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We assume coverage on Indian Hotels Company (IHCL) with an ADD recommendation and upside of 6.4%. IHCL’s Q1FY25 consol. revenue growth of 5.7% YoY was slower than that in previous quarters, impacted by multiple headwinds, given General Elections, fewer wedding days, and heat wave. EBITDA margin improved by 103bps YoY, aided by operational efficiencies. The company opened 6 new hotels in Q1, and aims to add another 19 in remainingFY25. Management fee growth was strong at 17% YoY. Despite a weak start to the year, the management is confident of reporting double-digit revenue growth in FY25. We cut our FY25/26 EBITDA by 0-3%, factoring in the Q1 performance, and introduce FY27 estimates. IHCL’s diversified revenue stream, operational efficiency, and strong balance sheet keep the company in good stead. However, valuations are rich which limits the upside. We maintain ADD on IHCL, and TP of Rs615/sh (roll over to 26x Jun-26E EV/EBITDA)

Results Summary

Q1 consolidated revenue grew 5.7% YoY to Rs15.5bn, but fell slightly short of Consensus estimates. EBITDA margin expanded by 103bps YoY to 29% in Q1FY25, due to lower RM costs. Consolidated EBITDA grew 9.6% YoY to Rs4.4bn. Standalone revenue grew 4.6% YoY, with EBITDA margin of 35.1%, up 212bps YoY. Standalone occupancy stood at 76%, up by 120 bps YoY. ARR grew 2% YoY to Rs12,906, while RevPAR grew 4% YoY to Rs9,810. SA Room revenue grew 10% YoY to Rs4.1bn, while F&B revenue declined 5% YoY to Rs3bn. Management Fee saw growth of 17% YoY. New business revenue growth was strong at 37% YoY. The company opened 6 new hotels in Q1, and signed for opening another 16 hotels. Free cash flow tripled YoY in Q1 to Rs1.5bn. As of 30-Jun, the company has 224 operational hotels with 24,519 rooms.

Earnings Call KTAs

1) After a subdued Q1, Jul-24 has seen a growth of 20% YoY and Aug-24 is also seeing a good trend. Though Q2 is typically weaker than Q1, management expects Q2 to be stronger than Q1, in FY25. Also, growth in Q1 was impacted by lesser MICE revenue due to lower number of weddings. Occupancy for cities like Mumbai, Delhi, and Goa was >80%; for Bengaluru, Kolkata, and Chennai, it was between 75% and 80%, whereas it was weaker for cities in Rajasthan. 2) Long-term tailwinds are intact for the industry, with supply continuing to lag demand. In upcoming years, demand is expected to grow 10%, while supply should increase 6%. Customers still continue to spend on leisure. 3) IHCL will now consolidate Taj SATS as a subsidiary, effective 1-Aug-24. Taj SATS continues with its market leadership of 59%, with EBITDA margin of 24%. 4) The company has ventured into the new segment of Taj branded residences, with the first to be opened in Chennai. For this, the company will receive brand fee while providing services to apartment owners. This helps it diversify its revenue streams and leverage the strong brand equity of Taj. 5) The company is on track to open 25 hotels in FY25, with a current portfolio of >325 hotels (operational + pipeline).

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