Brand Value and Favourable Dynamics of Sector Are Main Parameters Supporting The Indian Hotels Company Limited

Well-diversified suite of hospitality offerings and healthy growth prospects should act as growth enablers once travel and tourism sector gets back on growth path. Focus on cash conservation and adequate liquidity measures should lend some support and help the company achieve growth. During tough times, the company expanded portfolio with 12 openings at an average of 1 hotel per month.

The Indian Hotels Company Limited

The Indian Hotels Company Limited works for bringing together a group of brands and businesses offering a fusion of Indian hospitality and world-class service. These include Taj, SeleQtions, Vivanta and Ginger. Incorporated by founder of Tata Group, Jamsetji Tata, the company opened first hotel - The Taj Mahal Palace, in Mumbai. The Indian Hotels Company Limited has a portfolio of 196 hotels including 40 under development globally across 4 continents, 12 countries and in 80+ locations. The Indian Hotels Company Limited is South Asia’s largest hospitality company if measured by market capitalization.

With businesses ranging from iconic luxury to upscale and budget stopovers and in-flight catering, the company’s pioneering leadership stems from rich 115-year legacy. The company’s emerging initiatives in urban leisure, service retail, and concept travel form part of its evolution. 

Growth Enablers of The Indian Hotels Company Limited

v  Increased Signings Should Help Improve Scale: As a part of growth blueprint, the company has enhanced speed of new hotel launches. Signings tripled from ~1,000 rooms annually in FY16-17 to 3,700+ rooms annually in FY19-20. Likewise, the company opened one hotel every month in FY19-20, exhibiting multi-fold growth over FY16-17, when the company just opened 5 hotels. The company identifies locations having high growth potential and establishes appropriate procedures for market traction. As the company achieves higher scale with help of an asset-smart strategy, its leading position across most brands allows the company to demand premium pricing in comparison to industry average. With occupancies improving, the company’s revenues have seen consistent growth. Focus area is to improve overall profitability by enhancing operational efficiencies. These types of strategies stemmed sustainable turnaround of the company’s operations with margin expansion. In FY21, the company saw highest number of new hotel signings, for second consecutive year.

v Recovery in FY21 Should Continue: Revenue from operations saw 94% growth from INR1,575.16 Crore to INR3,056.22 Crore. All subsidiaries saw significant business growth as state and federal governments decided to relax lockdowns. Key markets in USA, UK, Maldives and India resulted in better revenues and margins. It earned higher fees from managed properties and membership fees due to better business prospects. On standalone basis, its total Income for FY22 was INR2,152.42 Crores, which was higher in comparison to previous year’s total income of INR1,243.67 Crores by 73%. This was due to better business situation across accommodation and food and beverages.

v  1Q23 Performance Exceeds Pre-COVID Performance: The company saw 22% revenue growth to INR1,293 Crores and 92% EBITDA growth to INR405 Crores. Its PAT saw an exceptional 3,005% growth to INR170 Crores. This was the company’s best ever 1Q performance as healthy performance was visible across all of its brands. Its asset light model has been stemming growth and this is expected to continue for next few quarters. The company generated free cash flow in each month of 1Q23 and remained net cash positive. Performance was mainly supported by surge in demand across markets and segments, with both occupancy and rates outpacing pre-COVID levels. This resulted in EBITDA Margin of 31.3%, exhibiting improvement of 1140 bps over 1Q20.

v  With Sectoral Challenges, There is a Silver Lining: Travel and tourism industry makes up for ~10% of global GDP and is responsible for 1 out of 10 jobs. In India, this sector is a significant contributor to GDP and it also contributes 8.1% to overall workforce. Thus, given sector’s significance, this industry should play an important role in any economic revival. Though travel and tourism sector is yet to see its full recovery, there has been some sort of improvement. More focus on safety in post-pandemic world should help the company as travellers should prefer the company’s trusted and reputed brands. As situation gets back to normal, the company should be one of early beneficiaries from recovery. Achieving prudent expansion across segments/ locations and maximising potential of brands should act as principal growth enablers. The company has a mix of owned hotels, hotels under management contracts and ones owned by its subsidiary companies. Apart from this, the company constantly looks for strategic and value‑accretive acquisitions, allowing it to achieve higher efficiency while allocating capital and enabling it to maintain favourable risk-reward profile.

v  Pillars of Aspiration 2022 Strategy: This strategy focuses on 3 pillars:

§  Re-structure: This pillar focuses on scaling up inventory across multi-product and multi-segment categories, selling non-core assets, non-performing hotels having bleak prospects and simplifying holding structure and processes.

