Hotels Thematic - Mar22 - IC

Hotels
SECTOR REPORT
Re-tethering the untethered
“I’ve seen gluts not followed by shortages, but I’ve never seen a shortage not followed
by a glut”…Nassim Nicholas Taleb
21 March 2022
Remote working has untethered many people from the need to be in office every day,
BSE Sensex: 57292 but signs of reversal to old ways are visible. Globally, non-urban gross nights booked
are well above pre-COVID levels, and steadily, urban destinations are beginning to
Sector: Hotels catch up on pre-COVID occupancy as well. Secondly, cross-border travel continues to
recover and has been accelerating each quarter in FY22, globally. We therefore
IHCL estimate FTAs to contribute 21% of branded hotels’ occupancy, which is currently
75% short of pre-COVID levels. Indian tourists who usually travel abroad are more
CMP (Rs) 209 than compensating for the occupancy shortfall currently. GoI’s intention to start
Mkt Cap (Rsbn/USD bn) 276 / 3.6 international flights from Mar 2022 end, should help restore the FTA traffic by end
Target Price (Rs) 241
FY23E. This switch between Indian nationals travelling abroad and FTAs returning,
should work in favour of city hotels. Thirdly, CAGR in aggregate supply at 3.5% seems
Potential from CMP (%) 15.8
well below the historical demand growth trend (9.7% CAGR). This should help
elongate the length of the cycle. We initiate coverage on the Hotels sector with
EIH Outperformer rating on IHCL (TP of Rs241, with 16% upside, at an implied FY24E
CMP (Rs) 139 EV/EBITDA of 22x), and Chalet Hotels (TP of Rs341, with 27% upside, at an implied
FY24E EV/EBITDA of 15x). However, we initiate coverage with Neutral rating on EIH
Mkt Cap (Rsbn/USD bn) 87 / 1.1
(TP of Rs154, with 11% upside, at an implied FY24E EV/EBITDA of 16x), and Lemon
Target Price (Rs) 154 Tree Hotels (TP of Rs59, with 6% upside, at an implied FY24E EV/EBITDA of 16x). Key
Potential from CMP (%) 10.5 risks include 1) Long delay in business travel resumption, 2) Delays in commissioning
the pipeline inventory.
Chalet Hotels
Recently acquired underutilized assets and aggressive pipeline commissioning to
CMP (Rs) 268 drive recovery/growth: IHCL has an aggressive rollout plan that involves 52% jump in
Mkt Cap (Rsbn/USD m) 54.9 / 724 its managed non-Ginger room count, while Lemon Tree’s 22% inventory was
Target Price (Rs) 341 acquired/commissioned post FY18, but is yet to see a full year of normal operation.
Bulk of the Rs17bn funds deployed by Chalet since its IPO (acquisition and capex) is
expected to achieve peak productivity beyond FY24E. EIH may negotiate deals with
other airline carriers to increase the utilization of its catering business.
Lemon Tree
CMP (Rs) 55 Permanent cost reduction to boost profitability: Hotels with long vintage have been
historically reluctant to cut commensurate costs arising from long-serving employees.
Mkt Cap (Rsbn/USD m) 43.7 / 576
It is this slack that they cut successfully during COVID, which would help them turn
Target Price (Rs) 59 leaner. IHCL leads the way, with indicative Rs1.7bn annual savings, as it redeploys
Potential from CMP (%) 6.0 manpower in newly-commissioned assets, rendering the savings more structural. EIH
and Lemon Tree are also expected to have permanent savings of Rs0.9-1bn.
Absolute price performance
(%) 3-mth 6-mth 1-yr Deleveraging will likely determine incremental growth beyond FY24: Most hoteliers
IHCL 9.2 44.3 79.6 have become aggressive on management contract model (particularly IHCL), as their
relatively high debt-to-EBITDA ratio restricted asset heavy expansion pre-COVID. Post
EIH 4.3 29.5 38.7
fund raise, IHCL and EIH have the balance sheet comfort to explore acquisition-led
Chalet Hotels 16.2 48.6 62.7
growth. Chalet and Lemon Tree’s debt-to-EBITDA needs to fall below 4x (>6x in FY20),
Lemon Tree 19.8 36.8 44.8 before they can contemplate more acquisitions. We calculate this should happen after
Sensex 1.5 (2.0) 16.2 FY24 or FY25; this also makes them deleveraging plays, as demand recovers.
Valuation summary - FY24E

Target Implied Mkt
Reco^ Price* Upside FY24E (Rs bn) FY20-24E (CAGR) P/E EV/EBITDA ROE ROCE
Price EV/EBITDA Cap
(Rs) (Rs) (%) multiple (x) (Rs bn) Rev. EBITDA PAT Rev. EBITDA PAT (x) (x) (%) (%)
IHCL OP 209 241 16 22 276 53 15 7 4 11 19 38 21 10 9
EIH N 139 154 11 16 87 18 5 3 7 21 23 29 17 9 10
Chalet Hotels OP 268 341 27 15 55 13 6 2 6 14 22 24 14 16 10
Lemon Tree N 55 59 6 16 44 9 4 1 8 15 NA 43 15 8 8
Note: *Stock price as on 17th March 2022, ÔP-Outperformer, N-Neutral
Rajiv Bharati
rajiv@damcapital.in
+91 22 42022506
For Private Circulation only “Important disclosures appear at the back of this report”
Hotels
COMPANY-WISE INVESTMENT SYNOPSIS

Exhibit 1: Room distribution
Indian Hotels Indian Hotels Lemon Tree
EIH Chalet Hotels
(Standalone) (Consolidated) (Owned & leased)
Mumbai 25% 9% 47% 6% 59%
Delhi 21% 10% 10% 23%
Bangalore 16% 8% 6% 17% 15%
Chennai 3% 6% 2%
Kolkata 5% 2% 8%
Hyderabad 1% 4% 2% 13% 17%
Others 28% 61% 25% 42% 9%
Total Rooms 4,485 19,920 2,041 5,192 2,554
Managed Rooms 10,901 2,531* 3,297
Approximate Room breakup by purpose

IHCL (non-Ginger) EIH Lemon Tree Chalet Hotels
Leisure 20% 25% 18%
Business 80% 75% 82% 100%
Source: Company, DAM Capital Research
Note: *EIH managed rooms include partly-owned inventory
Exhibit 2: Liquidity scenario

Gross debt Pre-COVID EBITDA Debt/ EBITDA incl Debt/
CFO Debt/ Gross debt
Company (Rs mn) outstanding (Incl other income) EBITDA other income EBITDA
(FY20) CFO (FY24E)
(Last reported) (FY20) (FY20) (FY24E) (FY24E)
IHCL (Consol) 27,300 9,207 8,235 3.0x 3.3x 21,352* 15,659 1.4
EIH 3,540 3,586 2,518 1.0x 1.4x 5,305 NA
Lemon Tree Hotels 16,809 2,465 1,483 6.8x 11.3x 23,973 4,560 5.3
Chalet Hotels 21,547 3,388 2,524 6.4x 8.5x 26,283 6,346 4.1
Note: *We have not factored in Rs20bn proposed QIP in this
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Hotels
INVESTMENT ARGUMENTS
 We estimate FTAs (adjusting for ALOS of 3 days) contribute to 21% of the
occupancy of branded hotels. Currently, the Indian tourist, who would have
otherwise travelled abroad, supports this, largely captured by leisure
hotels.
 Once international borders open up and usher in normal FTA flows, scales
would tilt in favour of business hotels (especially in gateway cities like
Mumbai and Delhi). We see Chalet as the biggest beneficiary of this switch
in guest flow.
 In the interim, profitability recovery is pivoted on cost cutting implemented
during COVID. IHCL provides the most comfort on permanent cost savings,
as it has redeployed employees to its newly commissioned hotels. We
estimate permanent cost savings of Rs2.6bn, Rs0.9bn and Rs1bn, for
IHCL, EIH and LT, respectively, versus pre-COVID period.
 Pick-up in asset utilisation (yet to witness full year of normalised
operations) and aggressive commissioning of inventory pipeline, should
help prop up hoteliers’ profitabilities. Chalet’s Rs17bn assets and Lemon
Tree’s 1,914 rooms are expected to witness sharp rise in utilisation and
profitability, as things normalise. IHCL has over 8,000 rooms under
pipeline to be commissioned over the next few years, bulk of which fall
under management contracts.
 Indian Hotels Company Ltd

IHCL’s 26 hotels in the  IHCL’s standalone entity is the pivot around which all of its expansions (overseas
standalone entity form 20% of and Ginger) are based. Its 26 hotels in the standalone entity form 20% of the
the room inventory, which room inventory, which contributes 66% to overall EBITDA. We believe a recovery
contributes 66% to overall in corporate travel would have a direct positive bearing on the performance of
EBITDA IHCL’s base business.
 IHCL’s annual addition to inventory pipeline tripled over FY19-YTD22 versus
FY16-18. Non-Ginger portfolio is expected to grow by 52% (to ~16,000 rooms),
leading to commensurate increase in management fee income, which has a flow
through of 70%. We expect a 1.3x rise in management contract income to Rs3bn
by FY24E.
 IHCL used the COVID crisis to relook at its cost structure. It lowered its operating
cost by 10%/15% in standalone/consolidated entity during Q3FY22. Considering
a third of IHCL’s cost is variable, hence net savings would be 6.5-10% (2/3rd) of
the total operating cost or over Rs2bn. Employee and admin expenses contribute
to much of the cost reduction.
 Overall, we estimate IHCL to clock 11%/19% EBITDA/PAT CAGR over FY20-24E.
We initiate coverage with an Outperformer rating, and an SOTP-based target
price of Rs241 (asset heavy pieces valued at 15x FV24E EV/EBITDA,
management contract income at 20x FY24E EV/EBITDA and 30% holding
company discount on investment), implying a multiple of 22x FY24E EV/EBITDA.
 Key risks to our estimates include 1) Long delay in business travel resumption,
2) Delays in commissioning the pipeline inventory, and, 3) Increase in overseas
losses.
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Hotels
 EIH Ltd
We estimate EIH to clock  EIH derives ~49% of its revenue from Mumbai-Delhi markets; in line with
7%/21%/23% distribution of rooms in its portfolio. At 57% of total inventory, it also has one of
revenue/EBITDA/PAT CAGR the largest room inventories in the two important cities of India.
over FY20-24E
 EIH, a service-heavy player, has long vintage hotels and commensurate costs
emerging from long-serving employees. It cut this slack during COVID. It reduced
its operating cost by 17%, bringing down employee-to-room ratio from 1.9 to 1.6.
Bulk of Q3FY22 saving came from employee and other expenses. It expects to
employ this cost to aggressive marketing to drive traffic in their hotels.
 Overall, we estimate EIH to clock 7%/21%/23% revenue/EBITDA/PAT CAGR over
FY20-24E, respectively. We initiate coverage with a Neutral rating, and an SOTP-
based target price of Rs154 (an upside of 11%, valued it at 15x FY24E
EV/EBITDA, and 30% holding company discount on investment), implying a
multiple of 16x FY24E EV/EBITDA.
 Key risks to our estimates: 1) Mumbai business district shifting away from south
Mumbai to suburbs: EIH sources 50% of the revenue from its Mumbai hotels, 2)
More project delays: EIH has been slow at building room inventory (owned or
managed). Already, its existing pipeline is relatively small, 3) Disruption of key
client: Grounding of Jet Airways and lack of alternative full-service airline has
already impacted the economics.
 Chalet Hotels Ltd

