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Expect H2 to follow the same strong trend as H1; retaining a Buy

Indian Hotels’ ARRs rose further in Q2 FY23 while occupancy was impacted as compared to Q1 due to the normal seasonal nature of the industry. Growth was strong in H1 FY23, and H2 is likely to follow and outperform pre-pandemic levels by a significant margin due to booming demand. We believe the sector is on an upswing. Rising inbound tourism and a rise in number of government delegations and international conferences augurs well for the sector and IHCL. Factoring in the betterthan-expected revenue growth, we raise our FY23e/FY24e revenue 8%/6.5% and introduce FY25e. We retain our Buy on the stock, with a higher TP of Rs.360 (earlier Rs.320) on a sum-of-parts basis, valuing it at 22x consolidated FY25e EBITDA.

Q2 FY23 result update. Revenue was a robust Rs12.33bn (ARe: Rs11.6bn), up 69% y/y, 22.4% from Q2 FY20, largely driven by the strong rebound in ARR. On an enterprise level, occupancy was ~62% (65% in Q2 FY20) with ARR of Rs9,552 (25.9% compared to Q2 FY20). Standalone occupancy was 70% with ARR of Rs11,000, up 26.5% from Q2 FY20. EBITDA came at Rs2.94bn (304%+ y/y, 155% compared to Q2 FY20) with a 23.9% margin (11.4% in Q2 FY20, 10% in Q2 FY22).

Key concall highlights. 1) HVS Anarock sees Q3 demand outpacing supply and an 8-10% increase in ARR, and IHCL is seeing similar trends in the last six weeks, 2) For the last six months, rates have been rising globally and are expected to continue an upward trajectory in India too on supply constraints, 3) Almost 10 years ago, the number of branded hotel-room supply was almost equal to branded hotel supply being developed/pipeline. This figure has comes down and is ~40% of the number of branded rooms in operations.

Risks: A slowdown in the economy would curtail demand; vulnerable to external factors such as terrorist attacks, epidemic spread, etc.

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