Buy Indian Hotels Ltd For Target Rs.960 by Motilal Oswal Financial Services Ltd
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Healthy RevPAR growth boosts revenue
Operating performance in line with our estimate
* Indian Hotels (IH) reported strong consolidated revenue growth of 29% YoY in 3QFY25, led by healthy RevPAR growth of 15% (ARR up 13% and OR up 120bp YoY) in its standalone business. Like-for-like hotel revenue growth stood at ~15% YoY, while TajSats grew by 18% YoY. The new and reimagined business reported 40% YoY growth. Management contract revenue rose 32% YoY to INR1.8b (including INR100m in brand and technical fees).
* IH upholds its double-digit revenue guidance, as healthy demand across key cities should help IH sustain higher OR and increase ARR. We expect IH to replicate a similar performance in 4QFY25, with revenue/EBITDA/adj. PAT likely to grow 31%/34%/26% YoY, aided by a strong wedding season (higher dates in 4Q YoY), an increase in FTA, and healthy traction in the MICE segment led 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 INR960.
New and Reimagined business propel operating performance
* 3Q consolidated revenue/EBITDA/adj. PAT grew 29%/31%/29% YoY to INR25.3b/INR9.6b/INR5.8bb (all in line with estimates).
* Standalone revenue/EBITDA rose 15%/22% YoY to INR14.7b/INR6.8b, aided by OR growth (up 120bp YoY to 78%) and increase in ARR (up 13% YoY to INR20,440). RevPar grew 15% YoY to INR15,943.
* For subsidiaries (consol. less standalone; including TajSATS), sales/EBITDA grew 55%/61% YoY to INR10.6b/INR2.8b.
* IH’s new business verticals, comprising Ginger, Qmin, and amã Stays & Trails, grew 38% YoY to INR1.6b, while TajSATs posted 18% YoY growth to INR2.7b. Chambers reported YTD revenue of INR1b (+18% YoY).
* Revenue from key subsidiaries, UOH Inc./St. James/PIEM/Roots/Oriental /Benares, grew 20%/2%/15%/29%/15%/18% YoY to INR2.6b/INR1.3b/ INR1.9b/ INR1.3b/INR1.2b/INR400m in 3QFY25.
Highlights from the management commentary
* Demand: IH is on track to achieve double-digit revenue growth in FY25, driven by strong demand from large-scale events, domestic tourism, an extended wedding season, increased travel to spiritual destinations, and favorable weather for foreign tourist arrivals, with key sporting and business events further boosting traction.
* Sea Rock: IH received the intimation of disapproval (most important before starting a construction) for its Sea Rock hotel. It expects construction to commence in 2HCY25.
* International business: The international consolidated portfolio achieved 78% occupancy (+400bp YoY) with 9% RevPAR growth, driven by a 25% increase at The Pierre, New York. The US market is poised for a strong 4QFY25 due to the swearing in of the new President.
Valuation and view
* The outlook remains strong for IH, 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, asset management strategy (upgrades in hotels), and corporate rate hikes; 2) higher occupancy levels amid favorable demand-supply dynamics; 3) strong room addition pipeline until FY28 in both owned/leased (3,564 rooms) and management hotels (14,100); 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 INR960.
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