Chalet’s lower employee cost  Chalet sits on the asset heavy side of the hotels equation. As the promoters (K
per room allows it to make Raheja Corp) have a background in real estate, they have built large hotels and
similar EBITDA per room given it to global operators (Marriott and Accor) to manage. Incremental growth
compared to its luxury peers depends on asset addition, which in turn depends on debt to EBITDA ratio
reducing below 4x.
 Chalet used to derive over 50% of its revenue from the Mumbai region, as 59%
of its hotel rooms are in Mumbai suburbs. This makes Chalet a good recovery
play on upscale and upper-upscale business hotels.
 Another factor that works in Chalet’s favour is that bulk of its hotels is managed
by Marriott. This encourages traffic from global corporates, who enjoy with
network-level tie ups; pre-COVID, overseas visitors constituted 50% of this traffic.
Further, Chalet’s lower employee cost per room allows it to make similar EBITDA
per room compared to its luxury peers, on much lower revenue per room.
 On the commercial assets side, we expect 2.7x growth in rented area, resulting
in EBITDA here expanding at 2.9x to Rs1.8bn over FY20-FY24E.
 Bulk of the Rs17bn funds deployed by Chalet since its IPO (acquisition and
capex) is expected to achieve peak productivity beyond FY24E. This would help
lower its financial leverage (Net debt to EBITDA) to more comfortable level of sub
4x, allowing the company to chart out its next expansion drive.
 Overall, we estimate Chalet to clock 6%/14%/22% revenue/EBITDA/PAT CAGR
over FY20-24E. We initiate coverage with an Outperformer rating, and a SoTP-
based target price of Rs341 (upside of 27%, valuing hotels at 15x FY24E
EV/EBITDA multiple, with commercial real estate business using 8.3% cap rate
and NAV for the Koramangala project).
 Key risks to our estimates include 1) long delay in in resumption of inbound
business travel, 2) concentration risk on Mumbai and suburban region, with over
50% rooms and revenue contribution, 3) likely cap in inorganic expansion, if the
high debt to EBITDA ratio prevails.
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Hotels
 Lemon Tree Hotels Ltd

40% of the rooms under Fleur  Lemon Tree’s flywheel pivots on its ability to execute projects and then flip it for
currently form 75% of LT’s a profit to its subsidiary company, pocketing decent gains, as also retaining the
consolidated capital employed, management contract.
and nearly 100% of its CWIP
 The cumulative profit from these transactions is equal to the net worth of the
standalone entity. Key ingredients here are managing financial leverage and
timely execution.
 40% of the rooms under Fleur currently form 75% of LT’s consolidated capital
employed, and nearly 100% of its CWIP. ~56% of these 3,426 rooms were added
post FY18. All hotels under these haven’t seen a full year of normal
operations/integration. We expect this portfolio to pull up revenue/profitability
going ahead, as they mature.
 LT brought down its overall cost by Rs1bn, which should help it achieve cash
breakeven at lower RevPAR and spare cash to fund Aurika Mumbai’s capex.
 We estimate LT to clock 8%/15% revenue/EBITDA CAGR over FY20-24E. We
initiate coverage with a Neutral rating, and an SOTP-based target price of Rs59
(6% upside, valued asset heavy pieces at 15x FV24E EV/EBITDA, management
contract income at 20x FY24E EV/EBITDA), thereby implying a multiple of 16x
FY24E EV/EBITDA (proportionate basis).
Exhibit 3: Peer comparison
Source: Company, DAM Capital Research, Bloomberg

Note: CAGR period is decided based on crest, hence have taken 5-year/9-year for domestic portfolio, while 4-year/10-year for international hotels
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Hotels
Contents
Company-wise investment synopsis .............................................................................. 2
Investment arguments .................................................................................................... 3
Story in Charts ................................................................................................................. 7
Supply growth, a key cyclicality factor, to stay tepid ..................................................... 8
Long way to cyclical peak ............................................................................................... 9
Guest composition: Bring back the FTAs ..................................................................... 12
Latent domestic demand waiting to be captured ....................................................... 16
Re-tethering causality with air travel............................................................................ 19
Expansion playbook: Asset heavy vs. asset light......................................................... 23
An aggregate look on the listed universe .................................................................... 25
Conclusion ..................................................................................................................... 27
Companies.......................................................................................................................... 28
Indian Hotels Company Ltd ......................................................................................... 29
EIH ................................................................................................................................. 43
Chalet Hotels Ltd .......................................................................................................... 57
Lemon Tree Hotels Ltd .................................................................................................. 72
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Hotels
Story in Charts
Exhibit 4: Recovery and beyond
Rs bn IHCL EIH Chalet Lemon Tree
EBITDA pre-COVID (pre IndAS) 10.4 3.1 3.2 2.4
Additional EBITDA from hotels in the pipeline and new initiatives 1.3 0.6 2.5 0.8
Permanent cost savings 2.6 0.9 0.1 1.0
IndAS impact 1.8 - - 0.1
EBITDA (FY24E - base case) 16.1 4.6 5.8 4.3
Additional EBITDA if 25% RevPAR growth materialises 5.1 1.3 1.8 1.8
EBITDA (with ARR hikes) 21.2 5.9 7.6 6.1
EV (FY24E) 286.0 86.0 79.0 58.0
EV/EBITDA (base case) 18.0 19.0 14.0 13.0
EV/EBITDA (with ARR hikes) 13.0 15.0 10.0 9.0
Exhibit 5: Guest mix for India’s combined branded hotels portfolio (luxury-economy)
Source: DAM Capital Research
Exhibit 6: FTAs drive 21% occupancy of branded rooms Exhibit 7: INDs have been filling in the rooms for the time being
Source: Company, DAM Capital Research Source: Company, DAM Capital Research
Note: IND stands for Indian national departures, we are considering
only the tourist portion of INDs for calculating hotels occupancy
Exhibit 8: Reduction in staff per room

Indian
Chalet Hotels EIH Lemon Tree
Hotels
Staff per room (pre-COVID) 1.2 1.5 1.9 1.0
Indicated staff per room (post-COVID) 0.9 1.1 1.6 0.7
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Hotels
Supply growth, a key cyclicality factor, to stay tepid

Demand is expected to outpace As is true in the case of cyclicals, the gap between demand and supply
supply in every micro market, determines the cyclicality of the hotel industry too. Barring external shocks,
which builds a case for high demand has been strong in last two decades, but it is the lumpiness in supply
occupancy and ARRs that outpaces demand during a certain period. This lumpy supply begins about a
down cycle, identified from a decline in RevPAR (Revenue per Available Room =
Occupancy x Average Room Rate).
Exhibit 9: Cycles in India’s hotel industry

Inventory Room per
Occupancy ARR RevPAR
Phases Period CAGR day CAGR Trigger Type
CAGR CAGR CAGR
(supply) (demand)
Phase 1 1997-2002 6.90% -3.90% 2.80% -1.20% -5.10% IT bubble Down cycle
Phase 2 2002-2008 7.60% 4.90% 12.90% 14.90% 20.60% Up cycle
Credit
Phase 3 2009-2013 19.40% -0.70% 18.50% -7.00% -7.70% Down cycle
Crisis
Phase 4 2013-till date 7.40% 1.80% 9.70% 1.20% 4.40% Up cycle
Source: HVS, DAM Capital Research
To gauge the attractiveness of each micro market, we have compared demand

growth in last 6 years to the adjusted proposed supply growth (adjusted for
historical accuracy of these forecasts). The table below reflects that demand is
expected to outpace supply in every micro market, which builds a case for high
occupancy and ARRs.
Exhibit 10: Favourable demand-supply gap

Rooms Supply CAGR adjusted Dominant demand
Proposed supply Room demand
5-year supply growth (in numbers) for historical hit rate of contributors
CAGR growth (FY13-19)
projections
City FY21 FY21-FY26E FY21-FY26E FY13-19
Agra 2,045 6.3% 3.0% 10.9% Pure leisure
Ahmedabad 3,878 4.7% 2.2% 6.3%
Corporate travel and
Bengaluru 13,901 7.7% 3.8% 12.1%
some MICE
OMR: IT/ITES business
Chennai 9,655 1.1% 0.5% 9.1% travel, ECR – leisure,
staycation, long stay
Diplomatic travel, MICE,
New Delhi 15,181 1.1% 0.5% 7.3%
leisure, business
Business travel, MICE,
Gurugram 5,643 7.2% 3.5% 7.3% weddings and social
events
Noida 1,423 18.4% 9.8% 14.2%
7,039 7.8% 3.8% Pure leisure, casinos
Goa 8.3%
driven
Hyderabad 7,420 2.1% 1.0% 10.7% Same as Bengaluru
Wedding, social, inbound
Jaipur 5,714 8.9% 4.4% 9.1%
leisure
Kolkata 4,933 3.5% 1.6% 9.4% Wedding and MICE
Mumbai 14,330 8.0% 3.9% 4.2% Corporate travel
Pune 6,915 2.4% 1.1% 6.5%
Others 45970 10.9% 5.4%
Overall 1,44,047 7.2% 3.5% 9.7%
Note: India’s market in chain-affiliated hotels has evolved over the years, with the top 3 markets (New Delhi, Bengaluru and Mumbai) forming 30%
of its chain-affiliated room inventory, and the top 5 chains (Marriott, IHCL, Radisson, ITC and Accor) controlling ~45% of these rooms in India
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Hotels
Long way to cyclical peak

