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Operating performance in line with our estimate

Indian Hotels (IH) reported consolidated revenue growth of 16% YoY in 3QFY24, primarily led by a strong 21% YoY revenue growth in standalone business due to high ARR (up 17% YoY) and better occupancy (up 470bp YoY). IH’s subsidiary business grew 9% YoY. The consolidated management contract revenue rose 13% YoY to INR1.3b in 3QFY24.

Factoring in IH’s strong 3Q performance, we raise our FY25/FY26 EBITDA estimates by 9%/16%. This is aided by a strong room addition pipeline with a ~2%/10% growth in standalone management rooms for FY25/26E, thereby increasing management fees by 3%/11%. We further raise our standalone ARR growth estimates to 8%/6% in FY25/26 from 5%/4% earlier. Reiterate BUY with an SoTP-based TP of INR615.

Broad-based performance aided by a healthy demand and accelerating growth businesses

IH’s consolidated revenue grew 16% YoY/37% QoQ to INR19.6b (in line). EBITDA grew 23% YoY/2x QoQ to INR7.3b (est. INR7b). Adjusted PAT grew 18% YoY/2.7x QoQ to INR4.5b (est. INR4.2b).

Standalone revenue/EBITDA rose 21%/27% YoY to INR12.8b/INR5.6b (up 43%/2x QoQ), aided by a strong ARR growth (up 17% YoY/40% QoQ) to INR18,111. Occupancy improved 470bp YoY and 90bp QoQ to 76.8%.

Subsidiary (consol. less standalone) sales at INR6.8b grew 9% YoY/26% QoQ. Subsidiary EBIDTA came in at INR1.7b, up 10% YoY/2.2x QoQ.

IH’s new and re-imagined business verticals comprising Ginger, Qmin, amã Stays & Trails, The Chambers (membership fee) and TajSATs posted a revenue of INR4.2b (up 33% YoY; ~2x growth vs. its core enterprise revenue).

Highlights from the management commentary

Outlook: The company has witnessed a healthy demand in Jan’24, in line with that of 3QFY24. Demand pick-up in Feb’23 was also strong. Management expects a healthy performance in 4QFY24, and it has guided for a double-digit revenue growth in FY25.

RevPAR growth in key markets such as Mumbai/Delhi & NCR/Bengaluru/Goa stood at 25%/15%/18%/11% YoY in 3QFY24. Kolkata/Rajasthan/Hyderabad witnessed RevPAR growth of ~22% each.

New brand launch: IH will launch a new brand to accelerate growth in Tier 2 and Tier 3 cities. The price points (ARR) of new brand are likely to be higher than Ginger but lower than the ~INR10,000 mark (i.e., ~INR8,000-9,000).

New and reimagined businesses are expected to grow ~30% p.a. going ahead. The company is targeting a revenue of ~INR6b/INR10b from Ginger/ TajSATs in FY25.

Valuation and view

We expect the strong momentum to continue in 4QFY24/FY25, led by: 1) an increase in ARR due to healthy demand, asset management strategy (upgrades in hotels), and corporate rate hikes; 2) sustaining higher occupancy levels led by favorable demand-supply dynamics; 3) strong room addition pipeline till CY27 in both owned/leased (2,641 rooms) and management hotels (8,473); 4) higher income from management contracts; and 5) value unlocking by scaling up reimagined and new brands

Factoring in IH’s strong 3Q performance, we raise our FY25/FY26 EBITDA estimates by 9%/16%. This is aided by a strong room addition pipeline with a ~2%/10% growth in standalone management rooms for FY25/26E, thereby increasing management fees by 3%/11%. We further raise our standalone ARR growth estimates to 8%/6% in FY25/26 from 5%/4% earlier. Reiterate BUY with an SoTP-based TP of INR615.

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