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29 May

Cash flow will be a challenge for the hospitality industry – Prestige Group

Update on the Indian Equity Market:

On Friday Nifty closed 1.9%higher at 9,490. Among the sectoral indices Auto (+3.7%), Media (+3.6%), and PVT Bank (+2.79%) closed higher. PSU Bank (-0.4%) was the only sector that closed lower.ZEEL (+9.6%), Eicher Motor (+7.3%) and L&T (+5.8%) closed on a positive note. Wipro (-0.9%), ITC (-0.6%) and CIPLA (-0.5%) were among the top losers.

Excerpts from an interview of MrZaid Sadiq,Executive Director, Prestigegroupwith ET Now:

  • Before the crisis hit, the Indian hospitality industry along with tourism was one of the key segments driving the growth of the services sector in the Indian economy.
  • The pandemic and lockdown has brought things to a standstill and the hospitality industry is taking stock and reinventing them to successfully revive the sector in the post Covid world.
  • Speaking about the long term effect of Covid-19 on the industry he saidgiven the dynamic and the unprecedented nature of this global crisis, it is expected to witness the ripple effects of Covid-19 across socio-economic sectors for at least another year.
  • There is a hope to begin the journey towards recovery by June 2020 – provided India manages to flatten the corona virus curve.
  • Speaking about the post covid-19 strategy to garner business, he added thatthe pandemic is changing the world, and businesses that are able to come up with innovative solutions to offer the right customer experience will be in a position to seize the opportunity and accelerate the recovery journey.
  • The company is working closely with domestic partners and collaboration will be the key strategy. It will focus on the home-grown business; the ideal revenue stream will be Food & Beverage, including catering.
  • The focus on room business will be back after the economy stabilizes.
  • Speaking about the government, he saidthe Indian government has done a remarkable job of combating the global outbreak, the exact trajectory of which is still unknown.
  • The government should consider extending the option of delaying of loan repayment / EMIs to business entities and slashing GST rates as cash flow will be a challenge for hospitality industry.
  • The Covid-19 pandemic has taught us the importance of business agility, disaster preparedness, collaboration and compassion. The company is finding innovative ways to cut costs, manage unknown risks and work with fewer resources.

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

  • The closing price of Prestige Estate Projects was ₹ 145/- as of 28-May-2020.  It traded at 12.3x/ 10.75x the consensus Earnings per share estimate of ₹ 11.7/13.5 forFY21E/ FY22E respectively.
  • The consensus average target price for Prestige Estate Projects is ₹ 318/- which implies a PE multiple of 23.5x on FY22E EPS of ₹ 13.5/-

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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