We are still 5-6 years away The rise and trough of EIH’s standalone business is a good indicator of where
from peak margins we are in the cycle. In CY19, EIH’s standalone EBITDA touched 18%, but if this
were to touch its previous peak of ~36%, then, after factoring in gross margin of
66%, revenue would need to rise by 28% at old cost structure. This implies we
are still 5-6 years away from peak margins (assuming costs also rise at the rate
of inflation and RevPAR rises at 8% CAGR).
Exhibit 11: EIH (Standalone) EBITDA margin is a good indicator of where we stand in the cycle
EBITDA Margin
40% 37%
35% 35%
35%
30% 31%
30% 25% 25%
23% 23% 22%
19% 18% 19% 20% 18%
20% 16% 15% 16% 16% 15%
12% 13% 12%
10% 7%
0%
CY19
FY10
FY11
FY96
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
During the 2002-2008 up cycle, RevPAR rose from Rs2,000 levels during 2001-
03 to Rs5,500 in FY08. The industry has been awaiting yet another RevPAR
upswing for several years now, which hovered at Rs3,900 range pre-COVID.
Exhibit 12: Industry, occupancy, ARR, RevPAR trend

Occupancy (% - RHS) RevPAR (LHS) ARR (LHS)
7,728
7,988
7,071
10,000 80%
6,513
6,489
6,061
6,029
5,973
5,784
5,768
5,671
5,608
5,532
5,527
5,443
7,500 60%
4,299
3,986
3,903
3,731
3,688
3,569
3,505
3,467
3,269
5,000 40%
2,500 20%
69%
63%
57%
55%
54%
57%
52%
57%
65%
69%
72%
71%
60%
60%
61%
59%
58%
58%
60%
63%
65%
66%
67%
65%
0 0%
FY08
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
Source: Hotelivate
One reason that led to the fall in industry-level ARR and RevPAR is the change in
mix, due to the influx of supply in the midscale and economy segments, faster
than that seen in the luxury segment.
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Hotels
Exhibit 13: Hotel segments
Source: Samhi Hotels
Domestic travel visits during Supply has deepened across segments, reducing the supply concentration in
2000-2019 grew at 14% CAGR the luxury-upper upscale segment from 56% in 2001 to 36% in Sep 2021. This
compared with 8% CAGR seen reduction in supply share comes despite 43k new rooms being added in this
in FTAs luxury-upper upscale category. Better balance is seen due to material supply
growth in the upscale, upper midscale and midscale-economy segments, with
the addition of 27,000, 25,000 and 39,000 rooms, respectively.
We attribute the broadening supply base to increasing demand from domestic

travelers. Domestic travel visits during 2000-2019 grew at 14% CAGR
compared with 8% CAGR seen in foreign tourist arrivals (FTAs).
Exhibit 14: Midscale-economy segment has grown rapidly over Exhibit 15: Absolute inventory grew at 10% CAGR over FY01-
last two decades FY21
Luxury Upper Upscale Upscale
(Inventory in '000)
Upper Midscale Midscale-Economy 200
100% 7%
16% 22% 26% 26% 160
80% 17%
22% 19% 18% 120
18%
60% 19%
20% 20% 20% 80
40%29% 26%
23% 19% 20% 40
20%
27% 25%
16% 16% 16% 0
0%
FY01 FY08 FY15 FY21 Sep-21
FY01 FY08 FY15 FY21 Sep-21
Source: DAM Capital Research Source: DAM Capital Research
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Hotels
Exhibit 16: This reflects 14% CAGR in domestic travel demand Exhibit 17: FTA expanded at 8% CAGR during 2000-2019 period
during 2000-2019
Airpax (m)
Domestic tourist's visits (m) 180
2,500
2,000 135
1,500
90
1,000
500 45
0
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
0
CY09 CY11 CY13 CY15 CY17 CY19 CY21
Source: Bureau of immigration, GOI, DAM Capital Research Source: DGCA, Bloomberg, DAM Capital Research
Excluding demand and supply, Excluding demand and supply, there has been expansion within cities,
there has been expansion displacing demand from one pocket to another. A comment in 2021 Indian
within cities Hospitality Trends and Opportunity report by Hotelivate highlights one such
instance, which could change the structure of the Mumbai market, in our view.
“Mumbai is also set for some infrastructural changes. The Aqua Line 3 of the
Mumbai Metro, also known as the Colaba-Bandra-SEEPZ Line, is a part of
the metro system under construction. Upon completion, the 33.5km line will
be the first underground metro line in Mumbai connecting the business
district of Cuffe Parade in the extreme south of the city to Santacruz
Electronics Export Processing Zone (SEEPZ) located in the north-central part
of the city. The Mumbai Metropolitan Region Development Authority
(MMRDA) is also in the process of drastically reducing travel time between
South Mumbai and Navi Mumbai with the construction of the 21.8km
Mumbai Trans Harbour Link (MTHL). Once completed, the MTHL will be the
longest bridge/sea link in India comprising of a six-lane access controlled
sea bridge with a route alignment connecting Sewri in South Mumbai with
Chirle in Navi Mumbai. While the sea link will likely be operational by 2023,
this has the potential to act as a game changer for South Mumbai as well as
aid significant development in Navi Mumbai.”
11| DAM CAPITAL

Hotels
Guest composition: Bring back the FTAs

A third of the guests in India’s Domestic guests form over two-thirds of a hotel guest composition. Heritage
hotels are foreign nationals, hotels by design operate at higher ARRs and have larger representation from
with > 60% of the total guests foreign guests. A third of the guests staying in India’s hotels are foreign
business travelers nationals, with over 60% of the total guests being business travelers.
Exhibit 18: Share of guests across hotels: Over 2/3rd are Exhibit 19: …and over 60% are occupied by business travelers
domestic guests…
Business Leisure
Domestic Foreign 80% 73%
100%
63% 62% 64% 63%
81% 79% 59%
76%
80% 71% 60%
66%
61%
60% 38% 41%
37% 36% 37%
40%
39% 27%
40% 34%
29%
24% 21%
19% 20%
20%
0% 0%
5-Star 5-Star 4-Star 3-Star Heritage All India 5-Star 5-Star 4-Star 3-Star Heritage All India
Deluxe Average Deluxe Average
Source: India Hotel Industry Survey 2019, FHRAI Source: India Hotel Industry Survey 2019, FHRAI
Average length of stay (ALOS) of these guests is ~3 days, although business

guests tend to stay a day longer than leisure guests.
Exhibit 20: Average length of stay (domestic vs foreign) Exhibit 21: Average length of stay (business vs leisure)
Domestic Foreign Business Leisure

5.0 4.0
4.3 3.3
4.1
3.8 3.0 2.9
4.0 3.5
3.2 3.0 2.7
3.13.1 2.4
2.2 2.2 2.3
3.0 2.5 2.0 2.1 2.0
2.3 2.3 2.32.4 1.7
2.0
2.0
1.0
1.0
0.0 0.0
5-Star 5-Star 4-Star 3-Star Heritage All India 5-Star 5-Star 4-Star 3-Star Heritage All India
Deluxe Average Deluxe Average
Source: India Hotel Industry Survey 2019, FHRAI Source: India Hotel Industry Survey 2019, FHRAI
The above graphs can be combined to form a 2x2 grid for hotels in India.
12| DAM CAPITAL

Hotels
In CY19, ~57% of the FTAs Exhibit 22: Guest mix for India’s combined branded hotels portfolio (luxury-economy)
came for tourism purposes,
while 15% came on business-
related travels
FTA is a key source of traffic for hotels in India. It has disproportionate flow from
three countries, i.e., Bangladesh, the US and the UK
Exhibit 23: FTA source by region (CY19) Exhibit 24: FTA source countries (CY19)
North South East US UK

America Asia East Asia 14% 9%
17% 9% 7% Bangladesh Canada
Eastern 24% 3% Russian
Europe Federation
4% Australasia 2%
Western Australia
Europe West Asia 4% 3%
20% 4% France
Africa Germany 2%
3% 3%
Central &
South Others
Others America Sri Lanka Malaysia
South Asia 34% 3%
31% 0% 1% 3%
Source: Ministry of tourism Source: Ministry of tourism, DAM Capital Research
In CY19, ~57% of the FTAs came for tourism purposes, while 15% came on
business-related travels. The skew is in favour of tourism for guests coming
from Eastern Europe (72% of them came for tourism), South Asia (68%), Central
and South America (64%).
On the business side, 50% of the guests were from East Asia for business
purposes, while 22% of these guests were from West Asia for medical reasons.
On ALOS, ~43% of the guests were on 0-7 days bracket, which is relevant from
perspective of hotels, as seen earlier (ALOS is usually 3 days for hotel guests).
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Hotels
Exhibit 25: Purpose of FTAs (CY19) Exhibit 26: FTA breakup by ALOS
Others >1 month 0-1 days
9% 14% 8% 2-3 days
Medical
12%
6%
2-4 weeks
Business 17%
and Leisure
professional holiday and
15% recreation 4-7 days
57% 23%
Indian 1-2 weeks

disapora 26%
13%
Source: Bureau of Immigration, GoI Source: Bureau of Immigration, GoI

Note - Others include Art surrogacy, diplomatic, journalists, long term,
meeting friends relatives, missionary, mountaineering, research,
SAARC, sports, students, transfer of visa, transit, UK
We expect things to normalise Considering that average ALOS for hotel stay is ~3 days, and assuming that on
by Q4FY23 average, two guests share a room, if we count room nights for FTAs who have
ALOS of 0-7 days, then total room nights should generate 21% occupancy in the
branded hotels portfolio of 130k+ rooms in India. Alternatively stated, foreign
guests contribute to 21% of the occupancy of a hotel, slightly higher for leisure
assets and much higher for heritage assets.
Exhibit 27: FTAs drive 21% occupancy of branded rooms
In terms of seasonality, FTA arrivals in H2 have historically contributed to 60% of

the total FTA arrivals during the year, with nearly equal split between Q3 and Q4.
Exhibit 28: H2 historically contributed to 60% of FTA Exhibit 29: FTA grew at 8% CAGR during 2000-2019
(mn) Foreign Tourist Arrival (m)
Foreign Tourist Arrivals (2019)
1.40 12.0
1.05 9.0
6.0
0.70
3.0
0.35
0.0
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
0.00
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Source: Ministry of tourism, DAM Capital Research Source: Ministry of tourism, DAM Capital Research
Further, flight restrictions have not allowed FTA to climb back across the globe,
similar is the case in India. Government of India’s (GoI) decision to restore
international flights from 22 March 2022 is a welcome step, and we expect
things to normalise by Q4FY23.
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Hotels
Exhibit 30: FTA should see recovery by the end of FY23E

