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Fundamental View: Oriental Hotels (ORIHOT)

• Oriental Hotels (OHL) owns and operates seven hotels with ~825 rooms across business & leisure locations in the south region. Flagship hotels of the company are Taj Coromandel and Taj Fisherman’s Cove in Chennai. These two properties accounted for nearly 58% of operating income of OHL in FY20

• FY23 began on a strong note for the hotel sector in terms of growth and margin expansion. With the full reopening, the corporate demand and MICE segment also joined the growth bandwagon in Q1FY23 while leisure continued to perform well. In turn, this helped the hotel players to raise room tariffs without disturbing demand

• In Q1FY23, average room rates were reported to be even higher by 20-25% vs. pre-Covid levels. This led to a sharp revenue growth of over 24% vs. pre-Covid levels. Hence, the change in the strategy from occupancy led growth during pre-Covid era to ARR led growth was clearly visible in the current quarter

• Now, with the opening of international borders to foreign tourists, we expect the hotel business in key metro cities, including Chennai, to improve further. Oriental Hotels is likely to be the key beneficiary of the same

• In terms of rooms supply, we expect launch of new hotel projects to get delayed due to higher land and input costs that would augur well for existing branded players. Further, hotel players are now leaner in terms of costs that are sustainable in nature

• We expect healthy 29.2% revenue CAGR over FY22-24E. We expect the company’s business to recover fully in FY23E with EBITDA surpassing pre-Covid levels in FY23E

• The company enjoys strong patronage from IHCL. Operationally, OHL’s properties are managed by IHCL apart from over 39% holding by the Tata group. Hence, in our view, OHL has strong financial flexibility due to comfort arising from being an associate of IHCL

• On a replacement basis, the stock is trading at EV/room of | 1.7 crore, which leaves enough scope for decent upside from current levels

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