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Result Update

November 7, 2012
Rating matrix
Rating Target Target Period Potential Upside : : : : Sell | 57 9-12 months -11%

Indian Hotels (INDHOT)
WHAT’S CHANGED…

| 64

PRICE TARGET........................................................................... Changed from | 63 to | 57 EPS (FY13E)............................................................................. Changed from | 0.8 to | 0.7 EPS (FY14E)............................................................................. Changed from | 1.8 to | 1.7 RATING........................................................................................Changed from Hold to Sell

Key Financials
| Crore Net Sales EBITDA Net Profit EPS FY11 2862.5 452.4 -87.1 -1.1 FY12 3432.7 545.7 3.4 0.0 FY13E 3723.9 537.5 59.5 0.7 FY14E 4124.2 691.4 129.3 1.6

Disappoints again…
Indian Hotels’ (IHCL) Q2FY13 results remained below our estimates on all parameters. IHCL reported standalone revenues of | 379 crore (up ~6% YoY) that remained below our estimates on account of flat revenue per available room (RevPAR) across all major destinations. The growth for this quarter mainly came in from F&B segment and new room additions at Yashwantpur, Bangalore. Operating margins for the quarter declined 550 bps YoY largely due to higher fixed overhead costs related to opening of new hotel at Yashwantpur, Bangalore and flat RevPAR. As a result, the company reported a net loss of | 6.4 crore for the quarter. On a consolidated basis, company’s revenue grew 14.4% in H1FY13 due to consolidation of Piem Hotels while net loss stood at | 90.8 crore during the same period on account of low demand & higher operating costs. Topline driven by new room additions, RevPAR remains flat YoY IHCL’s standalone topline grew ~6% YoY supported by additional revenue from new room additions (in Yashwantpur) and flat RevPAR. Baring few cities like North Mumbai, Kolkata, Goa, Pune and Agra, all other major cities reported marginal fall in average occupancy. Profitability of subsidiaries remains a concern Profitability of subsidiary companies continues to remain a concern due to the slowdown. The topline growth of 14.4% YoY on a consolidated basis is mainly attributable to consolidation of Piem Hotels Ltd (a subsidiary company) and a stable standalone performance. Improvement still in nascent stage, OEH takeover also remains overhang At the CMP of | 64, the stock trades at 16.9x and 13.2x FY13E and FY14E EV/EBITDA, respectively. We continue to remain conservative on the earnings growth front till we see some sign of recovery in its international operations. Also, the proposed acquisition of Orient Express, if it succeeds would also put further pressure on its profitability, going forward. Given the weak H1FY13 performance and subdued business environment, we further revise our price target downwards to | 57 with SELL rating (i.e. at 12.5x FY14E EV/EBITDA).
Exhibit 1: Financial Summary
| Crore Net Sales EBITDA EBITDA Margin (%) Depreciation Interest Net Profit EPS | Q2FY13 379.0 20.2 5.3 32.1 23.3 -6.4 -0.1 Q2FY13E 386.2 67.6 17.5 31.2 29.6 11.6 0.2 Q2FY12 357.6 38.7 10.8 27.9 24.7 8.1 0.1 Q1FY13 396.5 66.0 16.7 31.0 29.9 4.0 0.1 YoY Gr .(%) 6.0 -47.9 -550 bps 15.1 -5.6 -179.2 -179.2 QoQ Gr. (%) -4.4 -69.5 -1134 bps 3.8 -21.9 -259.6 -259.6

Valuation summary
FY11 PE (x) Target PE (x) EV to EBITDA (x) Price to book (x) RoNW (%) RoCE (%) NM NM 20.3 1.7 -3.0 3.0 FY12P NM NM 16.1 1.7 0.1 4.0 FY13E 86.4 77.0 16.9 1.8 2.1 3.4 FY14E 39.8 35.5 13.2 1.7 4.4 5.3