2020 vs 2019 2021 vs 2019
30%
0%
-30%
-60%
-90%
-120%
On the flip side, the industry is worried about Indian national departures (INDs),
who otherwise would have gone outside the country, but are currently forced to
travel in India due to lack of choices; this needs to be subtracted from the
demand equation. We estimate this could add 20% to the occupancy, assuming
guests travel in pairs.
Exhibit 31: INDs have been filling in the rooms for the time being

Note: IND stands for Indian national departures, we are considering only the tourist portion of INDs for
calculating hotels occupancy
Exhibit 32: Departures of Indian nationals have risen at 10% Exhibit 33: … of which, 24% went for tourism in 2019, this was
CAGR over 2001-2019… estimated to driven 20% of hotel occupancy recently
Visit Employment
Indian National's departure (m) 16% 10%
30.0 Tourist
24% Business
24.0 6%
18.0 Haj / Umra

3%
Crew
12.0 Student 2%
2%
6.0
Family
Residence / Joining /
0.0 Re-Entry Others Dependent
2001
2003
2005
2007
2009
2011
2013
2015
2017
2019
33% 2% 2%
Source: Bureau of Immigration, GoI, DAM Capital Research Source: Bureau of Immigration, GoI, DAM Capital Research
Although it seems that INDs are compensating FTAs, and are unlikely to impact occupancy
as things open up, but FTAs usually travel on business trips and drive demand for gateway
cities, while INDs drive demand for leisure destinations. Alternatively stated, hotels in the
listed universe should gain as this swap happens.
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Hotels
Latent domestic demand waiting to be captured

The hospitality industry in India In terms of recovery, hotels in India are yet to cross pre-COVID RevPAR levels,
has consistently recovered even though RevPAR saw 100% yoy growth during the Jul-Nov 2021 period. This
faster than in the US is a healthy sign, despite very little inbound traffic. Most importantly however, if
this level of demand can be achieved without corporate, MICE (meeting,
incentives, conferences and exhibitions) and crew demand, then there is a case
for latent domestic demand that can be exploited with the right products, pricing
strategies and attractions. Further, 21% occupancy is usually driven by FTAs,
which is still down 75% from pre-COVID levels, but we estimate the same is
currently being substituted by Indian nationals who otherwise would have gone
abroad. It remains to be seen if the industry can improve weekend utilization for
city hotels or the current demand can support more hotels.
Exhibit 34: Indian hospitality industry: Recovery slope is steepening

Occupancy (% - RHS) RevPAR (LHS) ARR (LHS)
7,728
7,988
10,000 7,071 80%
6,513
6,489
6,061
6,029
5,973
5,784
5,768
5,671
5,608
5,532
5,527
5,443
4,299
7,500 60%
3,986
3,903
3,731
3,688
3,569
3,505
3,467
3,269
5,000 40%
2,500 20%
69%
63%
57%
55%
54%
57%
52%
57%
65%
69%
72%
71%
60%
60%
61%
59%
58%
58%
60%
63%
65%
66%
67%
65%
0 0%
FY08
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
Source: HVS Anarock
Jan 2022 was a dampener, as recovery slipped due to the Omicron variant,
which caused a spike in the COVID-affected case count. Faster recovery rate,
lower hospitalisation and faster lifting of restrictions bode well for recovery to
restore Feb 2022 onwards.
The hospitality industry in India has consistently recovered faster than in the US.
Exhibit 35: Month-wise occupancy and ARR recovery in India

Occupancy Recovery ARR Recovery
May-20
May-21
Mar-21
Dec-20
Dec-21
Nov-20
Nov-21
Sep-20
Sep-21
Aug-20
Feb-21
Aug-21
Jun-21
Jun-20
Jan-21
Jan-22
Apr-20
Apr-21
Oct-20
Oct-21
Jul-20
Jul-21
0
-3
-20 -8
-14
-15 -14
-15 -15 -16 -13 -20
-21
-24
-27 -29 -29 -25
-27 -25
-40 -31 -31 -33 -32 -30
-38
-33 -35 -32 -32 -33
-39 -41 -42
-60 -49 -51 -52 -51 -48
-64 -62 -61

-67
-80 -72
-82 -79
-100
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Hotels
Exhibit 36: Month-wise occupancy and ARR recovery in US

Occupancy recovery ARR recovery
May-21
May-20
Mar-20
Mar-21
Dec-20
Dec-21
Nov-20
Nov-21
Sep-20
Sep-21
Aug-20
Feb-21
Aug-21
Jun-20
Jun-21
Jan-21
Apr-20
Apr-21
Oct-20
Oct-21
Jul-20
Jul-21
0
-0.7
-9
-9
-20
-11
-11
-17
-22
-22
-25
-28
-28
-29
-29
-29
-30
-40
-34
-37
-39
-43
-43
-45
-46
-49
-50
-60
-54
-55
-55
-55
-56
-63
-64
-65
-68
-70
-80 -72
-72
-75
-75
-76
-77
-85
-100
-94
-94
-92
Leisure-dominant hotels are US hotel chains are slightly ahead of Indian counterparts on revenue recovery
already nearing or have due to higher-exposure leisure segment, long stays and presence in China. E.g.
surpassed pre-COVID levels, Choice hotels had 82% of its rooms serving the leisure segment.
while city hotels are following
suite with a slight lag Exhibit 37: TTM revenue recovery vs pre-COVID levels (%)
Company Mar 2021 Jun 2021 Sep 2021 Dec 2021
Marriott International Inc -54 -41 -25 -17
Hilton Worldwide Holdings Inc -60 -46 -27 -22
Choice Hotels International Inc -16 -12 4 6
Hyatt Hotels Corp -65 -49 -30 -16
Wyndham Hotels & Resorts Inc -35 -24 -17 -20
Airbnb Inc 6 10 36 38
Booking Holdings Inc -60 -44 -7 -11
Expedia Group Inc -52 -33 -17 -17
Indian Hotels Co Ltd -52 -68 -31 -23
EIH Ltd -58 -74 -33 -29
Chalet Hotels Ltd -65 -73 -50 -44
Lemon Tree Hotels Ltd -39 -72 -40 -32
TAJGVK Hotels & Resorts Ltd -51 -68 -28 -14
Sinclairs Hotels Ltd -20 -89 -46 14
Advani Hotels & Resorts India Ltd -36 -89 -53 9
MakeMyTrip Ltd -34 -77 -43 -22
Source: Company, DAM Capital Research, Bloomberg
We witnessed recovery rate improving in each passing quarter, across hotel

majors. Leisure-dominant hotels are already nearing or have surpassed pre-
COVID levels, while city hotels are following suite with a slight lag.
17| DAM CAPITAL

Hotels
Exhibit 38: Stronger recovery in leisure destinations vs metro

IHCL Domestic Hotels - Q3 RevPAR (% of Pre-COVID Levels)
(%)
IHCL (Same Store) Industry
160
139
131
120 104 105
89 90 88
79 83 77 77
76 75
80 64 65 61 57
52 52 57
40
0
All India Goa Chennai Rajasthan Hyderabad Kolkata Kerala Bengaluru Delhi & NCR Mumbai
Source: IHCL, STR, DAM Capital Research
Note:* Data for domestic hotels (incl. Ginger); * Calculated on same store basis
In India, clearly the recovery so far is driven by the luxury and upper-upscale
portfolios, while mid-market is expected to bridge the gap in ensuing quarters.
Exhibit 39: EIH’s leisure portfolio is materially ahead of its Exhibit 40: Segmental occupancy performance in the industry
business portfolio on RevPAR recovery
Q2FY21 Q3FY21 Q4FY21 Q1FY22 Q2FY22 Q3FY22

160%
120%
occupancy
80%
40%
0%
Oberoi Trident Oberoi Trident Trident Total
Leisure Leisure Metro Metro City
(Vilas)
Source: Company, DAM Capital Research Source: STR, DAM Capital Research
18| DAM CAPITAL

Hotels
Re-tethering causality with air travel

For past 2 years, domestic Historically, business travel demand has had strong correlation with air traffic data.
hotel occupancy has been However, for past 2 years, domestic hotel occupancy has been driven by drive-in
driven by drive-in traffic and traffic and staycations, which does not reflect in air traffic data. Presented below is yoy
staycations, which does not recovery in domestic air passenger data. We have collated the top 20 city pairs (to &
reflect in air traffic data fro), which as per Apr-Dec 2019 period, constituted ~50% of the overall domestic
passenger volumes. The data also needs to be discounted for capacity restrictions
imposed by the regulator (in the past). The highlighted fields are pairs that recovered
faster than the overall market during that month. If we study CY21 improvement
trends as compared to pre-COVID levels, we arrive at the following few observations:
 In the top 10 cities by traffic volume, Delhi has shown the most consistent
improvement, followed by Goa and Guwahati
 Mumbai is consistently improving, but at a slower pace than the market
aggregate level
 Cities beyond top 10 have recovered to 95% of pre-COVID levels, consistently
outperforming the top 10 cities in recovery each month. Alternatively stated,
recovery is faster outside the top 10 city pairs
 6-10 ranked cities have been consistently lagging overall market recovery, as also
their 1-5 ranked peers. Chennai and Pune are among the laggards in top 10 cities
 Here too there is lack of causality between recovery of IHCL’s Chennai RevPAR
and air traffic. Similarly, Chalet’s Pune asset clocked 73%/81% occupancy in
Q2/Q3FY22, respectively. This implies hotel occupancies seem to have been led
by drive-in traffic
Exhibit 41: Domestic air-traffic recovery vs pre-COVID levels (India)

