Indian Hotels Company Ltd Quarterly Results Update

IHCL recorded a 15.8% YoY revenue growth to Rs. 1,466.4 crores in Q1FY24, beating market expectations of Rs. 1,439.7 crores. This can be attributed to the consistent growth in its management fee income and an increase in its RevPAR to Rs. 6,126 (on the domestic

enterprise level) in the quarter compared to Rs. 5,424 in the corresponding quarter of the

previous year. The occupancy level rose to 67.1% in Q1FY24 as against 65.2% in Q1FY23. 

On the operational front, EBITDA rose 8.6% YoY to Rs. 410.2 crores but fell short of market

expectations of Rs. 430.0 crores. The EBITDA margins dipped to 28.0% in Q1FY24 compared to 29.8% in Q1FY23, owing to an uptick in its payroll and other expenses. The PAT registered a 30.5% YoY growth to Rs. 236.0 crores in Q1FY24 as compared to Rs. 180.8 crores in Q1FY23, while the PAT margin expanded to 16.1% this quarter (up 181 bps YoY), higher than street estimates of 15.5%. 

The Board of Directors granted approval to IHCL to purchase 100% equity in Pamodzi Hotels Plc (presently a listed company in Zambia) from an international subsidiary of Tata International Ltd. Moreover, the board approved the company to enter into a lease agreement for the operation of a hotel in Frankfurt, Germany, for 20 years with the right of two renewals of 5 years each.

Key Concall Highlights

• In Q1FY24, IHCL signed 11 new hotels and opened 5 new hotels, taking the total operational hotels to 191 across brands. Of the 11 new hotel signings, 7 hotels are expected to open in the next 24 months. The company maintains its guidance of opening 20+ hotels in FY24.
• The business EBITDA margins declined to 28.0% in Q1FY24 compared to 29.8% in Q1FY23 owing to an uptick in its other expenses.
• TajSATS margins expanded to 24.5% in Q1FY24 compared to 14.5% in Q1FY23. The company reigns as a dominant player in airline catering with a market share of 59% in volume terms.
• Demand growth at 8% continued to outpace supply growth of 6.7%, reflecting strong consumer demand and a gradual decline in the seasonality play of the hotel business. Along with this, major events such as World Cup Cricket, G20 events, and FTA growth add to the robust momentum of the business.
• Management fee income doubled to Rs. 98 crores in Q1FY24 compared to Rs. 47 crores in Q1FY20.
• The company added 50+ net members in Chambers, growing its total member base to 2,650.
• In the international business, the UK business registered strong growth while the USA market faced headwinds due to problems in San Francisco. Going ahead, the business remains optimistic about the latter with the expectation that New York will aid in the growth trajectory.
• To keep the business asset-light, remain debt-free and cater to the institutional ownership in a better sense, the business entered into a lease agreement for the operation of a 135-room hotel in Frankfurt, Germany rather than using a management contract/acquisition. This will allow the business to keep growing its presence in other European markets and also take advantage of the frequent Vistara and Air India flights happening there.

Valuation and Outlook

Continuing on a strong growth trajectory post the Covid-19 outbreak, IHCL has been consistently enjoying the structural upswing that is ongoing in the hotel business. It is

interesting to note that the ARR increased to Rs. 9,128 in Q1FY24 compared to Rs. 8,315 in Q1FY23, leading to a 15.8% YoY revenue growth. Despite the first-quarter being a weaker

quarter for the business, the increase in overall occupancy and ARR affirms the strong demand dynamics of the industry. 

Assuming that FTAs revert back to the pre-covid level in H2FY24, we expect higher pay rates in destinations like Rajasthan and Goa which are currently displaying tepid growth in ARR terms. Also, major events like G20 Summit and World Cup cricket along with higher benefits from the upgraded Ginger portfolio in the second-half will add to the strong business performance. Going forward, our focus would remain on the management’s outlook on its international business revival initiatives.