IHCL Quarterly Result Update

Sector Outlook - Positive

IHCL, reported strong revenue growth of 16.3% YoY, reaching Rs 1,433.2 crores in Q2FY24. This was due to robust domestic travel trends and improved RevPAR, although it fell slightly short of market expectations. The management fee also increased by 17% YoY to Rs 185 crores in H1FY24. Occupancy levels rose to 65.7% from 63.3% the previous year, driven by Taj, Vivanta, and Ginger hotels. However, the SeleQtions business saw a 4% decrease in occupancy levels. On the operational side, EBITDA increased by 20.7% YoY to Rs 354.8 crores, although it didn’t quite meet market expectations. EBITDA margins improved to 24.8% in Q2FY24 from 23.4% in Q2FY23, thanks to better operational efficiency and cost control. PAT grew by 38.1% YoY to Rs 179.0 crores in Q2FY24, surpassing street estimates. The PAT margin expanded to 12.5% this quarter, exceeding street estimates of 11.8%. The company’s board approved the acquisition of an additional 7.08% shareholding in Piem Hotels from New Vernon Private Equity and Tata Investment Corporation Ltd through a combination of share swap and cash. This will increase IHCL’s stake from 51.6% to 58.6% after the transaction and raise its share capital by approximately 0.2%.

Key Concall Highlights

Hotel Openings: In Q2FY24, IHCL opened 3 hotels (2 Taj, 1 SeleQtions) and signed 6 new hotels (3 Taj hotels in the international market, 2 SeleQtions, 1 Ginger).

Industry outlook: The hospitality industry dynamics remain buoyant in the medium term (5 years), with demand growth in FY23-28 growing at a CAGR of 8-10% outpacing the supply growth of 5-6%. Additionally, the company stated that the majority of the industry supplies under development are leaning towards the non-luxury segment, with about three-fourths of supply coming up in tier 2 and tier 3 cities.

Geographical performance: The company’s top ten domestic markets reported strong growth with key markets like Mumbai, Delhi, and Goa remaining in traction. However, in the international business, the UK business registered strong growth but remained below management’s expectations with all renovations it made

TajSATs: Recorded a 48% revenue growth to Rs. 213 crores and its EBITDA margins stood at 24.4%, (up 9% margin expansion over the last year). The company’s market share increased to 60% in the Indian Airline catering segment.

Future trends: Management remains confident in continuing its double-digit RevPAR growth for its seasonally strongest quarter i.e. Q3FY24 based on the strong response it has received in the first twenty-six days of October.

Other Highlights:

Key events like G20 events and Cricket World Cup were 1% and 0.5% of FY23 enterprise value, respectively.
Taj’s share of a pipeline of luxury inventory in India stands at 65%.
Qmin recorded a revenue of Rs. 22 crores in the quarter, in line with its aim of achieving Rs. 100 crores in FY24.
Net 125+ members added in The Chambers, taking its membership count to exceed more than 2,800.

Ginger:

Post completing its remaining 30% renovation and repositioning of Ginger portfolio, the business expects to clock in higher than 20% revenue growth.
Ginger Santacruz is expected to open in the next few weeks, with the business targeting to grow its operations to Rs. 100 crores in the next 3 years.

Valuation and Outlook

The business recorded a double-digit growth in its ARR buoyed by the structural upswing in the hospitality industry and special events like G20 and the World Cup. The ARR growth can also be attributed to a higher transient mix compared to pre-COVID levels and the management’s decision to get into long-term contracts with small corporates (offer lower ask rate). Further, the company’s focus on growing its management income has yielded higher management income, allowing them to have healthier free cash flow by becoming more asset-light.

We remain optimistic about the upgraded Ginger portfolio’s growth trajectory from Q1FY25 onwards and look forward to signs of improvement in the company’s international business. On the operational side, the business remains on track to achieve 33% EBITDA margins by FY25, with the company keeping a tight leash on a majority of its costs as evidenced in the last couple of quarters.

Overall, the medium-term industry outlook continues to remain bright with the demand-supply mismatch expected for the next 5 years, a strong pipeline of hotel openings, and an increase in airport traffic leading to the return of FTAs.

Key Takeaway

The hospitality industry dynamics remain buoyant in the medium term (5 years), with demand growth in FY 23-28 growing at a CAGR of 8-10% outpacing the supply growth of 5-6%.
Key events like G20 events and Cricket World Cup were 1% and 0.5% of FY23 enterprise value.
Ginger Santacruz is expected to open in the next few weeks, with the business targeting to grow its operations to Rs. 100 crores in the next 3 years.