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Domestic leisure leads QoQ recovery; international business to start seeing traction, going forward…

IHCL’s Q4FY21 performance broadly remained ahead of our estimates led by a better performance from leisure segment and prudent cost management leading to positive EBITDA for the quarter. Consolidated revenue improved ~10% QoQ to | 615 crore (vs. I-direct estimate: | 542.1 crore) while it was down 42.1% YoY. Domestic occupancy improved to 72% vs. 52% last quarter due to traction in the leisure segment. Revenue per room (RevPAR) was up 29.3% QoQ to | 3329/room. Domestic leisure destination led the recovery with destinations like Goa, Rajasthan reporting healthy occupancy in Q4FY21.

Business destinations continue to stay affected with Mumbai, Delhi and Bengaluru reporting average occupancy of ~35-38%. Total operating expenditure declined 36.4% YoY to | 543.7 crore. As a result, IHCL managed to report EBITDA of | 71.3 crore (vs. I-direct estimate: EBITDA loss of | 31.1 crore). Consolidated net loss came in at | 91.3 crore (vs. net loss of | 118.9 crore in Q3). The company signed 17 hotels in the current fiscal, adding over 2,200 rooms to its portfolio

Cost optimisation drive to lead healthy recovery in margins…

After achieving ~75% target set in Aspire 2020, the focus has shifted to R.E.S.E.T 2020. Under this, IHCL is maximising the revenue potential through initiatives. Further, the company is focusing more on improving cost efficiency through various measures. Visible fixed cost per month reduced from | 163 crore to | 118 crore leading to average savings of | 135 crore per quarter. The key levers are 1) decline in staff to room ratio from 1.53 in FY20 to 1.14 in FY21 through redeployment in new properties and multiskilling, 2) lease rental waivers of | 49 crore, 3) savings of | 67 crore through prudence in all other corporate expenditure. We believe these initiatives will bode well in the long term as business returns to normal.

Liquidity profile to gradually improve, going forward

The company raised ~| 1000 crore of long term debt in FY21 to maintain the liquidity. Gross debt is now at | 3633 crore with net D/E ratio of 0.73x. Average cost of debt is at 6.5% (down 50 bps from March 2020). However, going forward, recovery in the international segment, deferral of capex, reduced opex provide us comfort on the liquidity front.

Valuation & Outlook

The second wave of pandemic has again started impacting domestic demand, which is likely to delay the further recovery till the time situation stabilise. On the other hand, the company is hopeful of demand recovery in US, UK in the next three to four months with the situation now gradually coming under control. Overall, we expect tourism to witness a sharp recovery in FY23E. Given IHCL’s strong parentage and brand visibility along with meaningful cost optimisation measures, concerns with respect to liquidity are now being negated. Hence, we continue to maintain BUY rating with an unchanged target price of | 150 (i.e. 22xFY23E EV/EBITDA).

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