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Domestic business drives strong quarter

Indian Hotels Company Limited (IHCL) reported a stellar 3QFY24 on a consolidated basis. Revenue increased 16% YoY to INR 14.3bn (1% miss on JMFe) while EBITDA (INR 7.3bn; +23% YoY) was a 1% beat on JMFe. EBITDA margin expanded to 37% (+187bps YoY) vs. our expectation of 36%. Multiple levers fuelled the resilient performance: i) a robust standalone business, ii) new assets (Ginger Mumbai asset already yielding profits), iii) its new business vertical (Ginger, Qmin, TajSATS and others) boasting 33% YoY revenue increase to INR 4.2bn in 3QFY24, and iv) management fee growing 13% YoY to INR 1.3bn during the quarter. The management remains optimistic on achieving double-digit revenue growth in FY25E (on a high base) led by i) a strong development pipeline and ii) growth in new brands and businesses. We maintain a BUY rating and roll forward to a Mar’25 TP of INR 555, valuing it at 25.0x (previously 22.0x) Mar’26 consolidated EBITDA.

Growth led by standalone business: IHCL’s standalone business continued to perform well as occupancy improved to 77% (+470bps YoY; +90bps QoQ) and ARR increased to INR 18,111 (+17% YoY; +40% QoQ). As a result, standalone EBITDA grew to INR 5.6bn (+27% YoY; +104% QoQ) with margin expanding to 44% (+223bps YoY; +1,293bps QoQ). Enterprise level ARR grew to INR 11,792 (+12% YoY; +34% QoQ). Key subsidiaries experienced similar YoY growth levels (for revenue and EBITDA) except for Oriental Hotels, which presently has one hotel under renovation (Taj Malabar Resort & Spa, Kochi). This growth was spurred by one-time events like the ICC Men’s Cricket World Cup, increase in air passenger traffic and a smart recovery in foreign tourist arrivals.

New assets ramping up quickly; aggressive expansion plans: In 3QFY24, IHCL opened three owned hotels, i) Ginger Mumbai Airport (371 keys), ii) Ginger Gangtok (89 keys) and iii) Ginger Noida, Sector 133 (111 keys). It also opened three hotels via management contracts (215 keys; two under Taj brand and one under Vivanta). The Ginger Mumbai Airport hotel in its first month of operations has already clocked occupancy of 80% and ARR of INR 6,500+. Going forward, in CY24, the company is likely to open c. 2,700 keys (across 29 hotels) of which 80% will be via the asset light model.

USA remains a drag on international operations: International operations, especially in the US and Maldives, remain a drag because of macroeconomic factors. In the US and Maldives, ARR declined by 7% and 15% resulting in a RevPAR contraction of 3% and 9% YoY respectively. This has impacted operations of IHCL’s USA subsidiary (UOH) where revenue and EBITDA have declined 2% and 47% YoY respectively. On the other hand, its UK subsidiary, St. James Court Hotels Limited, has performed well (+52% YoY in EBITDA).

Maintain BUY with a Mar’25 TP of INR 555: IHCL’s unmatched pan-India coverage, comprehensive presence across all customer segments, vastly improved brand architecture and sharper focus on capital allocation is yielding results with a positive flow-through into earnings. We maintain a BUY rating and roll forward to a Mar’25 TP of INR 555; valuing it at 25.0x (previously 22.0x) Mar’26 consolidated EBITDA.

Key conference call highlights:

IHCL expects double-digit revenue growth to continue in FY25E as well, driven by three key factors: i) growth in its portfolio, ii) growth in its new brands and businesses, and iii) growth in its traditional business enabled by effective asset management

In 9MFY24, IHCL signed 28 agreements and opened 16 hotels. The company recently opened its 200th operating hotel in Jaisalmer, Rajasthan. IHCL targets to open a minimum of two hotels every month, going forward.

The Ginger Mumbai Airport hotel, which opened in 3QFY24, has become PBT positive in its first month of operations.

IHCL will open a hotel in Ayodhya in less than 12 months. It is a brownfield site where third floor construction has already been completed. It also looking at large home stay opportunities in Ayodhya.

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