The hospitality industry is recovering rapidly as fears of the COVID-19 pandemic and restrictions are eased. Against this backdrop, The Indian Hotels Company Limited on Monday laid out its development plan Ahwaan 2025. Key attractions included maintaining double-digit revenue growth, improving operating margins and expanding the portfolio through an asset-light model.
At its Capital Markets Day, the company told analysts that industry average room rates (ARR), occupancy and revenue per available room (RevPAR) could improve amid strong demand. In FY20-FY26, the average annual demand growth for hotel rooms is expected to exceed supply. The company’s RevPAR has recovered to 76% in FY22 as compared to pre-Covid levels, it said. It has also surpassed 65% RevPAR of the industry.
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The company aims to expand its consolidated EBITDA margin to 33% by FY26, with 35% EBITDA contribution from new businesses and management fees by FY26. Ebitda is earnings before interest, taxes, depreciation and amortization. This is a jump of 900 basis points (bps) compared to the 24% margin seen in FY20. One basis point is 0.01%.
The company is planning a 50:50 hotel mix split between owned/leased and managed hotels. Analysts say the increasing share of management contracts would be conducive to the company’s return on capital employed. About 74% of the projects under its pipeline are management contracts. Also, it aims to take its total hotel count to over 300.
Indian Hotels intends to have a strong balance sheet (zero net debt).
Analysts say a sharp recovery in the industry augurs well for meeting targets, but continued levels of high inflation could play a bad game, at least in the short term.
Analysts at ICICI Securities Ltd believe that the growth and margin targets set by the company management are realistic. “We estimate FY13 consolidated revenue up 56% y-o-y (y-o-y) to Rs 4,780 crore (107% of FY 2010 level) and FY 24E revenue up 18% year-on-year to Rs 5,650 crore. Rs., at an EBITDA margin of 32%. ,” he said in a report on May 24.
Shares of Indian Hotels fell 2.5% to Rs 225.50 on Tuesday. However, in the last one year, the stock has gained 74 per cent, beating the Nifty 500 index by a huge margin.
Motilal Oswal Financial Services expects a strong recovery for the company in FY13 and FY24, led by improvement in ARR, when economic activity normalizes, better led by business travelers and leisure segment. Business, cost rationalization efforts, increased food and beverage income in the form of higher income from the resumption of banquets and conventions, and management contracts.
However, there are obstacles in the road to recovery. “We are still seeing some countries restricting citizens from traveling to India. There is a war going on in the other part of the world. Hence, on the international demand front, the outlook is not as bright. Domestic demand could be impacted by lower spending power due to inflation and the suspension of discretionary demand,” said an analyst requesting anonymity. Also, in the services industry where competition is tough and variable spending, especially The manpower cost from , is not high. Room for cost rationalization beyond a point. For now, strong demand is buoying investor sentiment. ICICI Securities has a totals-based-based target price of Rs 292 per share, which is 22x Mar’24E evaluates the stock at EV/Ebitda. According to the brokerage, “The major risks to our ratings are the fresh COVID waves globally and in India, impacting demand and increasing costs.”