Stock data
Market Capitalisation Debt Cash & Equivalents EV (FY12) 52 week H/L Equity capital Face value MF Holding (%) FII Holding (%) | 5146 crore | 3852 crore | 192 crore | 8807crore | 80/50 | 80.7 crore | 1.0 23.9 13.2

Price movement (IHCL v/s Nifty)
6,000 5,500 5,000 4,500 4,000 Nov-11 Feb-12 May-12 Aug-12 Nifty (L.H.S) Price (R.H.S) 60 80

70

50 Nov-12

Analyst’s name
Rashesh Shah rashes.shah@icicisecurities.com

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

** Covers 4 major destinations Source: Company. ICICIdirect. Among leisure destinations ARR improved marginally in Goa and Agra due to low base effect of last year 8000 6000 4000 2000 0 Nov-11 Aug-11 Aug-12 Oct-11 Dec-11 Mar-12 Jun-12 Apr-12 Jul-11 Jan-12 Jul-12 Sep-11 May-12 Sep-12 Feb-12 | Business destinations leisure destinations * covers 9 metro cities. Other major cities reported a downward trend 65 % 55 45 35 May-12 Sep-10 Sep-12 53 53 59 55 Aug-12 57 49 56 45 58 44 Jul-12 Aug-11 Nov-11 Oct-11 Dec-11 Mar-12 Jun-12 Jan-12 Apr-12 Jul-11 Business destinations* Leisure destinations** * covers 9 metro cities.com Research Exhibit 4: Industry ARR trends across company’s main operating regions 12000 10000 During Q2FY12.com Research ICICI Securities Ltd | Retail Equity Research May-12 Sep-11 Page 2 Sep-12 Feb-12 (%) . ARR across business destination declined marginally except North Mumbai and Chennai. that saw marginal recovery in Q2FY13.2% YoY on account of lean season and low business activities '000s 452 382 369 487 Jul-10 Source: Company. last year. ** Covers 4 major destinations Source: ICICIdirect. ICICIdirect.com Research Exhibit 3: Industry occupancy trend across company’s main operating regions 85 75 During Q2FY13. only North Mumbai and Delhi reported a marginal improvement in average occupancy levels vs.Exhibit 2: Trend in foreign tourist arrivals 800 700 600 500 400 300 200 100 0 50 40 30 20 10 0 -10 -20 -30 -40 606 655 538 692 507 417 369 396 498 402 401 563 637 715 681 677 623 452 372 432 525 456 415 Nov-10 Nov-11 Mar-11 Mar-12 Jul-11 Jan-11 Jan-12 Jul-12 Sep-11 FTA (LHS) May-11 YoY Growth (RHS) 78 70 58 54 60 55 61 60 66 59 63 75 74 67 83 71 72 66 66 60 FTA growth for the quarter ended September 2012 remained moderate at 7.

com Research Exhibit 7: Upcoming development in 2012/13 Hotel Taj Taj Palace Marrakech. Gurgaon The company is planning to add nearly 2.3 Q2FY13 -6 Standalone sales for Q2FY13 have grown 6% YoY mainly 20 20 Q2FY12 Q3FY11 Q4FY11 Q1FY12 Q2FY12 Q3FY12 Q4FY12 -150 Sales Net Profit Source: Company. ARRs and occupancy remained more or less flat compared to last year 350 250 150 50 329 -40 358 58 51 65 379 4 16. ICICIdirect. Coorg Vivanta by Taj. ICICIdirect. crore due to increase in inventory. Chennai Ginger Hotels (8) New Development in pipeline 2012/13 Source: Company. Morocco Imperial Club by Taj. most rooms would be added under management contracts Company Management Contract Management Contract IHCL Kaveri Resorts Management Contract Management Contract Management Contract Benares Hotels Ltd Management Contract Management Contract Roots Corporation Ltd 18 Hotels Q1FY13 -50 8 396 450 Rooms 161 9 250 62 200 200 119 34 92 193 720 2040 Rooms Gateway Gateway Kolkata Gateway Raipur Gateway Gondia Gateway Hubli Gateway OMR. Mumbai Vivanta by Taj Vivanta by Taj.3% on higher operating costs.com Research Exhibit 6: Trends in operating margin 40 35.040 rooms in 2012/13. Tardeo.4 11.2 10.0 Standalone operating margins for the quarter dipped further to 5. Of the total room additions.com Research ICICI Securities Ltd | Retail Equity Research Page 3 .0 28. The rise in operating cost is mainly attributable to the opening of the new property in Yashwantpur (Bangalore) (%) 30 29. Dwarka Vivanta by Taj.Exhibit 5: Quarterly trends in sales and net profit 650 531 485 550 522 560 370 |.4 20 18.7 Q2FY13 5.8 10 0 Q2FY12 Q3FY11 Q4FY11 Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1FY13 OPM (%) Source: Company.7 27. ICICIdirect.

