Fundamental Pick

Indian Hotels Company – Bouncing back after trying times

Indian Hotels Company is part of the Tata group and operates hotels in various segments like the Taj luxury hotels, Vivanta upscale hotels and budget hotels under the Ginger brand. The last two years were a testing time for the hotel industry due to the pandemic and FY21 saw most companies report losses. Things started improving with every passing quarter of FY22 and Indian Hotels Company FY22 numbers give confidence on its prospects for the next few quarters.

CMP: 256.5 (Close of April 29, 2022)

Short Term Target: 300 [17% Potential Upside] (1-2 months)

Long term Target:  400 [56% Potential Upside] (one year)

Data as on 02 May 2022

Highlights of Q4FY22 results

• After a series of quarters with net losses, Q3FY22 and Q4FY22 delivered net profits of Rs 76 crore and Rs 74.2 crore respectively.
• Revenues at the end of Q4FY22 stood at Rs 954.9 crore, 15% lower than Q3FY22.
• Revenues in Q4FY22 were affected by the Omicron variant in the month of January 2022, lowering the revenues and net profits over the previous quarter.
• Q4FY22 also witnessed increasing occupancy in domestic as well as international properties.
• The company signed a total of 19 deals for new hotels and opened 13 new properties in Q4FY22.

Signs of recovery have started showing from Q4FY22

The hospitality industry was undoubtedly one of the worst hit due to Covid-19 and Indian Hotels, with its wide portfolio of hotels was also badly hit. In FY21, the revenues dropped to a third of its revenues in the previous financial year, and it posted a loss of Rs 720.1 crore in FY21.

It managed to bounce back in FY22, with growing revenues and reduction of losses on an annual basis. While the revenues in FY22 are far from the pre Covid levels, the initiatives taken over the last few years are expected to play out through FY23, which is expected to cross the FY20 revenues.

Rising occupancy in properties across domestic and international properties

Based on the data shared in the investor presentation, it is seen that while occupancy was lower across each of the regions in India in January 2022, on account of the Omicron variant, while February and March 2022 saw rising revenues across regions.

All numbers are in Rs Crore

Data Source: Company Investor Presentation

Similar was the case for international properties also. Across USA, UK, Dubai and Africa, revenues rose consecutively for the three months of Q4FY22. Sri Lanka too registered higher sales in March, but going forward this would be an area of concern due to the ongoing crisis in that country. However, it would not be so large as to have an overall impact in the total revenues of international properties in FY23.

All numbers are in Rs Crore

New initiatives help contribute to the topline

During the last two years, many new initiatives have helped the company to expand into different segments and areas of operation which added to the revenues in a meaningful way.

They launched Qmin services in the food and beverage category, which delivered food to customers’ homes from select restaurants in their metro-based properties. While this service was offered in 20 cities, it generated revenues to the tune of Rs 66 crore for the company. The company plans to extend this to more than 25 cities in the coming quarters.

The company also forayed into smaller/home stay style properties under the Ama brand. These have grown to 80 properties and the company plans to reach a total of 500 properties under this brand.

These initiatives have not only helped generate revenue but also contributed towards improving the EBIDT margins.

A crucial financial metric for any company is the EBIDT and EBIDT margins. While pre Covid margins were healthy, they dropped drastically during FY21 to a negative return. We saw these bounce back in FY22 with an EBIDT of Rs 559.9 crore and a healthy margin of 17.4%.

Expansion on in full swing

The company is going all out in expanding the hotel properties across its brands. In Q4FY22, they opened 3 properties under the Taj brand, 2 under Seleqtions, 5 under Vivanta and 3 new properties under the Ginger brand.

The expansion plans in the pipeline include a total of 60 new hotels, with 40% being developed under the Ginger brand. The company has also chosen to shift to asset light model, whereby Indian Hotels would only operate the properties under a management contract. From new projects in the pipeline, 74% fall under this model, while remaining 26% would be owned and operated by Indian Hotels.

The company has made financial decisions which would bode well in the long run. It closed a Rights issue of Rs 2000 crore in December 2021, closed a QIP of another Rs 2000 crore in March 2022. The company has also reduced its debt from Rs 3,571 crore in September 2021 to a cash surplus of Rs 106 crore in March 2022.

Conclusion: Bright prospects for FY23

With gradual return to profitability over the last two quarters, massive expansion plans are underway and addition of newer business lines like the Qmin and Ama properties, FY23 could see the company post higher numbers than that of pre Covid levels.