YoY YoY YoY YoY YoY YoY2 YoY2 YoY2 YoY2 YoY2 YoY2 YoY2
Apr-20 Jun-20 Aug-20 Oct-20 Dec-20 Jan-21 Mar-21 May-21 Jul-21 Sep-21 Oct-21 Nov-21 Dec-21
Top 5 -100 -82 -77 -59 -46 -43 -35 -83 -60 -43 -30 -21 -18
Top 6-10 -100 -87 -84 -65 -54 -45 -38 -87 -68 -45 -38 -26 -21
After top 10 -100 -85 -69 -48 -34 -30 -25 -82 -51 -32 -22 -12 -5
All India -100 -84 -76 -57 -44 -40 -33 -83 -59 -40 -29 -19 -15
Delhi -100 -77 -73 -57 -45 -40 -28 -80 -54 -36 -24 -15 -9
Mumbai -100 -90 -89 -73 -56 -52 -41 -87 -66 -50 -35 -22 -22
Bengaluru -100 -81 -74 -55 -45 -44 -42 -82 -66 -48 -30 -24 -21
Hyderabad -100 -81 -71 -56 -36 -40 -39 -83 -57 -42 -31 -28 -24
Kolkata -100 -81 -76 -48 -40 -36 -32 -87 -64 -42 -32 -27 -20
Chennai -100 -86 -86 -69 -59 -51 -42 -85 -70 -53 -43 -39 -33
Ahmedabad -100 -85 -79 -61 -49 -50 -36 -82 -57 -45 -39 -25 -27
Pune -100 -79 -80 -68 -69 -60 -61 -91 -70 -51 -66 -29 -27
Goa -100 -97 -95 -76 -44 -21 -11 -93 -79 -32 -5 2 12
Guwahati -100 -86 -72 -44 -34 -32 -33 -86 -65 -32 -21 -21 -9
Kochi -100 -90 -82 -73 -51 -48 -50 -83 -70 -64 -49 -36 -26
Jaipur -100 -82 -69 -62 -38 -45 -38 -87 -61 -40 -27 -16 -5
Lucknow -100 -86 -60 -44 -27 -29 -39 -82 -55 -42 -37 -18 -9
Bhubaneswar -100 -88 -65 -30 -32 -32 -37 -91 -60 -34 -23 -20 -11
Patna -100 -81 -31 -1 -10 11 -17 -70 -45 -39 -32 -15 2
Indore -100 -93 -84 -67 -43 -49 -49 -93 -60 -32 -24 -17 -15
Bagdogra -100 -84 -75 -41 -29 -18 -7 -85 -56 -34 -24 -11 -7
Coimbatore -100 -88 -84 -66 -59 -52 -42 -89 -74 -51 -42 -36 -32
Visakhapatnam -100 -85 -69 -45 -35 -24 -35 -84 -50 -29 -18 -18 -17
Srinagar -100 -72 -58 -28 -3 12 28 -71 -24 13 33 57 106
Source: DGCA, DAM Capital Research
Note: YoY2 implies comparison against same month pre-COVID; Highlighted cells indicate recovery faster than the aggregate market recovery for
the month
19| DAM CAPITAL

Hotels
 If we sort the data by circuits, the busiest three, namely, Delhi-Mumbai,

Bengaluru-Delhi and Bengaluru-Mumbai are still recovering below
aggregate levels of improvement in passenger carried
 The recoveries in Delhi-Kolkata and Delhi-Hyderabad have been better, and

consistently above market aggregate levels
Exhibit 42: City-pair wise air-traffic growth/recovery

YOY YOY YOY YOY YOY YOY YOY YOY2 YOY2 YOY2 YOY2 YOY2 YOY2
Pairs Apr-20 Jun-20 Aug-20 Oct-20 Dec-20 Jan-21 Mar-21 May-21 Jul-21 Sep-21 Oct-21 Nov-21 Dec-21
All India -100 -84 -76 -57 -44 -40 -33 -83 -59 -40 -29 -19 -15
Delhi - Mum -100 -94 -84 -70 -74 -66 -34 -91 -68 -55 -35 -31 -30
Bengaluru - Delhi -100 -86 -82 -69 -63 -60 -14 -86 -69 -51 -34 -31 -30
Bengaluru – Mum -100 -97 -92 -80 -73 -67 -46 -91 -78 -64 -48 -47 -44
Delhi – Kolkata -100 -63 -100 -77 -65 -50 -13 -83 -59 -39 -25 -21 -23
Delhi - Hyd -100 -81 -70 -62 -39 -39 1 -88 -57 -39 -35 -28 -16
Delhi – Pune -100 -84 -70 -54 -60 -55 -30 -88 -62 -45 -62 -30 -16
Chennai – Delhi -100 -80 -79 -69 -63 -55 -14 -81 -62 -40 -32 -29 -20
Hyd – Mum -100 -93 -88 -76 -52 -61 -31 -88 -67 -61 -53 -49 -44
Delhi – Patna -100 -47 -64 -38 -35 -30 -17 -58 -53 -47 -25 -8 -8
Goa – Mumbai -100 -100 -95 -73 -55 -26 21 -89 -71 -33 -5 -2 6
Ahmedabad – Del -100 -80 -73 -64 -61 -58 3 -82 -54 -44 -39 -20 -16
Chennai – Mum -100 -100 -94 -77 -71 -63 -40 -88 -75 -56 -35 -36 -30
Bengaluru – Hyd -100 -81 -84 -72 -64 -61 -25 -88 -65 -55 -45 -41 -38
Ahm – Mum -100 -92 -91 -53 -59 -52 -34 -91 -75 -58 -44 -42 -32
Delhi – Lucknow -100 -99 -93 -72 -75 -66 -35 -88 -69 -57 -45 -34 -36
Goa – Delhi -100 -76 -80 -65 -50 -50 -18 -84 -61 -54 -46 -29 -31
Bengaluru - Kol -100 -94 -93 -76 -38 -14 46 -92 -79 -32 -7 3 16
Bengaluru - Pune -100 -46 -47 -25 -22 -5 24 -53 -52 -32 -1 0 3
Delhi - Srinagar -100 -91 -85 -76 -66 -67 -58 -93 -84 -70 -77 -50 -42
Chennai - Hyd -100 -54 13 -14 28 20 129 -50 -7 35 53 88 157
Delhi - Guwahati -100 -85 -81 -64 -58 -48 -8 -81 -59 -50 -42 -38 -34
Source: DGCA, DAM Capital Research
Note: YoY2 implies comparison against same month pre-COVID; Highlighted cells indicate recovery faster than the aggregate market recovery for
the month
Airpax data is beginning to inch closer to hotels’ occupancy recovery trend,

regaining itself as a lead indicator of occupancy trend.
Exhibit 43: Airpax recovery vs recovery in hotels’ occupancies versus pre-COVID levels
(%) Airpax recovery Occupancy recovery
0
-30
-60
-90
-120
Dec-20
Dec-21
May-20
May-21
Sep-21
Apr-20
Jun-20
Mar-21
Apr-21
Jun-21
Jul-20
Sep-20
Nov-20
Jan-21
Jul-21
Nov-21
Aug-20
Feb-21
Aug-21
Oct-20
Oct-21
20| DAM CAPITAL

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Global recovery
International traffic recovery Domestic recovery reflects the trend seen globally as well. In the US, passengers
seems to be lagging the screened by Transportation Securities Administration (TSA), an agency of US
domestic recovery by 3-4 department of homeland security has nearly caught up with pre-COVID levels in
months Feb 2022.
Exhibit 44: Global recovery touching pre-COVID levels

(mn) Daily number of passengers screened at TSA checkpoint in United States
2019 Traveler Throughput 2020 Traveler Throughput 2021 Traveler Throughput 2022 Traveler Throughput
3.5
2.8
2.1
1.4
0.7
0.0
Air traffic recovery data for the US also points in the similar direction,
hyphenated by stronger domestic air traffic recovery. International traffic
recovery seems to be lagging the domestic recovery by 3-4 months.
Exhibit 45: Month-wise air traffic recovery in the US
Domestic air traffic recovery International air traffic recovery

May-20
May-21
Mar-20
Mar-21
Dec-20
Sep-20
Nov-20
Nov-21
Sep-21
Aug-20
Feb-21
Aug-21
Jun-20
Jun-21
Jan-21
Apr-20
Apr-21
Oct-20
Oct-21
Jul-20
Jul-21
0.0
-20.0
-12.0
-12.8
-12.9
-15.6
-16.1
-17.3
-24.8
-40.0
-27.3
-35.2
-40.6
-41.3
-41.5
-43.0
-43.3
-44.1
-60.0
-50.4
-50.8
-52.8
-57.6
-58.0
-59.7
-60.0
-60.4
-61.2
-62.6
-64.3
-66.1
-80.0
-66.8
-68.5
-70.1
-71.3
-71.7
-77.4
-77.7
-83.6
-100.0
-87.4
-88.4
-90.4
-95.7
-96.4
-98.6
-98.1
-120.0
Booking.com: In 2021, Bookings saw an increase in the share of room nights

booked for international travel (travelers booking a stay at a property located
outside their own country) versus 2020, however, the share remained well
below 2019 levels. It saw an increase in the share of room nights booked on
a mobile device and an increased share of mobile app bookings in 2021 as
compared to 2019 and 2020.
An interesting observation is the revenue earned on a mobile transaction

may be less than a typical desktop transaction due to different consumer
purchasing patterns. For example, accommodation reservations made on a
mobile device typically are for shorter lengths of stay, have lower
accommodation average daily rates, and are not made as far in advance.
21| DAM CAPITAL

Hotels
Exhibit 46: Booking.com’s global data shows marked recovery, although it is still 20% short of pre-COVID levels
Source: Booking.com
Airbnb: In Q4 2021, Nights and Experiences Booked of 73.4 million

represented a significant increase from a year ago (+59% Y/Y) and slight
decrease compared to Q4 2019 levels (-3% Y/2Y). Excluding the impact of
cancellations, gross nights booked in Q4 2021 exceeded both Q4 2020 and
2019 levels (+51% Y/Y and +4% Y/2Y) demonstrating people’s desire to
travel.
ADR averaged $154 in Q4 2021, representing a 20% increase compared to

the same prior year period, and a 36% increase compared to the same
period in 2019. Q4 ADR remained elevated and outperformed our
expectations that it would be stable relative to Q3. The sequential increase
in ADR from the prior quarter of $149 was primarily driven by continued
strength in North America. Consistent with Q3, we saw an almost equal
impact from mix shift and price appreciation on ADR. We continued to see
significant mix shift towards bookings in North America, entire homes, and
non-urban destinations, all of which tend to have higher ADR. Price
appreciation was driven by strong demand as well as hospitality sector-wide
price appreciation.
Exhibit 47: Long stays are still holding strong, well and truly above pre-COVID levels
Length of stay (2022 vs 2020)

180%
135%
90%
45%
0%
1 2 3 4 5 6 Days 7 8-14 15-30 31-60 61-90 >91
Source: Amadeus hospitality
22| DAM CAPITAL

