the back cost saving measures, which led to positive EBITDA at the consolidated level. RevPAR performance has improved sequentially due to an improvement in occupancy.

* Although EBITDA during 4QFY21 was above our estimate, we have reduced our EBITDA estimate by 69% for FY22E, due to lower occupancy of 50% (v/s 63% earlier) and lesser ARR growth of 17% (v/s 25% earlier) given the current demand scenario on account of the second COVID wave, while maintaining our estimate for FY23E. We maintain our BUY rating on the stock, with a SoTP-based TP of INR139.

EBITDA for the standalone business grows 2.2x QoQ

* Consolidated revenue grew 10% QoQ to INR6,150m (in line). The company reported an EBITDA of INR713m v/s a loss of INR167m in 3QFY21.

* On a QoQ basis, RevPAR for IH’s domestic network grew 29% to INR3,329 due to a 10.3pp improvement in occupancy to 55.9% and 5% QoQ growth in ARR to INR5,953.

* Standalone revenue grew 14% QoQ to INR4,640m. Room revenue/F&B grew 26%/7% QoQ to INR2,010m/INR1,730m in 4QFY21. On a QoQ basis, RevPAR grew 24% to INR4,877 due to a 9.7pp improvement in occupancy to 57.1% and 3% YoY improvement in ARR to INR8,537. EBITDA stood at INR1,047m, up 118% QoQ. EBITDA margin stood at 22.6% in 4QFY21 (v/s 29.7% last year).

* Subsidiary (consolidated less standalone) sales were flat QoQ at INR1,511m. Subsidiary operating loss stood at INR334m v/s a loss of INR648m in 3QFY21.

* In FY21, consolidated revenue fell 65% YoY to INR15.8b. It posted an operating loss of INR3.6b v/s a profit of INR9.7b in FY20. IH generated negative CFO of INR3.2b v/s INR8.2b in FY20.

Highlights from the management commentary

* Consolidated gross/net debt in FY21 stood at INR36.3b/INR31.1b (v/s INR26b/INR18.6b in FY20 and INR35.9b/INR30.8b in 3QFY21).

* In FY21, IH reduced fixed cost per month by 27% YoY to INR1.2b.

* In Apr’20, staff-to-room ratio stood at 1.53x, which declined to 1.14x in Mar'21 due to redeployments, multi-skilling, and new ways of working.

* It recorded the highest number of new Hotel signings and openings in the industry during FY21, with 17 signings and seven new Hotel openings. Driven by an asset-light growth strategy, ~80% of IH’s development pipeline comprises management contracts.

* Ginger reached the 75th Hotel milestone and reported the highest number of signings in the midscale segment in India. The company expanded Amã Stays & Trails portfolio with multiple properties in Goa, Trivandrum, and Munnar, taking the brand portfolio to 40 bungalows. The management intends to take it to 100.

Valuation and view

* Faster demand revival in the Leisure Travel segment has aided IH’s performance in FY21. The second COVID wave has delayed the recovery in the Hospitality sector by a couple of quarters. However, the impact this time is unlikely to be similar to last time as some parts of the country are under partial lockdown and a vaccination drive is underway currently and is expected to accelerate further.

* While FY21 earnings were weak, we expect a gradual/sharp recovery in FY22E/FY23E on: a) a low base, b) improvement in ARRs once things normalize, c) improved occupancies, d) positivity in cost rationalization efforts in FY21, e) an increase in F&B income as banqueting/conferences resume, and f) higher income from management contracts.

* Although EBITDA during 4QFY21 was above our estimate, we have reduced our EBITDA estimate by 69% for FY22E, due to lower occupancy of 50% (v/s 63% earlier) and lesser ARR growth of 17% (v/s 25% earlier) given the current demand scenario on account of the second COVID wave, while maintaining our estimate for FY23E. We maintain our BUY rating on the stock, with a SoTP-based TP of INR139.

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