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Impacted by second wave…

About the stock: With room inventory of 19,425 rooms, Indian Hotels occupies a diversified position in the hotel industry through brands such as Taj, Vivanta, SeleQtions and Ginger brands.

* IHCL also has a selective presence in the luxury segment in the US, UK, Africa, Sri Lanka, the UAE and Maldives through owned/managed properties

* The company enjoys strong support from its key promoter Tata Sons and is also an important strategic business for the Tata Group.

Q1FY22 Results: Results remained weak, mainly impacted by second Covid wave.

* Revenues were down 44% QoQ to | 344.6 crore. Occupancy at standalone level was at 28.5%. However, average room rate saw a sharp jump of 45% YoY to | 7024/room leading to RevPAR growth of 101% YoY to | 1992/room

* Operational loss came in at ~| 149 crore vs. loss of | 266 crore last year

* The company reported net loss of | 242.3 crore

What should investors do?

The balance-sheet provides strong immunity to weather challenges while cost rationalisations would drive healthy margin expansion.

* We remain positive on the company and maintain our BUY rating

Target Price and Valuation: We value IHCL at | 170 i.e. 23x FY23E EV/EBITDA.

Key triggers for future price performance:

* The ongoing crisis to restrict overall room supply in the industry for next three to four years, auguring well for branded players like Indian Hotels

* The cost optimisation drive initiated in FY21 would provide fruitful results, going forward. Expect EBITDA margins of over 24% by FY23E

* The company has strong financial flexibility in terms of raising low cost debt if the need arises.

Alternate Stock Idea: Apart from Indian Hotels, in our hotel sector coverage we also like EIH.

* It is the premium segment key domestic hotel player. Like Taj, it also has strong hotel brands like Oberoi & Trident. It has a strong balance sheet

* BUY with a target price of | 150/share

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