§  Re-engineer: This pillar stems from expanding margins by strengthening culture of operational excellence and embracing technology and digital environment, engaging closely with people and building a strong talent pipeline.

§  Re-imagine: This pillar focuses on managing brandscape and grow across varied segments of luxury, upscale and lean luxe and multiplying portfolio and reach in select markets.

AHVAAN strategy of the company is extension its earlier “Aspiration 2022” strategy, which focused on asset light expansion and margins’ improvement. Ahvaan 2025 should help the company re-engineer its margins, re-imagine its brandscape and re-structure its portfolio.

v  External Environment Should Continue to Lend Support: Over past couple years, India has emerged as a principal destination. Favourable demand‑supply dynamics and rising consumption are principal growth enablers and these should continue to support sectoral dynamics. Considering risks emanating from pandemic should gradually abate, demand for short trips to destinations nearer to homes should increase. Technology is challenging traditional business models, resulting in emergence of new ones. Over past couple years, industry has seen a rapid growth in online transactions. Trend should accelerate further in a post-COVID world where social distancing will be a new normal. Need to maintain social distancing can result in reduced footfall and seating capacity. Restaurants and hotels with better facilities should be able to meet safety and hygiene standards, resulting in better traction. Online food ordering and food delivery can see quicker demand recovery.  

v  Maintenance of Adequate Liquidity: The company took some immediate measures so that cash flows can be kept under check during FY20 and liquidity can be maintained. These include deferment of capital expenditure and renovations, unless necessary. The Indian Hotels Company Limited has also provided liquidity for capital commitments on work which was undertaken and was completed prior to lockdown. The company has drawn down lines of credit and benefited from Targeted Long Term Repo Operation programme which was announced by Reserve Bank of India so that liquidity can be improved.

v  Monetisation of Existing Assets: The Indian Hotels Company Limited has in place strategic investment platform with GIC for acquisition of marquee assets in key cities. It can leverage this platform to monetise existing assets and grow inorganically by acquisition of distressed assets that are expected to come to market over medium-to long-term.

v  Multiple Alternative Revenue Opportunities: The company’s brands enjoy tremendous trust of patrons, guests and neighbourhoods where it operates hotels. Given limitations that current pandemic situation has imposed, the company explored alternative revenue opportunities. This is done to ensure business continuity. Exploration of digital channels is being done to make more products and services available to guests. The company expects all hotels to become operational in a systematic manner once lockdown is lifted and confidence gets restored. Business recovery should be stemming from domestic leisure tourism and domestic business travel.

Conclusion

The Indian Hotels Company Limited has a total market cap of ~INR12,48,721.37 lakhs and free float market cap of ~INR7,34,375.69 lakhs. Over FY17-FY20, the company compounded its consolidated revenues at ~4.1%, with strong economy and digital disruption acting as principal growth enablers.

Stock of The Indian Hotels Company Limited has seen an increase of ~52.54% over Mar 23, 2020 and Mar 23, 2021, with most of this growth being supported by opening up of economy and pent-up demand.

The company has maintained its commitment to 18 new hotel openings in FY23E and maintaining same annual run-rate to reach 300-hotel portfolio over FY23-26E. Thus, revenue growth and margin expansion of the company should move in tandem.

Management of costs and multiple alternative revenue opportunities should help the company maintain sound profit margins. Though weakness in demand can be extended, the company should seek some support as a result of strong brand value. Leadership position and scalable business model should act as principal growth enablers.  It was able to outperform and see industry-leading recovery over past two years with increasing market share and widening of RevPAR premium. 

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