7 5.9 2.0 33.5 -466.7 1.8 0.3 288.0 -366.8 1.8 13.8 1.3 -352.2 168.3 232.3 6.0 7.8 691.5 242.0 326.5 -88.4 372.3 0.4 54.050.0 0.432.9 1.4 749.7 0.1 FY12 3.186.367.7 2.com Research ICICI Securities Ltd | Retail Equity Research Page 4 .124.2 FY11 FY12P FY13E FY14E Source: Company.com Research Source: Company.8 489.5 1.8 732.0 1.050.0 -345.0 93.4 13.120.4 167.917.6 288.4 537.4 1.8 3.0 0. ICICIdirect.6 7.0 0.0 2.4 254.0 211.9 101.7 -181.5 8.4 71.4 1.774.9 -3.5 4.4 7.9 96.7 19.4 7.7 26.723.2 2.245.4 2.4 2.4 20.8 300.9 0.491.152.3 3. ICICIdirect.3 -237.6 35.8 547.1 107.7 20.761.2 52.5 59.8 489.510.9 617.9 29.2 1.8 262.0 5.5 284.1 2.1 0.103.3 -392.965.5 368 1249 296 1274 3.117.8 93.3 1.0 511.8 0.0 -913.6 1.3 0.1 3.1 2.3 913.570.9 58.1 9.0 0.0 100.2 756.04 FY13E 3.8 251.9 Cash flow statement (| Crore) FY14E 129.329.0 Key ratios (Year-end March) Per share data (|) EPS Cash EPS BV DPS Cash Per Share Operating Ratios (%) EBITDA Margin PBT / Total Operating income PAT Margin Inventory days Debtor days Creditor days Return Ratios (%) RoE RoCE RoIC Valuation Ratios (x) P/E EV / EBITDA EV / Net Sales Market Cap / Sales Price to Book Value Solvency Ratios Debt/EBITDA Debt / Equity Current Ratio Quick Ratio 9.913.4 1.2 1.1 0.055.7 5.2 1.6 366.190. ICICIdirect.910.0 3.019.1 NM -1.Financial summary Profit and loss statement (| Crore) (Year-end March) Total operating Income Growth (%) Raw Material Expenses Employee Expenses Power & Fuel Exp Other Exp Total Operating Exp EBITDA Growth (%) Depreciation Interest Other Income PBT Others/Minority Int Total Tax PAT Growth (%) EPS (|) FY11 2.252.570.5 3.119.0 0.6 1.4 252.8 1.7 193.3 21.5 195.5 0.5 215.2 44.6 FY13E 59.1 1.875.3 FY12P 75.8 5.5 13.6 228.9 38.9 1.7 0.6 0.2 2.1 241.3 237.7 49.505.1 191.528.258.8 78.5 86.255.3 369.2 0.0 0.510.9 491.887.2 7.0 -200.2 7.0 7.2 10.0 41.5 -833.7 FY14E 4.6 4.444.2 36.3 169.4 16.139.0 16.7 -388.9 0.9 Source: Company.9 363 1149 242 1133 2.4 5.66 -87.2 -40.5 202.7 0.5 32.5 284.0 3.0 -400.0 20.9 195.9 252.9 12.4 1.8 76.774.8 4.334.2 3.0 204.5 6.1 2.0 2.1 -0.215.7 4.6 -512.836.2 431.3 35.9 15.4 LP 0.4 5.0 -1.8 310.0 -9.6 (Year-end March) Profit after Tax Add: Depreciation (Inc)/dec in Current Assets Inc/(dec) in CL and Provisions CF from operating activities (Inc)/dec in Investments (Inc)/dec in Fixed Assets Others CF from investing activities Issue/(Buy back) of Equity Inc/(dec) in loan funds Dividend paid & dividend tax Inc/(dec) in Sec.8 139.2 FY14E 80.8 58.6 4.1 4.1 1.1 137.043.6 2.0 1.3 3.8 14.5 0.5 0.6 6.836.5 -122.1 2.6 1.5 87.9 4.6 5.3 191.3 -74.8 148.275.6 -180.4 1.8 325.com Research Source: Company.7 5.1 1.6 2.9 -3.9 2.3 195.4 8.255.432.7 2.5 130.0 19.1 FY12P 3.5 130.7 15.2 441. ICICIdirect.8 489.093.5 207.6 254.7 30.0 966.631.5 3.4 28.2 771.1 228.5 333.4 86.0 4.875.5 NM 0.6 211.9 2.7 0.255.7 4.2 0.4 1.7 NM 16.862.0 3.7 396 1359 286 1392 3.0 125.2 411.7 15.0 3.5 0.2 133.6 8.5 297 967 196 950 2.0 545.com Research Balance sheet (| Crore) (Year-end March) Equity Capital Reserve and Surplus Total Shareholders funds Total Debt Deferred Tax Liability Minority Interest / Others Total Liabilities Gross Block Less: Acc Depreciation Net Block Capital WIP Total Fixed Assets Net Intangible Assets Investments Goodwill on consolidation Inventory Debtors Loans and Advances Cash Other current assets Total Current Assets Creditors Provisions Total Current Liabilities Net Current Assets Others Assets Application of Funds FY11 76.9 4.1 1.0 7.0 0.6 45.1 5.0 15.7 58.5 1.4 24.5 -1.4 283.5 FY13E 80. premium Others CF from financing activities Net Cash flow Opening Cash Closing Cash FY11 -87.5 130.3 117.495.6 0.8 2.4 7.1 7.0 19.5 1.5 116.1 2.9 7.4 144.425.410.3 129.3 62.7 39.1 452.0 100.9 8.6 -215.4 50.5 211.5 25.5 7.836.7 -254.6 451.4 2.852.6 89.0 -189.4 4.2 38.0 0.4 2.9 38.3 1.9 0.0 -3.2 1.1 0.8 42.6 2.2 736.0 0.4 4.3 191.902.5 15.5 121.

