Indian Hotels Company Ltd. share price target

Indian Hotels Company Ltd. (IHCL) reported healthy Q2FY20 results amid subdued demand, particularly in corporate segment. The company reported net sales of Rs10,074mn (+4.4%YoY). The growth over Q2FY19 was primarily driven by higher occupancy. EBITDA came in at Rs1,605mn (+61.7%YoY), while EBITDA margin improved...

IHCL has historically been paying taxes at 35%+ rates for its domestic operations. Recently, the government announced the option of shifting to a lower tax regime, which the company has opted for. This should leave additional cash in hand, which could be invested back into the business. GST rate reduction for hotels was also a shot in the arm for the hospitality industry. IHCL should benefit significantly as most of its portfolio earlier attracted 28% GST (now reduced to 18%) and now gets ~10% cheaper. Hotel players are seeing lower resistance from corporate customers towards...

11 November 2019 YoY to INR10.1b (v/s est. Adjusting for Ind-AS116 impact, EBITDA grew 16% YoY to INR1,153m. Like-to-like EBITDA margins expanded 120bp YoY to 11.4% due to operating leverage and cost rationalization measures. Reported PBT loss was at INR52m in 2QFY20 v/s loss of INR120m in 2QFY19. Adj. PAT stood at INR716m (v/s est. INR315m), up 1.8x YoY on account of deferred tax benefit. For 1HFY19, revenue/EBITDA (like-to-like)/ PAT grew 4%/16%/27%. revenue grew 5% YoY to INR6b in 2QFY20 on the back of 430bp YoY improvement in occupancy to 68.2%.

We initiate coverage on Indian Hotels Company Ltd. (IHCL) with a BUY and TP of Rs189, valuing core business at 20x EV/EBITDA on FY21E and investment in JVs (Taj GVK and Oriental Hotels) on current market capitalization. We like IHCL in domestic hospitality space considering 1) its diverse portfolio offerings across key cities in India, 2) robust expansion plan, mostly through management contract route, 3) well strategized Aspiration 2022' for inventory expansion, debt reduction and operating margin improvement, 4) strategic partnership with GIC to acquire premium hotel assets in the domestic market, 5) repositioning of Ginger brand to drive higher sales growth and...

During the quarter, Indian Hotels signed a strategic partnership with Singapore's sovereign wealth fund GIC Pte Ltd to jointly invest around | 4,000 crore over three years. This platform would need IHCL to invest 30% of the equity while the JV would own hotels funded by a mix of debt and equity. This would enable Indian Hotels to reap the benefits of owning a property without significantly adding leverage on its balance sheet. It could also provide opportunities to IHCL for monetising its hotel(s) through this JV. Further, the company has already been shifting focus towards...

Consol. revenue/EBITDA largely in-line: Consol. revenue grew by 4% YoY to INR10.2b (our estimate: INR10.3m). Adjusting for Ind-AS 116 impact, liketo-like EBITDA was up 16% YoY at INR1,287m (our estimate: INR1,219m), with the margin expanding 130bp YoY to 12.6% (our estimate: 11.9%). Adj. PAT declined 82% YoY to INR34m (our estimate: INR154m) on account of lower profit at JVs/associates (INR45m v/s our estimate of INR96m) and higher tax (1QFY19 had a tax benefit). mainly driven by UK/US hotels: Standalone revenue was up by only 1% YoY to INR5.7b, impacted by a 2.5% decline in RevPAR amid elections....

As part of its 'Aspiration 2022' strategy, IHIN aims to reduce costs by 3-5pp via-initiatives such as (a) entering into an arrangement that will save power cost to the tune of INR70m/year for Taj Lands End and Taj Mahal Hotel and (b) providing shared services to hotels located in vicinity

In the medium term, the JV could potentially add between Rs 6-14/sh to IHCL (4-10% of CMP). IHCL is our preferred pick in hospitality space. Reiterate BUY with TP of Rs 176 (20x FY21E EV/E). Indian Hotels (IHCL) has entered into a strategic partnership with Singapores sovereign wealth fund GIC for expansion with potential investments of Rs 40bn ($600 mn) over three years. We see this partnership as significantly positive for IHCL from strategic perspective and even on financial standpoint but with a lag. IHCL is in a win-win position with benefits of earning management fees from the properties acquired by SPVs, growth acceleration as acquired distressed properties turnaround and capital upside on exit.

Indian Hotels reported mixed bag numbers for the quarter. Consolidated revenues grew 8.8% YoY to | 1,244 crore (in line with I-direct estimate: | 1,246 crore). Average occupancy for Q4FY19 was at 74%, a 200 bps dip YoY led by addition of new properties during the quarter. However, the financial year ended with an occupancy of 68% for the company, implying a 100 bps increase in occupancy rates. The quarter witnessed healthy RevPAR growth along with a turnaround in the international segment. RevPAR of domestic hotels grew 6% YoY while the same for international...

India's hospitality sector is at the cusp of an up cycle with robust demand and limited supply. FY15-19 has been a watershed phase for IHCL. After a series of value destructive asset acquisitions, co infused capital (twice), shed unproductive assets, tightened operations and adopted a capital-light growth strategy in India. Ginger is now re-positioned in lean-luxury and looks well set to contribute meaningfully to overall EBITDA with the ramp-up in management contracts. IHCL aims to grow margins to ~23-24% by FY23 (25% including other income) vs. 18.5% in FY19. We believe this is feasible, though our estimates are more conservative. IHCL is set to outperform led by its vastly improved balance sheet, strong brand equity, pan India footprint, leadership in luxury segment and performance improvement in subsidiaries (Ginger, US and UK). IHCLs 4QFY19 was in-line. The strong standalone show (primarily domestic) was off-set by a weak performance of subsidiaries (mostly international). Reiterate BUY with TP of Rs 176 (20x FY21E EV/e).