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Sector Outlook: Positive
Strong Performance Amidst Adversities
In Q1FY25, The Indian Hotels Company Ltd. (IHCL) faced challenges like a heatwave, elections, and fewer wedding dates, impacting operations. Despite this, IHCL outperformed competitors with a 60% higher domestic same-store RevPAR, showing strong brand and customer trust. Consolidated revenue was Rs. 16 billion, up 5% YoY, and PAT grew to Rs. 2.48 billion, up 12% YoY, supported by a 76% occupancy rate and ARR of Rs. 9,900. Standalone revenue rose to Rs. 9.3 billion, driven by higher occupancy and ARR. EBITDA margin improved to 35.1%, and consolidated margins increased to 29%. IHCL’s New Business vertical earned Rs. 1,620 million, with plans to launch the “Gateway” brand in Q2FY25. Six new hotels opened in Q1, aiming for 25 new hotels by FY25. Demand is expected to grow 10% YoY, with revenue projected to grow at a 14.7% CAGR from FY24 to FY26, supported by an occupancy rate of 70% and 8% ARPU growth. IHCL has increased management fees by 17%, contributing to better EBITDA performance.
Key Concall Highlights
- In Q1FY25, Indian Hotels Company reported consolidated revenue of Rs. 16 billion, up 5% year-over-year. Profit after tax (PAT) increased to Rs. 2.48 billion, a 12% year-over-year growth.
- The Average Room Rate (ARR) was Rs. 9,900, with a 70% occupancy rate and a Revenue Per Available Room (RevPAR) of Rs. 6,900. IHCL outperformed competitors in domestic same-store RevPAR by 60%.
- International demand helped maintain a 70% occupancy rate, keeping RevPAR flat year-over-year.
- The Ginger segment’s revenue surged by 45% year-over-year to Rs. 1,420 million, with a 5% increase in RevPAR to Rs. 2,400. Ginger Mumbai airport contributed Rs. 214 million, with 87% occupancy, and achieved a RevPAR of Rs. 5,000 and ARR of Rs. 5,700.
- TajSATS and The Chambers reported combined revenue of Rs. 2,740 million, an 18% growth compared to Q1FY24.
- Operational efficiencies were shown with F&B raw material costs at 21.4% of revenue and corporate overheads at 5.3% of revenue. Payroll costs increased to 29.7% in Q1FY25 from 22.0% in Q1FY24.
- IHCL’s New Business vertical, including Ginger, Qmin, and Ama Stays & Trails, generated Rs. 1,620 million in revenue for Q1FY25.
- IHCL currently operates 224 hotels and plans to add 102 new hotels. The new Taj Branded Residences in Chennai will feature 23 floors and 235 keys.
- The company is focusing on asset management and expansion, including renovations at Taj Bengal, Vivanta Dwarka, Jai Mahal Palace Goa & Jaipur, and President Mumbai.
- Digital initiatives and revenue-enhancing CapEx are a focus, highlighted by the launch of tajhotels.com, which saw a 150 basis points increase in website contribution in Q1 compared to the previous year. The TATA Neu Loyalty Program, with 5.5 million members, contributed to 37% of enterprise-level revenue in the first quarter.
- The industry rebounded strongly in July after challenges in Q1. Destinations like Goa, Rajasthan, and Kerala, initially affected by heatwaves, are now growing due to pent-up demand. Major markets like Mumbai and Delhi are benefiting from the resumption of economic activities and MICE events. Double-digit growth is anticipated for FY 2024-25, with July revenue growth expected to exceed 20% based on current bookings as of July 17.
Valuation and Outlook
IHCL management aims for strong growth in FY25, targeting double-digit revenue growth (excluding TajSats), better cash flow, a focus on becoming debt-free, and maintaining EBITDA levels. New ventures like Ginger, QMin, and Ama are expected to grow 30-35% YoY, while the Gateway business aims for 15-20% growth. Management fees are projected to increase with a 15% CAGR, improving EBITDA. Payroll expenses are expected to drop to 26-27% of FY25 revenue from 29.7% in Q1. The Tata Neu loyalty program is expected to boost repeat customers, now at 32%. IHCL plans to open 25 hotels in FY25, with 7 already operational, and reach 100 hotels by 2030. They are optimistic about the domestic market, forecasting strong revenue growth and better efficiency, with Q2FY25 expected to outperform Q1FY25 due to higher July occupancy rates.
