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Reinventing the hospitality landscape

Indian Hotels’ (IH) transformational journey over the past decade is marked by bold strategic moves—embracing an asset-light model, reimagining Ginger Hotels, and expanding into new segments. With visionary leadership at the helm, the company has reinforced its legacy while sustaining profitable growth in the hospitality sector.

* IH has rapidly embraced an asset-light growth strategy, with management contract room keys expanding at an 18% CAGR during FY19-24, far exceeding the 2% CAGR of owned hotels. This shift, driven by superior 70-75% EBITDA margins in management contracts, has significantly increased their share across key brands, enhancing scalability and profitability.

* IH’s initiative to transform Roots Corp. (RCL) into a lean luxe segment has resulted in a 13% revenue CAGR and 55% EBITDA CAGR over FY19-24. With 874 new rooms planned under the Ginger brand by FY27 and a rising share of managed hotels, RCL continues its aggressive expansion, leveraging Qmin integration to enhance growth and profitability.

* New growth segments, The Chambers and Taj Sats, have seen a remarkable CAGR of ~22% and ~11 in revenue over FY17-FY23, respectively. Both these segments are expected to contribute 12-14% of IH’s total revenue by FY30E (vs. 2% currently), significantly enhancing margins.

* To strengthen its grip and capitalize on the booming industry, IH has been increasing its stake in key subsidiaries such as RCL, Piem, Taj Cape Town and IHOCO BV, thereby gaining better control and flexibility to align these subsidiaries with its strategies.

* We expect IH to deliver a CAGR of 18%/24%/26% in revenue/EBITDA/adjusted PAT over FY24-27. We maintain BUY with our FY27 SoTP-based TP of INR950.

IH accelerates growth with asset-light expansion and ARR surge

* IH has a compelling growth story in the Indian hospitality sector, driven by a transformational journey during FY18-24. The company’s remarkable financial turnaround, strategic expansion in both core and emerging segments, and well-defined roadmap for sustained long-term growth have firmly established it as a market leader.

* The proportion of room keys under management contracts has demonstrated a CAGR of 18% over FY19-24, surpassing the 2% CAGR recorded by owned hotels. This highlights IH's deliberate shift toward a high-margin, asset-light growth strategy, leveraging management contracts to drive scalability and better profitability.

* This shift in its portfolio composition is primarily attributed to the superior EBITDA margin profile of management contracts (70-75%).

* The growing share of management contracts in key brands further reflects this strategic transition. The number of management contract rooms as a proportion of total rooms in Vivanta/Taj/SeleQtions/Ginger rose to ~65%/ ~46%/~61%/~20% as of 9MFY25 from ~51%/~27%/~20%/~15% as of FY19.

* The share of Taj/Seleqtions in total management contracts has increased to 57%/7% as of FY24 from 52%/3% as of FY19. The company has also added the Tree of Life brand, which formed 2% of total management contracts as of FY24.

* While considering the brand mix of inventory at the standalone level, Taj’s share has declined from 81% in FY19 to 78% in FY24, showcasing an expansion in other brands’ share. A similar trajectory can be seen at the group level, wherein Taj’s share has fallen to 53% as of FY24 from 57% as of FY19.

* IH plans to augment its portfolio by adding 3,927 rooms in FY26 and 4,164 rooms in FY27 (to reach to 34,521 keys by the end of FY27 vs. 25,935 in Dec'24), reflecting a robust growth trajectory.

* The company has continued to focus on management contracts, as they will account for a substantial 84%/87% of the planned room additions during FY26/FY27. This approach minimizes capex and enhances return on investment.

* The brands with stable growth trajectories, i.e. Taj/SeleQtions/Vivanta, are expected to add 3,506/754/1,640 rooms (owned and managed) during FY26-27, indicating a balanced growth approach across luxury and premium brands.

* If management’s guidance turns out as expected, IH plans to end FY27 with 18,664 management contract keys and 15,857 owned keys, taking the total to 34,521 keys from 25,935 keys as of 9MFY25.

The strategic mind behind IH’s new era

* Prior to FY18, IH faced several issues such as a complex corporate structure, higher international expansion, higher costs, and less operational efficiency, leading to low profitability.

* A pivotal turning point for IH came in Nov’17 with the appointment of Mr. Puneet Chhatwal as MD and CEO, marking the beginning of a strategic transformation that redefined the company’s direction and growth trajectory since FY18. A veteran in this industry with over 20 years of experience, Mr. Chhatwal played a pivotal role in addressing all the major issues mentioned above and turned IH into a highly profitable organization.

* He mooted that the balance of revenues be shifted from the Taj brand to other brands in IH’s portfolio, and shifted the focus to its India businesses, rather than those outside the country.

