Alpha | Indian Hotels Co Ltd. – Equity Research Desk

Incorporated in 1902 and headquartered in Mumbai, The Indian Hotels Company Ltd. (IHCL) is part of the Taj Group. It owns, operates, and manages hotels, palaces, and resorts under brands like Taj, Vivanta, SeleQtions, and Ginger. IHCL’s portfolio includes 310 hotels (218 operational and 92 in the pipeline) as of March 31, 2024. The company also offers diverse F&B, wellness, and lifestyle services through brands like amã Stays & Trails, Taj SATS Air Catering, and Qmin.

Products and Services

• Luxury, Upscale, and Midscale Hotels: IHCL operates hotels under Taj (luxury), Vivanta/SeleQtions (upscale), and Ginger (midscale).
• F&B and Wellness: Offers air catering, salons, spas, and food delivery services.
• Boutiques and Trails: Includes amã Stays & Trails and business clubs.

Subsidiaries: As of FY23, IHCL has 29 subsidiaries, 5 associates, and 6 joint ventures.

Growth Strategies

• New Businesses and Initiatives: New verticals grew by 35%, generating Rs. 1,600 crore (12% of turnover). TajSATS and Ginger reported revenues of Rs. 900 crore and Rs. 486 crore, respectively.
  
• Portfolio Expansion: Signed 53 and opened 34 hotels in FY24, including 15 re-imagined Gateway hotels.
  
• Strategic Alliances: Partnered with Ambuja Neotia Group’s Tree of Life Resorts, portfolio of 14 resorts.
• Brand Expansion: Under Taj, signed 12 and opened 5 hotels; under SeleQtions, signed 10 and opened 6 hotels; under Vivanta, signed 11 and opened 3 hotels; under Ginger/Tree of Life, signed 6 and opened 14 hotels.

Financial Highlights

Q4FY24  Performance

• Revenue: Rs. 1,951 crore (18% YoY growth)
• Operating Profit: Rs. 706 crore (25% YoY growth)
• Net Profit: Rs. 418 crore (40% YoY growth)
• Room Revenues: Rs. 600 crore (20% YoY growth)
• F&B Revenues: Rs. 471 crore (13% YoY growth)
• Management Fees: Rs. 153 crore (24% YoY growth)
• Occupancy: 79.1% (440 bps YoY improvement)
• ARR: Rs. 17,546 (3.7% YoY growth)
• RevPAR: Rs. 13,885 (10% YoY growth)

FY24  Performance

• Revenue: Rs. 6,769 crore (17% YoY growth)
• Operating Profit: Rs. 2,340 crore (20% YoY growth)
• Net Profit: Rs. 1,259 crore (26% YoY growth)

Financial performance 

• Revenue CAGR (FY21-24): 63%
• PAT CAGR (FY21-24): 50%
• Average ROE & ROCE (FY21-24): 9% and 10%
• Debt-to-Equity Ratio: 0.29
• Cash Reserve: Rs. 2,200 crore

Industry Outlook

• Tourism and Hospitality contribute significantly to India’s GDP, projected to reach US$ 250 billion by 2030.
  
• The sector will generate employment for 137 million individuals.
  
• The expansion of the e-Visa scheme is expected to double tourist inflow.
  
• India’s diverse geography and cultural experiences make it a top destination for international tourism.
  
• The industry is a crucial part of the Make in India initiative, driving job creation and economic growth.

Growth Drivers

• The Indian travel market is projected to reach US$ 125 billion by FY27, up from US$ 75 billion in FY20.
• 100% FDI allowed in the tourism industry under the automatic route.
• The Union Budget 2023-24 allocated US$ 290.64 million to the Ministry of Tourism, a 44% increase from the previous year.
  

Competitive Advantage

Compared to competitors like Lemon Tree Hotels Ltd. and Mahindra Holidays & Resorts India Ltd., IHCL is undervalued with robust returns on capital and strong sales growth.

Outlook

• IHCL expects double-digit topline growth, driven by strong demand.
• New businesses projected to grow by 25-30%.
• Capex plans of Rs. 2,500 crore for renovations, new properties, and technology upgrades.
• Strong pricing power in key markets, with a 65% RevPAR premium over competitors.
• Diversified presence in 100 hotels across the top 7 cities.
• Positioned to capture spiritual tourism demand with 50+ village/spiritual destinations.
• 60/40 mix of capital light and capital heavy assets, enhancing profitability and balance sheet strength.

Valuation

Industry demand is expected to grow at over 10% annually for the next 3-4 years. IHCL is projected to deliver consistent topline growth with sustained margins and portfolio expansion. We recommend a BUY rating with a target price of Rs. 666, 49x FY26E EPS.

Risks

• Macro-economic Factors: Economic slowdowns may impact travel demand and company turnover.
• Launch of New Hotels: Delays in launching new hotels/rooms can affect profitability.

Recap of our previous recommendations (As on 31 May 2024)

Cipla Ltd

Indus Towers Ltd

Gulf Oil Lubricants India Ltd

Aurobindo Pharma Ltd