Hotels

25 May

Asset Light Model to drive margins – Indian Hotels

Update on the Indian Equity Market:

On Wednesday, NIFTY lost over 200points from the day’s high to close at 16,026 (-0.6%). ASIANPAINT (-8%), ADANIPORTS (-5.6%), and DIVISLAB (-4.1%) dragged the index down. NTPC (+3.9%), HDFCLIFE (+2.9%), and SBILIFE (+1.9%) led the gainers. Among the sectoral indices, FINANCIAL SERVICES (+0.7%), FINANCIAL SERVICES 25/50 (+0.7%), and PRIVATE BANK (+0.3%) led the gainers, while IT (-3.4%), REALTY (-2.9%), and MEDIA (-2.9%) led the losers.

Excerpts of an interview with Mr. Puneeet Chhatwal, MD & CEO, Indian Hotels Company Ltd (IHCL) published in the Economic Times on 24th May 2022: 

  • The Company has launched the Ahvaan (Call to Action) Plan 2025, which is a combination of key strategic imperatives. It remains confident of adding 60 hotels to its portfolio in the next three-and-a-half years, thus reaching the 300th It plans to add more than 400 villas and bungalows to its homestay business.
  • Most of the growth is based on an asset-light model, the management fee incomes and incomes from its old and newly re-imagined businesses like Chambers, home delivery, and homestays will help IHCL increase its margin by another 800 bps. At the end of the business cycle, the company is expecting Pre-Covid margins of 25% to increase to 33%.
  • The backbone of IHCL is the Taj brand, which is complemented by its distribution platform of the selections which has individual properties which are strong names in their respective markets. In addition, there is Vivanta which is an upscale segment.
  • The Ginger business has been re-imagined in the last four years. Qmin, the home delivery, and Ama, homestay businesses are also digital businesses, which will be supported by AI initiatives. IHCL has a separate app that has been very successful in driving more than 50% of the revenue in Qmin and that is the Qmin app. IHCL wants to also move as much as possible with Ama on the digital platform and that will help to grow that brand.
  • Being on the Tata Neu platform which has a loyalty program increases the reach of all of the brands by a significant multiple, which the company would not have been able to achieve on its own.
  • The company is confident that its asset-light model, strict check on corporate overhead, and control of fixed costs have helped it achieve margins above 25% in 4QFY22.
  • Notwithstanding the external shocks, the Company’s brands and their repositioning are driving market share and RevPAR (Revenue per Available Room) up.
  • The supply in the last several years has been constrained and now the demand is beginning to come back both in the corporate and the leisure segments. Leisure domestic has been quite resilient, international is beginning to pick up and government delegations are beginning to pick up.
  • IPL assisted in April and May and when demand goes up and supply stays limited, the rates and the occupancy increases are witnessed.

Asset Multiplier Comments

  • There is an overall recovery in demand for the hotel industry expected in FY23 and FY24, contingent on the virus-related disruptions abating. The pent-up demand coupled with increased priority on the quality of stay post-Covid-19 is expected to propel the industry growth.
  • IHCL with its array of hotels catering to different budgets is expected to be a beneficiary of this recovery, in line with the industry.
  • The management’s asset-light strategy and new revenue-generating avenues bode well for margin and return ratio expansion.

Consensus Estimates: (Source: market screener website)

  • The closing price of Indian Hotels Company Ltd was ₹ 222/- as of 25-May-2022.  It traded at 57x/ 38x the consensus earnings estimate of ₹ 3.9/ 5.9/- for FY23E/FY24E respectively.
  • The consensus target price of ₹ 271/- implies a P/E Multiple of 46x on the FY24E EPS estimate of ₹ 5.9/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

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12 Jul

Witnessed 70% QoQ revenue growth in July 21 – Lemon Tree Hotels

 Update on the Indian Equity Market:

On Monday, Nifty closed in the green at 15,789 (+0.02%). Among the sectoral indices, Realty (+3.2%), PVT Bank (+0.4%), and Bank (+0.4%) closed higher. IT (-0.5%), Metal (-0.2%), and Media (-0.2%) closed in the red. Ultra tech (+2.5%), Grasim (+2.3%), and Shree cement (+1.9%) were the top gainers. Adani Ports (-1.5%), BPCL (-1.4%), and Bharti Airtel (-1.2%) were among the top losers.

