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Redefining hospitality leadership

Indian Hotels (IH) has emerged as a compelling growth story in the Indian hospitality sector following its transformative journey during FY17 to FY24. With a notable financial turnaround, expansions across traditional and new businesses, and a clear strategy for long-term growth, IH has become a market leader in the industry. At its Capital Market Day conference, IH has laid out its roadmap for the next five years – ACCELERATE 2030.

* IH aims to become the most valued, responsible, and profitable hospitality ecosystem in South Asia. The company plans to expand its portfolio to 700 hotels (including pipeline), double consolidated revenues to INR150b, and achieve 25%+ of revenues from innovative and reimagined businesses like Ginger, Qmin, and TajSATS.

* Traditional businesses (75% of revenues) will grow through RevPAR leadership, asset management, and managed inventory expansion, with management fees surpassing INR10b. New ventures, scaling at a 30%+ CAGR, and reimagined businesses will help IH sustain high margins and 20%+ RoCE, supported by a capitallight growth model and operational excellence.

* IH anticipates industry tailwinds to remain intact in the longer run, driven by higher demand (9-11% CAGR) and limited supply (7-8% CAGR). Most of the supply is coming in Tier 2/3 cities, thereby benefiting Tier 1 markets. It also plans to tap into the growth in the MICE segment (Meetings, Incentives, Conferences and Exhibitions), in which the industry clocked 18% CAGR. Emerging trends like wellness, sustainable tourism, and digital nomad-friendly stays also offer strong growth opportunities.

* We believe the company’s strong operational performance, portfolio diversification, and focus on sustainability will provide a robust foundation for its ambitious 2030 goals. We have largely maintained our FY26 EBITDA estimates (+3%) and raised our FY27 estimates by 8% to incorporate healthy ARR growth (~7% YoY), a robust hotel pipeline and an increase in F&B revenue, backed by healthy MICE growth. We maintain BUY with a TP of INR880 (based on FY27E SoTP).

Unveils plans for accelerated growth

* IH has showcased a robust transformation journey from 2017 to 2024, with significant revenue growth (8% CAGR), profitability enhancement (EBITDA margin expansion from 16% to 33%), operational expansion (from 155 hotels to 350+), and the creation of strategic new brands and businesses (Ginger, ama, Qmin and Chambers).

* IH has laid out its next five-year business plan “Accelerate 2030” in its Capital Market Day event, outlining key growth targets to be achieved by FY30.

* Growth will be driven by three core strategies: 1) portfolio expansion to 700+ hotels (from 350+ currently), 2) evolution of brandscape (healthy synergy between all brands), and 3) operational excellence.

* IH plans to double its hotel portfolio by 2030 to 700+ (including pipeline) with over 500 operational hotels across brands. While the like-for-like revenue growth is expected to clock high single digit CAGR 7-9% over FY24-30, IH targets to double its consolidated revenue by CY30 to over INR150b (i.e. ~14% CAGR).

* The revenue target will be achieved by four key factors: growing traditional hotel business (RevPAR growth and hotel expansion), stable strong momentum in new business (Ginger, Qmin, ama, Tree of Life - expected CAGR of 30%), healthy growth in management fees led by addition of new units (expecting 15- 18% CAGR), and increasing contribution from reimagined business (TajSATS and Chambers).

* A healthy momentum in portfolio expansion and robust revenue growth will boost EBITDA margins. Although management has not given any margin target, it expects margin to be directionally positive, aided by an improving mix of value-added business, continued cost rationalization & digitalization, and operating leverage. While TajSATS’ consolidation will result in margin reduction due to its lower margin profile, we believe this will be absorbed by healthy growth in other new businesses.

* And lastly, management touched upon its capital allocation strategy, which has a good mix of growth capex (brownfield/improvements- 20-25% of EBITDA and greenfield – 15-20%), dividends (12-15%) and inorganic opportunities (10-20%). The company has earmarked capex of ~INR50b over the next five years for building new properties (Ranchi, Shiroda, Lakshadweep, Aguada Plateau & Bandstand), expanding existing hotels, renovations, and digital upgrades.

* With all these initiatives, IH targets to generate over 20% RoCE by FY30 vs. ~15% in FY24.

Multi-business strategy accelerates growth

* IH’s consolidated revenue is projected to grow from ~INR68b in FY24 to over INR150b by FY30, with an enterprise revenue target of over INR300b. This growth is expected to be driven by high-value expansions in traditional businesses and accelerated contributions from new ventures.

* The company expects traditional businesses to be driven by RevPAR growth, asset management initiatives, and ongoing expansions. Within traditional businesses, assets are owned under Taj, Vivanta, SeleQtions, and Gateway brands.

* The company expects like-for-like business growth in high single digits going ahead, led by ARR growth amid limited supply in active development across key cities. All-India branded inventory is expected to clock a 6.6% CAGR over FY24- 29 vs. 6.9% CAGR over FY19-24. As per the management, ARRs have to grow at a sustainable rate of ~7-10% going ahead for any new greenfield projects to be viable.

