Indian Hotels

24 Feb

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 23rd 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 2nd 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/-.

 

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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09 Apr

Hospitality industry will see strong recovery after crisis ends: Indian Hotels

Update on the Indian Equity Market:

On Wednesday, Nifty closed -0.5% lower at 8,749.  The top gainers for Nifty 50 were Vedanta (+3.7), Sun Pharma (+4.8%) and Cipla (+4.6%) while the losing stocks for the day were Shree Cement (-3.8%), TCS (-3.8%) and Titan (-3.7%). The sectoral gainers were NIFTY Pharma (+3.5%), NIFTY Auto (+1.9%) and NIFTY Media (+1.8%). The losing sectors were NIFTY Realty (-1.4%), NIFTY IT (-0.8%) and NIFTY Bank (-0.6%).

Edited excerpts of an interview with Mr Puneet Chhatwal, MD and CEO of The Indian Hotels Company Ltd.; dated 7th April 2020. The interview aired on CNBC-TV18.

  • The travel, tourism and hospitality sector has been hit hard across the world in early March.
  • In India, occupancy levels at hotels are close to zero due to the nationwide lockdown. Indian Hotels reveals that the average occupancy rate at the group’s hotels has fallen by 90%. Hotels are more or less empty, with some islands of excellence in extended stays at Indian Hotel apartments in Mumbai, which are always occupied.
  • The Indian hospitality and tourism business has another equally important component and that is the food and beverage business. With all the restaurants, bars, gym, salon and spas shut, the revenue drop is significant for the industry, according to Mr Chhatwal.
  • According to Mr Chhatwal, the international business would recover completely only by January 2021. If Indian Hotels get recovery, the recovery could be very strong especially on the domestic front. The international front will take a long time, but the Indian market is very much influenced by the domestic side of the business and that is the key at least in FY21E.
  • According to him, it is too early to calculate the economic damage due to this crisis. The hospitality business slowed down 10 days prior to the imposition of the restrictions. Within a week or 10 days, the industry will have clear visibility about the damage.
  • Mr Chhatwal says Indian Hotels would not reduce tariffs to attract customers to post the crisis ends. The reduction in prices or tariff is not a long term strategy but is a tactic to survive maybe for a few months. Ultimately if pricing is a strategy, then in Indian Hotel, it is the beginning of the end, according to him. So, at the moment their key priority will be the safety and security of their guests, and medical staff that is staying with them in different properties in Mumbai.

Consensus Estimate: (Source: market screener website)

  • The closing price of The Indian Hotels Company Ltd was ₹ 75/- as of 8-April-2020. It traded at 26.8x/ 23.4x/ 16.7x the consensus EPS estimate of ₹ 2.8/ 3.2/ 4.2 for FY20E/ FY21E/ FY22E respectively.
  • The consensus target price of ₹ 154/- implies a PE multiple of 34.2x on FY22E EPS of ₹ 13.
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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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