* A notable initiative in this direction was Qmin, launched in Jul’20 (during Covid), which enabled IH to extend its signature culinary offerings beyond its restaurants, delivering curated dining experiences. However, Qmin now mainly focuses on providing restaurant services through IH’s Ginger brand.

* This transformation also catalyzed the revamp and repositioning of the Ginger brand, evolving it from an affordable stay concept to the lean luxe model. Additionally, IH introduced a new brand, SeleQtions, in Apr’19, further diversifying its portfolio and enhancing its premium offerings.

? Another key milestone for Mr. Chhatwal will be positive development on Taj Bandstand (Searock) Hotel, which has been underwater for many years. IH has laid the foundation stone of the hotel and is expected to start development soon once they receive the final leg of approvals and clearances.

IH transforms Ginger hotels with robust growth plans

* Ginger, which underwent a transformation in 2018, has since witnessed stable momentum, prompting IH to increase its stake in RCL—the operator of Ginger hotels—to 100%, thereby strengthening its position in the lean luxe segment

* IH not only revitalized Ginger but also accelerated the expansion of Qmin by integrating it across Ginger properties, also popularly known as Qminization, further strengthening this segment’s growth trajectory. ? As a result of this transformation, RCL has delivered a revenue CAGR of 13% and an impressive EBITDA CAGR of 55% during FY19-24, showcasing its strong financial turnaround and operational excellence. ? With ambitious growth plans, RCL is set to unleash a wave of expansion, adding 874 new rooms over FY26 and FY27, of which 16% will be managed rooms. This marks a strategic shift toward a dynamic mix of owned, leased, and managed properties, maximizing profitability while scaling aggressively.

Rapid expansion across new segments

* Building on TAJ legacy, IH has increased its focus on spreading its exclusive club The Chambers across marquee hotels. It has witnessed a spectacular surge in annual fees at a CAGR of ~22% (FY17- FY23), with a target to reach INR1,500m by FY25E under the AHVAAN campaign.

* With margins of 80-85%, the continued expansion of The Chambers is set to be a major profitability driver. The Chambers brand is set to add another club Taj Hessischer Hof, Frankfurt, by 4QFY26, strengthening its global footprint and catering to an elite international clientele.

* Taj SATS continues to soar, with revenues climbing from INR6.4b in FY23 to INR6.8b in 9MFY25, alongside a remarkable jump in EBITDA margins from 19.8% to 25.4%. This impressive performance is a testament to superior operational efficiencies and a refined business mix.

* As the leader in India's air catering industry, Taj SATS commands a dominant 50%+ market share, significantly outpacing its two closest competitors.

* IH has guided for a revenue share of 12–14% from The Chambers and Taj Sats combined, by FY30E, a massive leap from the current 2% contribution. This strong growth is expected to significantly enhance margins and profitability.

Strengthening positions across key subsidiaries

* To strengthen its grip and capitalize on the booming industry, IH has been increasing its stake across key subsidiaries, thereby gaining better control and flexibility to align these subsidiaries with its strategies.

* A classic example is the transformation of Ginger hotels after purchasing the remaining stake in RCL for ~INR50m. Apart from this, IH has been increasing its control in other key subsidiaries.

* IH executed a definitive agreement in Oct’23 to acquire an additional 6.8% stake in PIEM Hotels from New Vernon Private Equity for INR1.3b, increasing its ownership to ~58%.

* The decision to increase its stake in PIEM Hotels was driven by consistent growth in EBITDA (~27% CAGR since FY19), reinforcing confidence in the subsidiary’s long-term value and performance.

* IH has infused USD9m (INR772m) in equity into its wholly owned subsidiary, IHOCO BV, to support investment in its US-based subsidiary, United Overseas Holding Inc. (UOH). The funds will be utilized for debt repayment and other operational purposes, ensuring financial stability and stable growth of UOH.

* In Jul’20, IH streamlined its ownership structure in Taj Cape Town by acquiring the remaining 50% stake in IHMS Hotels (SA) Pty Ltd from Tata Africa Holdings for USD1m (~INR75m), due to its increased confidence in its subsidiary.

* We expect many such transactions in other important subsidiaries to restructure and simplify IH’s business structure.

Valuation and View

* IH’s growth outlook remains strong, led by healthy traction in the core business and an accelerated growth trajectory in the 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, an asset management strategy (upgrades in hotels), and corporate rate hikes; 2) higher occupancy amid favorable demand-supply dynamics; 3) a strong room addition pipeline until FY28 in both owned/leased and management hotels; 4) higher income from management contracts; and 5) value unlocking by scaling up reimagined and new brands.

* We broadly maintain our FY25/FY26/FY27 EBITDA estimates and reiterate BUY with our SoTP-based TP of INR950.

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