* Growth in traditional businesses is also expected to come from the repositioning of key assets (protecting and polishing crown jewels e.g. Taj Mansingh, Taj Usha Kiran, St James court, Taj Cape town etc.). ? For expanding its traditional asset base, IH is focusing on Tier 2/3/4 cities in India, leveraging untapped potential. Its international expansion is concentrated on the Middle East, South Asia, and Western markets via capital-light models.

* New businesses such as Ginger, Qmin, Ama's and Tree of Life are expected to clock a CAGR of over 30%.

* Ginger, reimagined in 2018, is positioned as a scalable mid-scale brand with 100 operational hotels as of Oct’24, and IH plans to expand to 200+ by 2030. Success stories like Ginger Santacruz, with 87% occupancy, ~INR6,000 ARR and ~52%

margins, highlight its strong growth potential. Ginger Santacruz has revenue potential of ~INR1b (vs. current revenue of ~INR520m).

* Qmin: Expansion of Qmin includes delivery services, standalone QSR outlets, and in-hotel restaurants, and leveraging the brand’s synergy with TajSATS kitchens. IH will maintain the capital-light growth approach to new Qmin stores (Airports and Kiosks) and QSR.

* amã Stays & Trails portfolio will be dominated by management contracts, with only few propertied to be kept on the balance sheet (currently 15 in portfolio). IH currently has a portfolio of 227 bungalows (as on 31st Oct'24), which it expects to increase to over 750 bungalows by CY30.

* Tree of Life - This boutique hotel brand will continue to grow through capitallight leases & management contract. IH has a portfolio of ~19 properties (as on 31st Oct'24) and expects to reach ~100 properties by CY30.

* Management fee is expected to clock ~15-18% CAGR, primarily driven by net unit growth. IH will continue increasing the share of capital-light inventory to ~57% in FY30. The company expects management hotel rooms to clock ~12-15% CAGR and management fees are expected to cross INR10b by CY30.

* Reimagined businesses such as TajSATS and Chambers will maintain their growth momentum.

* TajSATS currently has ~59-60% market share, with revenue expected to more than double by CY30. It will focus on expanding capacity in existing kitchens and putting up new kitchens at Noida, MOPA & Gurugram. IH has launched a new brand in Taj SATs, called Nekta (similar to Qmin), and this is expected to generate 20-25% of TajSATS business going ahead. Revenue from TajSATS is expected to grow significantly as air travel recovers and catering demand rises.

* The Chambers (exclusive business club) is expanding into premium markets like New Delhi, Dubai, and London, which ensures steady revenue growth. New Chambers are planned at Taj Frankfurt by FY26, adding to its portfolio of highvalue offerings.

* Expected revenue mix by FY30: ~60-65% from traditional businesses, 15-18% from new businesses, 12-14% from reimagined businesses, and 7-10% from management fees (vs. ~86%/6%/2%/6% in FY24 and ~91%/4%/1%/4% in FY17).

Industry tailwinds to continue in longer run

* IH expects multiple 'long-term structural tailwinds' will aid its growth trajectory going ahead. These include: i) resilient consumption within the industry, and ii) favorable demand-supply dynamics, with demand growth (~9-11% CAGR) outpacing supply growth (~7-8% CAGR).

* Supply will continue to be constrained due to multiple challenges involved in building a hotel. Further, ~75% of the new hotels will be coming up in Tier 2/3/4 cities, leading to more favorable demand-supply dynamic within Tier 1 cities.

* Apart from this, the company will continue to focus on MICE as the hotel industry is expected to clock an 18% CAGR in MICE by CY30.

* IH is witnessing multiple emerging trends within the industry, such as increasing inclination toward wellness, sustainable tourism, and digital nomad-friendly stays, which the company will look forward to tapping into.

Valuation and view

* IH is a frontrunner in the hospitality sector with its strategic vision, operational excellence, and innovative growth avenues. Its ‘Accelerate 2030’ plan highlights its ambitious growth strategy, with a focus on doubling its hotel portfolio, driving 14% revenue CAGR, and achieving a balanced revenue mix from traditional and new businesses. The company’s capital-light approach, emphasis on RevPAR leadership, and expansion into emerging trends like wellness and sustainable tourism will ensure IH captures the robust demand.

* We believe the company's financial discipline and operational agility position it to achieve its 2030 goals. Over FY24-27, we expect IH to deliver a CAGR of 18%/24%/26% in revenue/EBITDA/Adj. PAT.

* We have largely maintained our FY26 EBITDA estimates (+3%) and raised our FY27 estimates by 8% to incorporate healthy ARR growth (~7% YoY), a robust hotel pipeline and an increase in F&B revenue, backed by healthy MICE growth. We maintain BUY with a TP of INR880 (based on FY27E SoTP).

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