I was intrigued by the 80% gain seen in Indian Hotels during the past year, market cap having reached Rs. 48,343 Cr. My first thought was that it could be due to tailwinds from the sharp recovery in the travel industry, which resulted from pent-up demand after the pandemic-induced slowdown. But I was still trying to make sense of the 12x P/S and 250 x P/E.
Annual Report FY22
Managment Promise (AHVAAN 2025, Reset in strategy)
- Increasing EBITDA to 33% by FY 25 Enhanced productivity and manpower optimisation, optimising hotel expenditure and reduction in corporate overheads
- Turning net debt zero
- 50:50 Owned vs managed portfolio Adopting asset light model, will continue to grow through managment contracts and increasing managment fees growth.
- 300+ hotel portfolio
Capital raised – Rs. 4000 Cr from Rights issue & QIP.
Capital utilised – Paid off Rs. 3176 in debt.
Bought remaining stake in Ginger hotel.
“We believe that the strongest growth in customer demand is expected from the lower end of the spectrum and having a strong brand presence catering to the segment is critical to IHCL’s growth.”
What they have been able to achieve and what they are guiding for future!!
My thoughts on the industry and business?
Strong growth has been seen by the hospitality industry as a whole.
- They have been able to take Price increase and the Average revenue per room has grown; during our travels also, we have experienced the same.
- Occupancy has started crossing pre covid levels in most cities due to the higher domestic travel in leisure segment and corporate travel returning. When the inbound travels return the occupancy should be expected to cross pre-covid significantly.
- For international destinations occupancy is still low, they have taken price increase but RevPar still remains lower to pre-covid.
What was initially thought as pent up demand in domestic travel is now seen as a shift. The hotel industry will benefit from increasing purchasing power of Indians and their changing travel habits.
The asset light model, is helping them deleverage their balance sheets, improve their capital turns and focus on their strengths (managment of properties). The company has been prudent in making capital decisions; acquisition of ginger hotels, in order to focus on millennials (but needs to be seen how they perform in smaller markets), and within the luxury segment (Taj) to focus on renovations for older properties. Newer businesses like Home stays is also a great addition as preferences have changed towards the same for larger groups and long stays. Restructuring their Taj brand into a premium segment will help them charge a higher Room rate.
For positive changes at an EBITDA level the company has worked on bringing down costs and promising to sustain them, and at the PAT level there will be benefits seen from the decreased Depreciation (due to adoption of asset light model in new businesses) and the reduce interest cost (due to debt reduction).
What I think will be the impact due to all of the above!!
A sharp recovery can be expected.
Capital employed has come down with reduced debt; and based on the Q1 performance overall profits are expected to show a sharp increase.
The recovery at international destinations has been slower from pre-covid levels, if anything they could be the ones to bring down the returns at a consolidated level.
Covid must have been the trigger for managment to draw down a clear strategy and dodge the pandemic. Reduced costs, asset light model have given some very positive results. Now when they are looking to sustain these positive changes they will show results with increased earnings and better cash generation; making more sense of the multiples they are currently trading at.
Being an ITC shareholder, I should see how their hospitality business is doing with respect to IHL and what is the multiple the business will get once their hotel business is de-merged.