Indian Hotels Company Limited: Thriving in the Hospitality Industry

Summary

The Rising demand of Travel is paving the way for hospitality industry to grow multifold in next few year. The fundamental analysis of largest hotel company in India - Indian Hotels

Company Overview:
The Indian Hotels Company Ltd (IHCL) specializes in owning, operating, and managing hotels, palaces, and resorts. As India's largest hotel company, it has recently reported robust financial figures for Q2. 

September 2023 Performance:
In September 2023, IHCL saw revenues increase by 16% YoY, driven by a 20% YoY growth in the domestic market. Domestic Rev Par (revenue per available room) surged by 16% YoY at the enterprise level. Occupancy rates improved by 2.4%, while the average room rate grew by 11% YoY. The international business grew by 9% YoY, with international Rev Par up by 8% YoY. While occupancy rates increased by 8%, average room rates declined by 5% in dollar terms due to USD appreciation.

Operating margins improved by 90 basis points (bps) YoY, contributing to a 37% YoY growth in net profit, reaching Rs 167 crore.

Strong Demand Momentum:
IHCL highlighted strong demand momentum driven by events like the ICC cricket world cup and the wedding season. Foreign tourists, who tend to visit India in Q3 due to pleasant weather, are expected to return in full force this year after pandemic-related disruptions in the past.

IHCL anticipates that the double-digit Rev Par growth trend will persist in Q3, and they project double-digit Rev PAR growth for FY24, indicating ongoing strong demand.

Scaling Up New Businesses:
IHCL is expanding its re-imagined Ginger hotels, offering contemporary interiors and amenities, which has boosted rates. They are also scaling up their Q-Min (culinary food business) and Ama Trails (bungalow stay) businesses.

These new ventures have generated a GMV of Rs 240 crore in H1FY24, approximately 8% of IHCL’s consolidated revenues. A dedicated vertical has been created for these new businesses to enhance growth opportunities.

Sustaining the Industry Upcycle:
IHCL expects the industry up-cycle to continue in the short to medium term. Rising income levels are predicted to drive 8-10% CAGR demand growth from FY23 to FY28, outpacing the expected supply growth of 5-6% over the same period. This favorable demand-supply dynamic should sustain the industry up-cycle.

Strong Inventory Addition Plans:
IHCL plans to add approximately 11,000 keys, which represents 50% of its current operational room count. Inventory growth will occur across segments, with a significant portion added through asset-light management contracts.

Valuations:
At the current market price (CMP), the stock trades at an EV/EBITDA of 23 times FY25 projections. Analysts suggest considering adding the stock to your portfolio, reflecting confidence in IHCL's future growth prospects.

Risk 
The biggest risk Indian Hotel faces is the ever-changing dynamics of Indian Hotel Industry which is going through fast pace growth. Another risk it faces is the success of new businesses which are cash burning. Finding the right property for the expansion and fading away of the tourism demand in the existing locations along with the emerging competition of other players.

 Management of the company is led by seasoned professionals bringing Industry expertise


Peer Comparisons 
Compared with peers, Indian Hotels looks expensive but important to note the facts its backed by Tatas and the financial strength it has.
Financial Highlights



The balance sheet is strong considering strong cash flows and comfortable debt

Way Ahead: