The Indian Hotels Co. Ltd reported a bumpy start to the fiscal year 2024 (FY24), presenting a mixed bag of earnings for the June quarter (Q1 FY24). The company saw a 16% year-on-year rise in its consolidated operating revenue for the June quarter to ₹1,466 crore. However, elevated costs hampered an expansion at the Ebitda (earnings before interest, tax, depreciation, and amortization) level, despite the growth in revenue.
The hospitality major flagged increased marketing expenses during its earnings call, leading to a 187 basis-point reduction in its Ebitda margin year-on-year, falling to 28% in Q1. Key performance indicators such as average room rate (ARR) and revenue per available room (RevPar) showed year-on-year growth, though they fell sequentially due to seasonal factors. For context, standalone RevPar was at ₹9,428 in Q1, down from ₹12,634 in Q4FY23.
Despite these challenges, Indian Hotels has retained its forecast of securing double-digit growth in RevPar for FY24. Indian Hotels anticipates rising occupancy and potential boosts from events like the ICC Cricket Men’s World Cup and Miss World pageant. The revival of foreign tourism, which is yet to regain momentum, could also serve as a potential catalyst for growth.
“While Q1 Ebitda was a miss and stock may remain range bound in near term, we believe Indian Hotels is an attractive proxy to domestic macro tailwinds over medium to long term,” said analysts at Jefferies India in a report on 27 July.
Adding to the optimism, demand in Q1 outpaced supply, with hotel demand rising 8% compared to FY20 and room supply growth at 6.7%. As of Q1, Indian Hotels operates 270 establishments.
On a separate note, the company’s board approved either Indian Hotels or one of its subsidiaries to acquire 100% equity of Pamodzi Hotels Plc from Tata International Singapore PTE Ltd. Pamodzi, a listed company in Zambia, will further expand Indian Hotels’ global footprint. The company also plans to operate a hotel in Germany on a 20-year lease agreement, involving a capital expenditure of EUR 5 million.
However, the company’s high valuation remains a concern. Shares of Indian Hotels have seen a 47% surge over the past year. Nuvama Research analysts cautioned on July 27, “We trim FY24E Ebitda by 4%, factoring in higher costs. While RevPar momentum is impressive, it may not translate into earning upgrades or justify assigning further premium valuation to the 23x FY25E EV/Ebitda Indian Hotels is already trading at (20x pre-covid average).” They have maintained a ‘Hold’ rating on the stock.
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Updated: 28 Jul 2023, 12:38 PM IST