Hotels
Expansion playbook: Asset heavy vs. asset light

There are two principal business models:
Exhibit 48: Two principal business models
Globally, the preferred model is Asset-heavy models generate returns on the real estate and exercise centralised
franchising, especially in the US control over operations. Asset-light models typically enable faster growth and
generate higher returns. This model tends to present lower risk to fluctuations in
the economy. Globally, the preferred model is franchising, especially in the US.
Exhibit 49: Distribution of rooms across hotel chains: Franchising is the preferred model
Owned/Leased Franchised Managed Others
Marriott 1% 59% 37% 3%
Hilton 2% 76% 22%
Accor 3% 40% 57%
IHG 1% 71% 28%
Hyatt 6% 34% 60%
Choice - 100% -
Wyndham 97%
Franchising allows higher degree of control to the owner, and is important for
brands entering new markets, as it allows them to increase their footprint
rapidly, as also rely on the owner or a local operator to manage the hotel. A few
ingredients required for franchising are (a) hotel management skill set or
independent operators, which are abundantly available in the US, which
explains why franchising flourished there, (b) transparent regulation - Federal
Trade Commission regulates the sale of franchises in the US, making
information regarding each franchisee fee structure readily available.
These two factors particularly affect the pace at which franchising has picked up
in Europe and in India too. The next best alternate to give the hotel to the brand
to manage, in exchange for a fee. Marriott, IHCL and Lemon Tree have been
aggressively building their managed portfolios over the years.
23| DAM CAPITAL

Hotels
Exhibit 50: Inventory breakup by ownership

Operational
Proportion
IHCL IHCL
IHCL Lemon Chalet IHCL Lemon Chalet
(non- EIH (non- EIH
(Ginger) Tree Hotels (Ginger) Tree Hotels
Ginger) Ginger)
Owned 4,485 3,659 2,041 5,192 2,554 29% 81% 45% 61% 100%
Managed (incl partly owned) 10,901 875* 2,531 3,297 71% 19%* 55% 39%
Total 15,386 4,534 4,572 8,489 2,554
Pipeline
Owned 371 600 738 516 12% 60% 37% 100%
Managed 4,964 2,745* 400 1,268 100% 88%* 40% 63%
Total 4,964 3,116 1,000 2,006 516
Owned (Pipeline as % of existing) 10% 29% 14% 20%
Managed (Pipeline as % of existing) 46% 314% 16% 38%
Overall (Pipeline as % of existing) 32% 69% 22% 24% 20%
Note: *Ginger is largely on franchisee model, and not on management contract
A typical fee in franchising In management contracts, fee is linked to revenue (similar to minimum
includes royalty fee, guarantee) and incentive fee is linked to gross operating profit (GoP).
sales/reservation fees, Additionally, the asset owner pays marketing fees and bears all the opex and
marketing fees, frequent reimburses any cost incurred by the operator on the owner’s behalf. A case in
traveler program fee and initial point is Chalet, which pays ~9.5% of its revenue as royalty, management fee
fee and business promotion expenses.
Exhibit 51: Royalty, management and business promotion expenses as % of revenue from the
hotels segment paid by Chalet
Paid to Marriott & Accor

10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
FY17 FY18 FY19 FY20 FY21 FY22E FY23E FY24E FY25E
A typical fee in franchising includes royalty fee, sales/reservation fees,

marketing fees, frequent traveler program fee and initial fee.
24| DAM CAPITAL

Hotels
An aggregate look on the listed universe

Room revenue is the highest  IHCL and EIH also happen to have higher employee per room count because of
yielding revenue segment, with their heritage portfolios (palaces and villas). Also, newly constructed hotels are
relatively low manpower more efficient on space utilization, as rooms per hotel tend to be more
requirement and heat, light,
power and water as the main  Further, unionized employees in IHCL and EIH’s portfolio increase the cost
cost items compared to that seen for new hoteliers
 Higher F&B revenue contribution is primarily due to much higher banqueting
 The average age of a Chalet hotel is <10 years, so most of its manpower is
younger, hence, the average cost per employee too is lower. Also, it has
constructed room-heavy hotels, limiting the number of F&B outlets, which by
design tend to be more employee heavy
Exhibit 52: Peer comparison on operational parameters

Indian
Hotels
Rooms per hotel 365 120 142 101
Staff per room (pre-COVID) 1.2 1.5 1.9 1.0
Cost per employee (pre-COVID - Rs mn) 0.5 1.2 1.1 0.3
Staff cost per room (pre-COVID - Rs mn) 0.6 1.8 2.1 0.3
Revenue per room (pre-COVID - Rs mn) 3.9 5.2 4.9 1.5
EBITDA per room (pre-COVID - Rs mn) 1.5 1.3 1.3 0.4
Opex per room (pre-COVID - Rs mn) 2.4 3.9 3.6 1.1
F&B revenue as % of room revenue 56% 98% 60% 38%
 COST (Opex and Capex)

A look at the segmental revenues and margins help understand the profitability
of hotels. Understandably, room revenue is the highest yielding revenue
segment, with relatively low manpower requirement and heat, light, power and
water as the main cost items.
Exhibit 53: Revenue breakup Exhibit 54: Segmental gross marginⴕ
Others*
Banquet & 6% 100%
Conferences 81%
14% 80% 75%
60% 49% 49%
40%
Rooms 20%
Food & 54%
Beverages 0%
26% Rooms Food & Banquet & Others*
Beverages Conferences
Note: *Others include laundry, gift shop, business center, news stand, Note: ⴕOverall gross margin is in 65-67% range
sport, health club, garage, parking and so forth
25| DAM CAPITAL

Hotels
Exhibit 55: Departmental expenses (variable cost) Exhibit 56: Cost breakup (fixed + variable)
Others*
Banquet & 5%
Conferences
14% Rooms Employee
29% 36%
Others^
29%
Rent
3%
Food &
Beverages Repairs
52% 6% Power & F&B
fuel 16%
10%
Note: *Others include laundry, gift shop, business center, news stand, Note: Ôthers include commission on sales, rates & taxes,
sport, health club, garage, parking and so forth professional fee, airport levy expenses and miscellaneous expenses
The top 10 circuits in India  Across the board, listed companies have disproportionate amounts of
would catch with the other room inventory in business districts
circuits in terms of air traffic
 In 2021, smaller and leisure-oriented chains were the first to get off the
block (e.g., Choice Hotels in the US, Postcard boutique hotels in India)
during the recovery process, while business travel-led players have been
slightly behind, so far. We expect the scales to shift in favour of
business district hotels, as restrictions normalize, while the pent-up
seen in leisure travel subsides, particularly as physical schools open up.
 We believe, incrementally, the top 10 circuits in India would catch with
the other circuits in terms of air traffic; hence, a Delhi-Mumbai exposure
would do better in the medium term. Also, capital efficiency in the sector
at large has been under par; as a result, some debt on book acts as a
check on large expansions, which may get delayed for reasons beyond
control.
 Instead, we prefer companies expanding via management contracts or
the franchisee route, without requiring to put in their own capital. This in
turn, would result in brands becoming more ubiquitous and
recognizable, as seen in the US with Marriott International, Hilton
Worldwide, Wyndham Hotels & Resorts, Choice Hotels International and
Intercontinental Hotels Group, collectively representing 82% of the total
franchised rooms. In this light, we like Chalet, IHCL in that order,
followed by EIH and Lemon Tree.
Exhibit 57: Room distribution

Indian Hotels Indian Hotels Lemon Tree
EIH Chalet Hotels
(Standalone) (Consolidated) (Owned & leased)
Mumbai 25% 9% 47% 6% 59%
Delhi 21% 10% 10% 23%
Bangalore 16% 8% 6% 17% 15%
Chennai 3% 6% 2%
Kolkata 5% 2% 8%
Hyderabad 1% 4% 2% 13% 17%
Others 28% 61% 25% 42% 9%
Total Rooms 4,485 19,920 2,041 5,192 2,554
Managed Rooms 10,901 2,531* 3,297
Approximate Room breakup by purpose
IHCL (non-Ginger) EIH Lemon Tree Chalet Hotels
Leisure 20% 25% 18%
Business 80% 75% 82% 100%
Note: *EIH managed rooms include partly-owned inventory
26| DAM CAPITAL

Hotels
Chalet and Lemon Tree are deleveraging plays, with incremental profit finding
its way to reduce the debt on their books. It also caps their asset-heavy growth
expansion plans, especially for Chalet, being an asset owner.
Exhibit 58: Liquidity scenario

Gross debt Pre-COVID EBITDA (Incl Debt/ EBITDA incl Debt/
CFO Debt/ Gross debt
Company (Rs mn) outstanding other income) EBITDA other income EBITDA
(FY20) CFO (FY24E)
(Last reported) (FY20) (FY20) (FY24E) (FY24E)
IHCL (Consol) 27,300 9,207 8,235 3.0x 3.3x 21,352* 15,659 1.4
EIH 3,540 3,586 2,518 1.0x 1.4x 5,305 NA
Lemon Tree Hotels 16,809 2,465 1,483 6.8x 11.3x 23,973 4,560 5.3
Chalet Hotels 21,547 3,388 2,524 6.4x 8.5x 26,283 6,346 4.1
Note: *We have not factored in Rs20bn proposed QIP in this
Conclusion
IHCL provides the most comfort To sum it up, we pin our hopes on business travel recovery by the end of FY23,
on permanent cost saving front, including FTAs. In the interim, profitability recovery is pivoted on cost cutting
as it has redeployed employees implemented during COVID, and pickup in utilization of assets, which are yet to
to its newly commissioned witness full year of normalized operations. IHCL provides the most comfort on
hotels permanent cost saving front, as it has redeployed employees to its newly
commissioned hotels, while Chalet has Rs17bn assets and Lemon Tree 1,914
rooms, which are expected to witness sharp rise in utilization and profitability,
as things normalize. Chalet is also expected to gain the most from FTA revival,
owing to network level tie-ups of global MNCs with Marriott.
 Risk and opportunity

 Long delays in business travel resumption, including FTA
 Delays in commissioning pipeline inventory
27| DAM CAPITAL

