Plan to open 18-20 hotels in a year – Indian Hotels

Update on the Indian Equity Market:

On Thursday, Nifty closed at 16,248 (-4.8%) near the intraday low of 16,203. All the sectoral indices were losers led by PSU BANK (-8.3%), REALTY (-7.2%), and MEDIA (-7.0%). Among the NIFTY 50 stocks, all the stocks were losers led by TATAMOTORS (-10.7%), INDUSINDBK (-8.5%), and UPL (-8.3%).

Edited excerpts of an interview with Mr. Puneet Chhatwal, MD and CEO, Indian Hotels, with CNBC TV18 on 23^rd February 2022:

• The company is seeing a very strong pickup in occupancies on the domestic front from February 2022. Everything is currently dependent on the domestic business as the international traffic is still shut. Business in cities like Mumbai, Delhi, and Bangalore will be benefitted as air travel opens up.
• Leisure business has been performing better than pre-covid times. The company is seeing performance between 120%-150% of its pre-covid levels in this segment.
• The business coming from corporate travel is lagging behind the pre-covid levels. The occupancy on the corporate and typical business destinations is reaching near the pre-covid levels. The occupancy is near 90%.
• The rates, though lagging has increased due to a low base effect, and are double the rates of August-September 2021. If the rates increase by another 30-40%, the company will cross the pre-covid high of 2019-2020, in terms of corporate rates.
• The geopolitical factors like the Russia-Ukraine war might cause volatility in the industry and might delay the bounce-back of the industry, but won’t derail it.
• The Revenue per available room (RevPAR), which is a multiplicator of the average rate and occupancy is getting close to 90 percent on the domestic front.
• Regarding costs, Mr. Chhatwal has mentioned the following factors- i) the industry had once in a 100-year opportunity to adjust its cost base. ii) the company had the 2^nd best Q3 quarter in the last 10 years due to the adjustment of the cost base. iii) the company is keeping a tab on the costs increase caused by inflation.
• The thought of ‘less is more’ helps the company with reducing its costs as people have begun expecting fewer amenities post covid. The company is also catering to a new segment of car drive-in to the destination which has developed post covid.
• The company has restructured its capital to support its traditional and new businesses which include HomeStay of Ama, Home delivery and QSR of Qmin, and reimagined Ginger. The company is planning to open at least 1.5 hotels a month which takes it to 18-20 openings projected for this year across all of its brands.

Asset Multiplier Comments

• The Russia-Ukraine war might impact the hotel and the travel industry in the short to mid-term. Demand for rooms at the Indian hotels might remain impacted as travel-related fear among people may stay for a while.
• Given the strong brand value of Indian Hotels, revenue generation from new segments, and its new businesses, the long-term growth story of the company remains intact.

Consensus Estimate (Source: market screener website)

• The closing price of Indian Hotels was ₹ 194 /- as of 24-February-2022. It traded at 69x/ 40x the consensus EPS estimates of ₹ 3/₹ 5 for FY23E/FY24E respectively.
• The consensus target price of ₹ 237 /- implies a P/E Multiple of 47x on FY24E EPS estimate of ₹ 5/-.

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