Buy Indian Hotels Company Ltd For Target Rs. 480 - Motilal Oswal Financial Services
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Strong OR and ARR drive operating performance
Operating performance lower than our estimate
* Indian Hotels (IH) reported consolidated revenue growth of 16% YoY in 2QFY24, aided by strong growth in standalone ARR (up 18% YoY) and better occupancy (up 610bp YoY). Consolidated management contract revenue grew 14% YoY to INR870m in 2QFY24.
* We maintain our FY24/FY25 EBITDA estimates and retain BUY with our SoTP-based TP of INR480.
Domestic business drives overall performance
* Consolidated revenue was up 16% YoY/down 2% QoQ at INR14.3b (est. INR14.4b). EBITDA grew 21% YoY but declined 14% QoQ to INR3.5b (est. INR3.9b). Adjusted PAT was up 49% YoY/down 25% QoQ at INR1.7b (est. INR1.7b).
* Standalone revenue/EBITDA grew by 19%/29% YoY to INR8.9b/INR2.7b (flat/down 7% QoQ), aided by strong ARR growth (up 18% YoY/3% QoQ) to INR12,972. Occupancy grew 610bp YoY and 120bp QoQ to 75.9%.
* Subsidiary (consol. less standalone) sales stood at INR5.4b, up 12% YoY but down 6% QoQ. Subsidiary EBIDTA came in at INR810m, flat YoY/down 30% QoQ.
* Revenue from PIEM/Roots/Benares/St. James Court jumped 12%/16%/46%/ 22% YoY, while it declined for UOH Inc by 4% YoY.
Highlights from the management commentary
* Outlook: RevPAR growth has been strong so far in Oct'23, and showing good demand visibility for Nov’23. The management has guided for doubledigit RevPAR growth in 3QFY24 and FY24.
* The majority of growth in FY24 is structural (events like G20 and cricket world cup accounting for just 1-1.5% of total revenue). Accordingly, the management expects to sustain growth in FY25 on the back of a strong demand outlook, coupled with more such events.
* Ginger Santacruz will open in the next two to three weeks, and the management has indicated that this hotel can touch the revenue mark of INR1b in the next three years, with ARR in range of INR6,500 to INR7,000.
Valuation and view
We expect the strong momentum to continue in FY24, led by: 1) a further improvement in occupancy led by favorable demand-supply dynamics and big global events such as ongoing ICC Cricket Men’s World Cup; 2) an increase in ARR due to better demand, upgrades in hotels and corporate rate hikes; 3) higher income from management contracts; and 4) value unlocking by scaling up reimagined and new brands. ? We maintain our FY24/FY25 EBITDA estimates in anticipation of a strong demand environment and ARR improvement. Maintain BUY with our SoTPbased TP of INR480.
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SEBI Registration number is INH000000412