Hotels
COMPANIES
28| DAM CAPITAL

Indian Hotels Company
INITIATING COVERAGE
Set pieces
OUTPERFORMER
IHCL is out of the COVID crisis with one of the best narrative in the hospitality
21 March 2022 space. It has additional EBITDA levers that help clip out the amplitude of
BSE Sensex: 57292 business cycles over time. While it remains heavily dependent on the revival of
Sector: Hotels Mumbai–Delhi-Bengaluru markets, its new segments, Ama and Q-min, could be
game changers. Further, aggressive management contracts signed during FY19-
21 (over 8,600 rooms) have helped it redeploy its employees in these hotels,
enabling it to trim the largest cost in the hotel’s P&L. Moreover, it ironed out
Stock data some long-standing structural complexities, while saving some costs (Sea Rock,
reducing cash loss at The Pierre). All of these should help prop the EBITDA
CMP (Rs) 209
structurally from Rs10bn pre-COVID to Rs15.5bn by FY24E, with another Rs2bn
Mkt Cap (Rs bn/USD m) 275.5 /3,634 upside if sharp RevPAR hikes materialize. We estimate IHCL to clock 11%/19%
EBITDA/PAT CAGR over FY20-24E. We initiate coverage with an Outperformer
rating and SOTP-based target price of Rs241 (16% upside), valuing its asset-
Change in TP (%) NA
heavy portfolio at 15x and management contract income at 20x FY24E
Potential from CMP (%) 15.8 EV/EBITDA, and 30% holding company discount on investment, implying a
multiple of 22x FY24E EV/EBITDA. Key risks to our assumptions are long delays
Earnings change (%)
in business travel resumption, and delays in commissioning pipeline inventory.
FY22E 
Aggressive pipeline addition over FY16-19 to catapult management contract
FY23E 
income: IHCL’s annual addition to inventory pipeline has tripled over FY19-YTD22
Bloomberg code IH IN as against FY16-18. Management has guided to open more than 12 hotels in
1-yr high/low (Rs) 230/91
FY23. Non-Ginger portfolio is expected to grow by 52% (to ~16,000 rooms),
leading to commensurate increase in management fee income, a flow through of
6-mth avg. daily volumes (m) 9.7
70%. We expect management contract income to rise 1.3x to Rs3bn by FY24E.
6-mth avg. daily traded value
Employee and admin cost reduction seem sticky: IHCL used the COVID crisis to
(Rsm/USDm) 1,885.2/24.9 relook at its cost structure. It brought down its operating cost by 10%/15% in
Shares outstanding (m) 1,321.4 standalone/consolidated entity during Q3FY22. Considering a third of IHCL’s cost
is variable, hence, net saving is expected to be 6.5-10% (2/3rd) of the total
Free float (%) 59.0
operating cost or over Rs2bn. It is the employee and admin expenses which
Promoter holding (%) 41 contribute to much of the cost reduction.
Price performance – relative & absolute

Indian Hotels Company Sensex Key valuation metrics
200
Year to 31 Mar FY20 FY21 FY22E FY23E FY24E
150
Net sales (Rs m) 44,631 15,752 31,363 47,502 52,770
100 Adj. net profit (Rs m) 3,135 (8,801) (1,794) 5,612 7,176
Shares in issue (m) 1,189 1,189 1,321 1,321 1,321
50
Adj. EPS (Rs) 2.6 (7.4) (1.4) 4.2 5.4
0
Mar-19 Dec-19 Sep-20 Jun-21 Mar-22 % change 2.5 (380.7) (80.7) (397.2) 27.9
(%) 3-mth 6-mth 1-yr PE (x) 28.4 NM NM 49.1 38.4
Price/ Book (x) 1.7 3.1 4.3 4.2 3.8
IH IN 9.2 44.3 79.6
EV/ EBITDA (x) 13.9 (51.8) 57.2 24.1 20.7
BSE Sensex 1.5 (2.0) 16.2
RoE (%) 6.1 (18.7) (3.5) 8.8 10.4
RoCE (%) 6.2 (7.7) 1.1 8.1 9.0
Rajiv Bharati
rajiv@damcapital.in
+91 22 42022506
Story in Charts
Exhibit 1: IHCL’s glide path to Rs21bn EBITDA
Source of EBITDA Rs bn
EBITDA from owned assets (pre-IndAS) 6.2
EBITDA from existing managed hotels (pre-IndAS) 1.6
EBITDA estimated to
Other Income from asset monetization, dividend income (pre-IndAS) 1.5
increase by another
EBITDA from subs (pre-IndAS) 1.1 Rs5bn if IHCL’s
Permanent cost saving from COVID (pre-IndAS) 2.2 portfolio witnesses
Additional EBITDA from hotels in pipeline (pre-IndAS) 0.5 8% RevPAR CAGR for
3 years
Additional EBITDA from new initiatives (Qmin, Ama etc) (pre-IndAS) 0.8
Benefits from cash loss reduction from US (pre-IndAS) 0.4
Assumed IndAS impact 1.8
Total EBITDA (post-IndAS) 16.1
Exhibit 2: Capital employed breakup (FY21 = Rs80bn*) Exhibit 3: Consol EBITDA bridge (pre-IndAS FY20)
Other Unaccounted (Rs bn)
Investments 6% 8
10%
6
Standalone
Investments 30% 4
(Taj GVK,
Oriental, 2
others)
5% 0
Piem Hotels -2
8%
Roots
Taj SATS
Benares Hotels
Standalone
St. James Court
Consol
United Overseas Holding
Piem
Others & Related party

Roots Corp
3%
IHOCO BV (US
ELEL Assets)
7% 7%
Skydeck St. James
6% Taj SATS Court
3% 15%
*Capital employed excluding lease liabilities
Exhibit 4: We expect management fee to expand 1.3x in FY20- Exhibit 5: It is the employee and admin expenses which are
24E period contributing much of the cost reduction
Management & Operating fees (Rs bn) Power Other expenses Raw material cost
4.0 Employee cost Admin expense Total expenses
60 52
2.9
3.0 2.6 2.7
45 41 39
2.1 2.2 2.2 36 38
2.0
30 25
23
20
0.9 17 16
1.0
15 8
4
0.0 0
FY18 FY19 FY20 FY21 FY22E FY23E FY24E Q3FY21 vs Q3FY20 Q3FY22 vs Q3FY20
30 | DAM CAPITAL 21 March 2022

 IHCL’s standalone entity is the pivot around which all of its expansions
(overseas and Ginger) are based. Its 26 hotels in the standalone entity
form 20% of the room inventory, which contributes 66% to overall EBITDA.
We believe a recovery in corporate travel would have a direct positive
bearing on the performance of IHCL’s base business.
 IHCL’s annual addition to inventory pipeline tripled over FY19-YTD22
versus FY16-18. Non-Ginger portfolio is expected to grow by 52% (to
~16,000 rooms), leading to commensurate increase in management fee
income, which has a flow through of 70%. We expect a 1.3x rise in
management contract income to Rs3bn by FY24E.
 IHCL used the COVID crisis to relook at its cost structure. It lowered its
operating cost by 10%/15% in standalone/consolidated entity during
Q3FY22. Considering a third of IHCL’s cost is variable, hence net savings
would be 6.5-10% (2/3rd) of the total operating cost or over Rs2bn.
Employee and admin expenses contribute to much of the cost reduction.
 Overall, we estimate IHCL to clock 11%/19% EBITDA/PAT CAGR over
FY20-24E. We initiate coverage with an Outperformer rating, and an SOTP-
based target price of Rs241 (asset heavy pieces valued at 15x FV24E
EV/EBITDA, management contract income at 20x FY24E EV/EBITDA and
30% holding company discount on investment), implying a multiple of 22x
FY24E EV/EBITDA.
 Key risks to our estimates include 1) Long delays in business travel
resumption, 2) Delays in commissioning the pipeline inventory, and, 3)
Increase in overseas losses.
Set pieces
We view IHCL’s EBITDA from two lenses 1) pre-COVID steady state, and, 2) COVID
and new initiatives.
Lens 1 - Pre-COVID: We believe the expansion in pre-COVID stable state EBITDA of
Rs10bn could be the result of two key levers, which involves pickup in 1) occupancy
and 2) average room rate. Assuming a 70% flow through and 23% EBITDA margin (in
line with IHCL’s standalone EBITDA margin excluding management fees), a 1%
increase in revenue could result in 3% increase in EBITDA or by Rs2bn, provided
ARR sees 8% CAGR over the next 3 years (FY24E-27E).
Lens 2 – COVID and new initiatives: The second lens is shaped by COVID crisis
(which helped bring down the cost structure) and new initiatives (Q-min, Ama), with
the company aggressively expanding its hotel network (8,000-room pipeline,
dominated by non-Ginger managed rooms). This phase should contribute ~Rs5bn
EBITDA over the next 3 years.

Exhibit 6: EBITDA's glide path to Rs21bn

EBITDA from owned/ leased hotels(pre-IndAS) 6.2
EBITDA from existing managed hotels (pre-IndAS) 1.6
Other income from asset monetization, dividend income (pre-IndAS) 1.5 EBITDA could rise by
another Rs5bn if
EBITDA from subsidiaries (pre-IndAS) 1.1 IHCL’s portfolio
Permanent cost saving from COVID (pre-IndAS) 2.2 witnesses 8% CAGR
Additional EBITDA from hotels in the pipeline (pre-IndAS) 0.5 in RevPAR for 3
years
Additional EBITDA from new initiatives (Q-min, Ama, etc) (pre-IndAS) 0.8
Benefit from reduction in cash loss from the US (pre-IndAS) 0.4
Assumed IndAS impact 1.8
20% of IHCL’s rooms are in Let us delve into some of these set pieces to dissect the levers further. A look at
leisure destinations IHCL’s existing portfolio helps us understand the largest contributor to EBITDA (i.e.,
owned hotels). Holding companies, which cumulatively have 4,485 rooms, are the
most critical profit centres, with 50% of the rooms in 6 metro cities. This skewness
increases to 72% in favour of the top 6 cities in the standalone entity, signifying the
importance of metro cities to IHCL’s overall revenue.
Exhibit 7: Inventory by contract Exhibit 8: Inventory by location*
Holding Mumbai,
Companies, Others, 1,435 , 16%
4,485 , 22% 4,409 , 50%
Management
Contracts,
6,888 , 35% Delhi, 1,125
, 13%
Bangalore,
884 , 10%
Group
Companies, Chennai,
8,547 , 43% Hyderabad, Kolkata, 444 , 5%
242 , 3% 229 , 3%
*Equity adjusted room counted
A dissection of IHCL’s room inventory by use shows that 20% of the rooms are in
leisure destinations, the same for non-Ginger portfolio is 27%, with the rest in
business destinations.
Additionally, the Exhibit below showcases the industry-wide RevPAR in this market
during FY16-19. Here too, key cities Mumbai, New Delhi, Bengaluru lead the rest,
thereby increasing dependence.

