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Strong growth trajectory continues; outlook remains optimistic Operating performance in line with our estimate

* Indian Hotels (IH) reported a strong consolidated revenue growth of 27% YoY in 2QFY25 led by healthy demand across regions. Like for like revenue growth stood at ~16% YoY (ex. consolidation of TajSATS). Standalone business revenue grew ~16% YoY, driven by an increase in ARR (up 10% YoY) and better occupancy (up 150bp YoY). Management contract revenue rose 15% YoY to INR1b.

* IH maintains its double-digit revenue guidance with new and reimagined businesses likely to accelerate the growth trajectory. We expect a strong performance in 2H, led by strong wedding seasons (~30% YoY higher wedding dates), increase in FTA, and healthy traction within the MICE segment aided by convention centers and favorable demand-supply dynamics.

* We broadly maintain our FY25/FY26 EBITDA estimates and reiterate BUY with our SoTP-based TP of INR770.

Healthy ARR growth drives operating performance

* Consolidated revenue/EBITDA/adj. PAT in 2QFY25 was up 27%/41%/94% YoY at INR18.3b (est. in line)/INR5b (est. in line)/INR3.2b (est. INR2.5b).

* Standalone revenue/EBITDA rose 16%/26% YoY to INR10.4b/INR3.5b, aided by OR growth (up 150bp YoY to 78%) and increase in ARR (up 10% YoY to INR14,321). RevPar grew 13% YoY to INR11,163. ? For subsidiaries (consol. less standalone; including TajSATS), sales/EBITDA grew 46%/94% YoY to INR7.9b/INR1.6b.

* IH’s new business verticals, comprising Ginger, Qmin, and amã Stays & Trails, grew 47% YoY to INR1.4b, while reimagined businesses, such as The Chambers /TajSATs, posted 21%/19% YoY growth to INR300m/INR2.5b.

* Revenue from key subsidiaries, UOH Inc/St.James/PIEM/Roots/Oriental, grew 25%/6%/13%/31%/12% YoY to INR1.8b/INR1.5b/INR1.35b/ INR1.1b/INR1b, while Benares revenues declined 4% YoY in 2QFY25 to INR260m.

* In 1HFY25, IH’s revenue/EBITDA/Adj. PAT grew 16%/24%/47% YoY to INR33.8b/INR9.5b/INR5.7b; implied revenue/EBITDA/Adj. PAT growth in 2HFY25 is expected to be 30%/34%/27%, led by strong revenue growth coupled with margin expansion 

Highlights from the management commentary

* Outlook: The company has witnessed revenue growth of ~16.5% YoY in Oct’24 with majority of the growth being contributed by an increase in ARR. Management expects this strong momentum to continue in Nov’24 as well. The overall outlook for 2H continues to remain optimistic.

* Guidance: IH is confident of achieving over 10% revenue growth in FY25 (ex of Tajsats consolidation) led by higher wedding dates in 2H (up 30% YoY) and increase in FTA. It targets to open 25/30 hotels in FY25/FY26.

* Capex: The company spent ~INR3.5b in capex in 1H (including INR2b on renovations) and plans to spend ~INR7-8b capex in FY25. There are three greenfield projects under pipeline – 1) Aguada Plateau, Goa, 2) Shiroda, Maharashtra; and 3) Sea Rock that are set for a time-bound development.

Valuation and view

* The outlook remains strong, led by healthy traction within the core business and accelerated growth trajectory in new and reimagined businesses.

* We expect the strong momentum to continue in the medium term, led by: 1) an increase in ARR due to healthy demand, asset management strategy (upgrades in hotels), and corporate rate hikes; 2) higher occupancy levels as a result of favorable demand-supply dynamics; 3) strong room addition pipeline till FY28 in both owned/leased (3,532 rooms) and management hotels (13,822); 4) higher income from management contracts; and 5) value unlocking by scaling up reimagined and new brands.

* We broadly maintain our FY25/FY26 EBITDA estimates and reiterate BUY with our SoTP-based TP of INR770.

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