Excerpts of an interview of Mr Patanjali Keswani, Chairman and MD, Lemon Tree Hotels with CNBC-TV18 dated 7th July 2021:

  • On the current situation, Mr Keswani said the demand started picking up from 4QFY21.
  • The hotels were earning up to 50% of pre-Covid levels on a month-on-month basis.
  • The occupancy witnessed a decline in the month of April 21 and by the month of May, witnessed the lowest occupancy level for the sector as well. This was led by localized lockdowns and fear of travelling.
  • In June, there was a pickup in demand. For the Company, the occupancy was higher than 50%. Lemon tree hotels witnessed a 70% revenue growth in July 21 on an MoM basis.
  • Speaking about business hotels, which is 80% of the total inventory for Lemon Tree. They are doing well.
  • On newly opened, Aurika which is a deluxe hotel in Udaipur, he said the occupancy is 80-90%.
  • He said 3QFY22E looks promising led by the inquiries that are coming. 4QFY22E is expected to be a normal quarter.
  • He said the debt is at comfort levels. The earning capacity of additional rooms has not been utilized, once things normalize the additional rooms will start contributing.

Asset Multiplier comments:

  • We believe postponed weddings in 1QFY22 might lead to higher demand in 2QFY22E. This might further increase the occupancy rate of hotels.

 Consensus Estimate: (Source: market screener website)

  • The closing price of Lemon Tree Hotels Ltd was ₹ 43 as of 07-July 2021.  It traded at 143x the consensus earnings per share estimate of ₹ 0.3/- for FY23E. The Company is expected to report a loss of ₹ 1/- per share.
  • The consensus average target price is ₹ 45/- which implies a PE multiple of 150x on FY23E EPS of 0.3/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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22 Feb

Leisure occupancy sees demand boom but business occupancy still low: Lemon Tree

Update on the Indian Equity Market:

On Monday, NIFTY closed at 14,676 (-2.0%). Top gainers in NIFTY50 were Adani Ports (+2.8%), JSW Steel (+2.3%), and Hindalco (+2.0%). The top losers were Eicher Motors (-5.1%), M&M (-4.7%), and Tech M (-4.6%). The top sectoral gainers were METAL (+1.6%), and sectoral losers were MEDIA (-3.4%), IT (-2.9%) and REALTY (-2.8%)
Excerpts of an interview with Mr. Vikramjit Singh, President, Lemon Tree Hotels (LEMONTREE) with CNBC -TV18 dated 19th February 2021

  • The COVID-19 pandemic hit the hospitality sector hard and things are just starting to look up now.
  • The large corporates are the biggest laggards predominantly because the IT companies have not started travel; their employees are still working from home. Therefore, this segment has seen the slowest recovery.
  • However, the big surprise is the leisure/retail segment; they have not only recovered but today their retail contribution is about 115-120 percent of pre-COVID levels.
  • In tier-I cities occupancies are now catching up, they are roughly about 20 percent below pre-COVID level but the big dip is in the average room rate (ARR), the average rates today are still 40-50 percent below what they were for the same period pre-COVID so the revenue recovery has not happened. Tier-II is doing very well.
  • On the expansion front, Lemon Tree opened 5 hotels in the COVID fiscal and will open hotels in Coorg, Port Blair, Dehradun, Mumbai and other places.
  • In the COVID fiscal, they have opened 5 hotels; they opened hotels in Dwarka, Aligarh, Jhansi, Vijayawada and Goa.
  • So today, as things stand, they have about 8,300 rooms in 84 hotels across 51 cities and they have 2,200 room additions in the pipeline.