ICICIdirect.795 8019 66% FY12 14.com Research Exhibit 9: Recent Releases Date 19-Oct-12 30-May-12 30-Jan-12 16-Nov-11 Event EventUpdate Q3FY12 Result Update Q3F12 Result update Q2FY12 Result Update CMP 66 54 64 60 Target Price 63 62 70 90 Rating HOLD HOLD HOLD BUY Source: Company.680 8215 67% FY14E 16.Exhibit 8: Recommendation History 100 90 80 70 60 50 40 30 20 10 0 Nov-11 Jan-12 Feb-12 Mar-12 Price May-12 Jun-12 Aug-12 Sep-12 Nov-12 Target Price Source: Company.com Research ICICI Securities Ltd | Retail Equity Research Page 5 . ICICIdirect. ICICIdirect.936 8439 69% Source: Company.636 7946 66% FY13E 15.com Research Exhibit 10: Key Assumption matrix Year No of rooms Average ARRs Average Occupancy FY11 12.

This report and information herein is solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. ICICI Securities or its subsidiaries collectively do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report. Past performance is not necessarily a guide to future performance. Our research professionals provide important input into our investment banking and other business selection processes. 1st Floor. their directors and employees (“ICICI Securities and affiliates”) are under no obligation to update or keep the information current. research analysts and the authors of this report or any of their family members does not serve as an officer.com assigns ratings to its stocks according to their notional target price vs. Akruti Trade Centre. The value and return of investment may vary because of changes in interest rates. The securities discussed and opinions expressed in this report may not be suitable for all investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. Strong Buy: >15%/20% for large caps/midcaps. Buy: > 10%/ 15% for large caps/midcaps. Rashesh Shah CA. integrated investment banking. where such distribution. corporate finance. foreign exchange rates or any other reason. The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. Sell: -10% or more. to any other person or to the media or reproduced in any form.com pankaj. who must make their own investment decisions. country or other jurisdiction. Forward-looking statements are not predictions and may be subject to change without notice. respectively. not all customers may receive this report at the same time. or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. research analysts and the authors of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months. ICICIdirect. based on their own investment objectives. We along with affiliates are leading underwriter of securities and participate in virtually all securities trading markets in India. is. Nothing in this report constitutes investment. We also certify that no part of our compensation was. publication. investment banking or other advisory services in a merger or specific transaction. current market price and then categorises them as Strong Buy. This report is not directed or intended for distribution to. its subsidiaries and associated companies. MIDC. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets.RATING RATIONALE ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICI Securities and affiliates might have received compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of public offerings. It is confirmed that Rashesh Shah CA. director or advisory board member of the companies mentioned in the report. ICICI Securities Ltd | Retail Equity Research Page 6 . ICICI Securities will not treat recipients as customers by virtue of their receiving this report. in part or in whole. Analysts aren't registered as research analysts by FINRA and might not be an associated person of the ICICI Securities Inc. Actual results may differ materially from those set forth in projections. 7. financial positions and needs of specific recipient. respectively. legal. any person or entity who is a citizen or resident of or located in any locality. there may be regulatory. persons reporting to analysts and their dependent family members from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. transmitted to. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. copied or distributed.com ANALYST CERTIFICATION We /I. ICICI Securities and affiliates may act upon or make use of information contained in the report prior to the publication thereof. which include earnings from Investment Banking and other business. Andheri (East) Mumbai – 400 093 research@icicidirect. ICICI Securities and affiliates accept no liabilities for any loss or damage of any kind arising out of the use of this report. compliance or other reasons that may prevent ICICI Securities from doing so. ICICI Securities generally prohibits its analysts. ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. hereby certify that all of the views expressed in this research report accurately reflect our personal views about any and all of the subject issuer(s) or securities. Hold: Up to +/-10%. The recipient should independently evaluate the investment risks. ICICI Securities Limited. Though disseminated to all the customers simultaneously. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way. ICICI Securities. or use by. in circumstances where ICICI Securities is acting in an advisory capacity to this company. It is confirmed that Rashesh Shah CA. without prior written consent of ICICI Securities. Buy.pandey@icicisecurities. Road No.com Research Desk. availability or use would be contrary to law. Hold and Sell. investment management and brokerage and financing group. with high conviction. but no independent verification has been made nor is its accuracy or completeness guaranteed. research analysts. This may not be taken in substitution for the exercise of independent judgment by any recipient. Also. or in certain other circumstances. Pankaj Pandey Head – Research ICICIdirect. While we would endeavour to update the information herein on reasonable basis. We and our affiliates have investment banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. authors and the names subscribed to this report. ICICI Securities and its affiliates might have managed or co-managed a public offering for the subject company in the preceding twelve months. This report is based on information obtained from public sources and sources believed to be reliable. accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. state. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Disclosures: ICICI Securities Limited (ICICI Securities) and its affiliates are a full-service. Our research professionals are paid in part based on the profitability of ICICI Securities.

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