Asset Multiplier comments:

  • The most talked-about trend that is fast catching up in Resorts & Hotels is Work away from home, where guests experience a completely new and refreshing environment. As most of the corporates have extended WFH till the second half of 2021, this trend will be embraced by most working professionals.
  • The onset of COVID-19 and the subsequent travel restrictions and nation-wide lockdown, however, have had an unprecedented impact on the sector.
  • Upscale/Luxury Leisure and Branded Economy/Mid-market business hotels are expected to lead the recovery growth in the sector.

Consensus Estimate: (Source: market screener and investing.com websites)

  • The closing price of LEMONTREE was ₹ 41/- as of 22-February-2021.  It traded at NM/ NM/ 215x the consensus earnings estimate of ₹ -1.9/ -0.8/ 0.2 for FY21E/22E/23E respectively.
  • The consensus price target is ₹ 40/- which trades at 209x the earnings estimate for FY23E of ₹2/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

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19 Dec

Increase in the average rates not significant, says Indian Hotels CEO Puneet Chhatwal

Update on the Indian Equity Market:

On Wednesday, NIFTY50 closed 0.5% higher at 12,225. NIFTY50 gainers includes M&M (+3.6%), Sun Pharma (+2.5%), and JSW Steel (+2.1%). NIFTY50 losers includes Tata motors (-2.9%), GAIL (-2.1%) and Grasim (-1.9%). Pharma (+1.2), and Media (+0.8%) were the top sectoral gainers. PSU Banks (-1.9) and Media (-0.4%) were the only losing sectors.

Excerpts from an interview with Mr Chhatwal, CEO, Indian Hotels. The interview was published in Livemint dated 18th December 2019

  • IH has a lot of last-minute pick-ups and till now the demand has been holding quite well. The volumes are okay. What has not done so well this year is the increase in the average rates.
  • IH has come from such a low base and there has been the GST reduction since 1st October, but the rate increases are not as evident as all of them would like to see.
  • Weddings are recession proof so weddings happen and they happen this time of the year, so they do fill-up the hotels.
  • Similar is the case in all those religious circuits that they are strong in. They just opened hotel in Tirupati, so if people have to go to Tirupati they will go to IH. According to him, the unrest in the North-East or in Delhi won’t have an impact on this kind of business.
  • Their backbone is really the Taj brand and on the luxury segment, whether it is chauffeur driven cars or it is hotels, disruption has not really played a significant role. They announced the opening of the 50th Ginger and they have repositioned the Ginger brand.
  • This year started with the terror attack in Sri Lanka. They have three properties there so they went down. Colombo has bounced back quite well, Bentota has not. It is hopefully coming because now it is the season time. The year before that there was the political unrest in Maldives.
  • London has been very strong, New York and  San Francisco has been strong. Cape Town has problems or challenges both politically as well as with water availability. If you have a larger portfolio, large footprint, it balances out.
  • Opening hotels is definitely on their agenda. They have guided that IH will open a hotel a month, they are ahead on that too. They will open 12 hotels this year and this number may even increase to more than a hotel a month across all IH brands.
  • Their own capex has been limited to either renovating their most iconic asset in Delhi, the Mansingh, or bringing to life in 3-4 months the Connaught and that is where IH is putting in capex. Otherwise, it is normal capex, which is 4-5% of total revenue.
  • When IH builds new destinations like they built Goa as a destination 40-50 years ago, it took 3-4 years but then now everybody breaks even in Goa very fast. Now they are doing the same with Andaman with Havelock.
  • They are actually at 19% EBITDA margins for this year, year-to-date and the second half is more important. One is that 60% of revenues come from there and the margins are much higher in the second half.
  • IH is definitely looking at a further improvement and improvement has been almost 600 basis points in the first half so that is very positive news. 

Consensus Estimate (Source: market screener website)

  • The closing price of Indian hotels was ₹ 146/- as of 18-December-19. It traded at 42x/34x/29x the consensus EPS estimate for FY20E/ FY21E/ FY22E of ₹ 3.5/4.3 /5.1 respectively.
  • Consensus target price of ₹ 187/- implies a PE multiple of 37x on FY22E EPS of ₹ 5.1/-

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