Exhibit 9: Average ARR and RevPAR index during FY16-19
ARR Index RevPAR Index

100
75
50
25
0
Mumbai Goa New Delhi Gurugram Bengaluru Kolkata Agra Noida Hyderabad Jaipur Chennai Pune Ahmedabad
Source: Hotelivate, DAM Capital Research
IHCL’s success in this core It is important to highlight that IHCL’s success in this core portfolio had inspired it to
portfolio had inspired it to venture overseas, whereby the company tried to replicate the success it had in the
venture overseas Indian market. Case in point is FY04-FY08 period, when the company level EBIT and
EBITDA margin shot up over two fold.
Exhibit 10: FCF (excluding exceptional items from overseas investments) ramped up, supported by core hotels
EBIT (LHS - Rs bn) FCF (LHS - Rs bn) EBITDA Margin (RHS)

9.0 52%
5.6 4.8 4.8 4.1 5.1
6.0 3.9 3.9 3.4 3.6 3.1 4.2 39%
3.1 3.7
2.3 2.3 3.0
3.0 1.4 1.5 0.6 0.9 0.8 26%
0.2
-0.4 -0.1
0.0 13%
-3.0 0%
-3.0
-6.0 -13%
-9.0 -26%
FY08
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
EBIT excluding other income
As a result, capital employed tripled within 6 years (FY03-FY09), banking on the
performance of core hotels in the standalone entity.
Exhibit 11: Capital employed tripled over FY03-09
Capital Employed (LHS - Rs bn) Room inventory (RHS - Count)

100 24,000
79 77 75 75 75 79 75
70 74 74
75 69 70 18,000
63
58
50 42 12,000
32 33 35
25 25
25 14 16 6,000
9 10 11
0 0
FY12
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
The capital allocated in few subsidiaries is yet to bear fruit for IHCL, which otherwise
has been a net drag, either in terms of contributing cash losses (The Pierre, New
York), generating low margin (Roots Corporation), or being completely unproductive
(Hotel Sea Rock). The three put together form ~23% of the company’s capital
employed. The standalone business, which houses 26 hotels, does the heavy lifting,
with some help from few profitable subsidiaries (Piem Hotels, Benares Hotels).

Exhibit 12: Break up of capital employed ( Rs80bn* in FY21) Exhibit 13: Consol EBITDA bridge (pre-IndAS FY20)
Other Unaccounted (Rs bn)
Investments 6% 8
10%
6
Standalone
Investments 30% 4
(Taj GVK,
Oriental, 2
others)
5% 0
Piem Hotels
8% -2
Taj SATS
Benares Hotels
Roots
Standalone
St. James Court
United Overseas
Consol
Piem
Others & Related party

Roots Corp
Holding
3%
IHOCO BV (US
ELEL Assets)
7% 7%
Skydeck St. James
6% Taj SATS Court
3% 15%
Note: *Capital employed excluding lease liabilities
In IHCL’s corporate structure As can be seen from the break-up of capital employed and the commensurate
apart from the parent entity, EBITDA contribution of each of its initiatives, it is clear that the company would have
three more listed entities are been better off improving on the following (a) restoring focus on its core domestic
part of the group market via asset-light expansion, (b) simplifying company structure, (c) trimming
underperforming assets, and, (d) scouting more growth engines (Ama, Q-min, etc.).
In IHCL’s corporate structure, apart from the parent entity IHCL, three more listed
entities, Benares Hotels, Taj GVK Hotels and Resorts Ltd, and Oriental Hotels are
part of the group. Notable pieces are Roots Corporation, which houses all hotels
under the Ginger brand (owned and franchised/managed), IHOCO BV, which houses
majority of IHCL’s international hotels, Taj SATS Air Catering, which houses all of
IHCL’s catering businesses, and, Skydeck Properties & Developers, which holds a
99-year lease, starting from 5 May 1976 from the Governor of Maharashtra for land
measuring 9,500 sqm.
Exhibit 14: Corporate structure
Indian Hotels Company Limited

(Tata Sons holds 38.42%; combined holding of promoter group is 41.05%)
Subsidiaries Joint ventures Associates
Roots Corporation Ltd

Taj GVK Hotels and Resorts Ltd
Piem Hotels Ltd
Taj Kerala Hotels and Resorts Ltd
United Hotels Ltd
Taj SATS Air Catering Ltd Oriental Hotels Limited
Benares Hotels Ltd
Kaveri Retreats and Resorts Ltd Taj Madurai Ltd
Skydeck Properties and Developers Pvt Ltd
Taj Karnataka Hotels & Resorts TAL Lanka Hotels PLC
IHOCO B.V.
Taj Safaris Ltd Lanka Island Resorts Ltd
Taj International Hotels (H.K.) Ltd
IHMS Pty Ltd
St James' Court Hotels Limited
TAL Hotels & Resorts Ltd
Taj International Hotels Limited

Aggressive launches ahead

Over the next three years we IHCL has an aggressive inventory pipeline, particularly over FY19-21, with over 21
expect to see the hotels and on average over 2,800 rooms each year. It has also followed up pipeline
operationalization of recently build-up with accelerated hotel opening. Over the next three years, we expect to see
built up inventory the operationalization of recently built up inventory.
The other two important levers are EBITDA contribution from managed assets and
the expansion in operational inventory.
Exhibit 15: Year-wise addition to inventory pipeline… Exhibit 16: …will soon be followed up with accelerated openings
Rooms added (LHS) Hotels added (RHS)
Rooms opened (LHS) Hotels opened (RHS)
22 21 21 2,000 16
4,000 24.0
12
3,000 14 18.0 1,500 10 12
3,266 1,565
2,937 11 8
7
2,000 8 2,436 12.0 1,000 6 8
1,065 5 5
5
1,000 1,441 6.0 500 4
1,169 625
604 500 442 524 501 495
0 0.0 0 0
FY16
FY17
FY18
FY19
FY20
FY21
9MFY22
FY16
FY17
FY18
FY19
FY20
FY21
9MFY22
Exhibit 17: Operational rooms have expanded at ~5% CAGR Exhibit 18: Bulk of the inventory has been added on the
since FY14…which should change materially, going ahead management contract side…
Operational rooms added (LHS)
25,000 % of managed room in incremental operational rooms (RHS)
112%
19,425 19,920 2000 120%
20,000 18,924
17,145 17,888 92% 1,565
1500 77% 90%
15,000 13,487
52%
1000 743 60%
10,000
501 495
500 30%
5,000
0 0%
0 Apr19 - Mar20- Mar21- Dec21 -
Mar-14 Apr-18 Apr-19 Mar-20 Mar-21 Dec-21 Apr18 Mar19 Mar20 Mar21
Management fee is contributed by 10,346 non-Ginger rooms (as of FY21) from over
19,000 operational rooms in IHCL’s network.
Exhibit 19: …also evident from higher proportion of managed Exhibit 20: Taj and Ginger form bulk of the inventory (%)
rooms in the overall mix (%)
Taj SeleQtions Vivanta Ginger
Holding Companies Group Companies Management Contracts 100%
100% 22 23 23
25 27 75%
33 35 19 17 16
75%
6 6 6
50%
50% 49 48 44 43
25% 53 54 54
25%
25 24 23 23
0% 0%
Apr-18 Apr-19 Mar-21 Dec-21 Apr-18 Apr-19 Mar-21

Non-Ginger management fee Non-Ginger keys form 67% of the pipeline inventory or 5,400 rooms, 52% higher
generating portfolio should than the current non-Ginger management fee generating portfolio (total inventory-
expand from 10,346 rooms to under holding companies-Ginger rooms). This implies the non-Ginger management
15,755 rooms fee generating portfolio should expand from 10,346 rooms to 15,755 rooms (in the
next few years). As a result, management fee revenue can swell by 52% over the
next few years, assuming the RevPAR of the pipeline is at par with the current
operational portfolio.
Management contract revenue has a 70% flow through to EBITDA, as per

management. IHCL recorded management fee of Rs2,225m in FY19 from its
operational 10,000+ keys, which translates into Rs0.22m per room or EBITDA of
Rs0.15m per room (assuming 70% flow through). Alternatively stated, management
fee revenue could potentially swell up to Rs3,356m by FY25E; any further industry-
wide RevPAR improvement would provide additional boost.
Exhibit 21: IHCL has been stepping up efforts to maintain a Exhibit 22: Ginger was a third of the pipeline (as of Dec 2021)
healthy pipeline inventory (~8,000 rooms currently)
Inventory pipeline (LHS)
Ginger
Pipeline as % of operational inventory (RHS)
27%
10,000 36.0
30 29
25
7,500 27.0
Taj
48%
5,000 13 18.0
Vivanta
18%
2,500 9.0
2,016 6,244 8,179 8,080
0 0.0 SeleQtions
Mar-14 Mar-20 Mar-21 Dec-21 7%
Exhibit 23: Management fee to expand 1.3x over FY20-24E… Exhibit 24: ..with 70% flow through to EBITDA
Revenue Stream Flow through
Management & Operating fees (Rs bn) Room Revenue 70%
4.0 F&B and Banquet Revenue 50%
Management Fees 70%
2.9 Membership, Spa, Saloons 60%
3.0 2.6 2.7
Source: Company
2.1 2.2 2.2
2.0
0.9
1.0
0.0
FY18 FY19 FY20 FY21 FY22E FY23E FY24E

Focus on new business segments

While COVID crisis impacted demand across the market, IHCL explored
experimenting in few other adjacencies including micro-brewery, food-trucks,
managing bungalows, etc. Of these, there are 3 notable initiatives, namely,
Chambers (exclusive business membership club), Q-min (food delivery service from
signature IHCL restaurants) and Ama (branded homestay market, housing heritage
bungalows, guesthouses and homestays at unique locations).
Exhibit 25: New revenue/EBITDA sources from pre-COVID levels

Annual revenue Assumed EBITDA flow
S.No. Initiative Driver Unit economics potential through
(FY21-FY24E) (FY21-FY24E)
Current member
Rs400-800m 70%
count is 2,000, which Rs2m joining fee and
1 Chambers (only membership fee or
the management Rs0.2m/annual membership fee
revenue) Rs280-560m
aims to double
Currently present in 50%
2 Q-min^ 20 cities across 75+ Rs1,000-2,000m or
restaurants Rs500-1000m
Current inventory of
Assuming ARR of Rs27,500,
70+ Ama Stays, 80%
occupancy of 50%, management
3 Ama Stays & Trails which management Rs150m or
fee of 15%. Revenue key would
aims to scale up to Rs120m
be Rs0.75m per room per annum
500*
Total Rs1,500-3,000m Rs900-1,700m
Note: ^Q-min app is developed by Tata Digital for which they will get revenue linked fee; *Most of these are third party bungalows. It also has a few
bungalows from other Tata companies
IHCL relaunched its lifestyle Apart from these, IHCL relaunched its lifestyle membership reward program
membership reward program “Epicure” (Privilege Rs25,000 plus taxes and Preferred at Rs17,500 plus taxes per
“Epicure” annum) in Dec 2020. Under these, members will get discounts on stays, spas, food
delivery, upgrades, etc. Further, IHCL has scaled up the Jiva spa network to 70+
units.

Reducing cost and simplifying company structure

Considering a third of IHCL’s IHCL used the COVID to relook at its cost structure. It brought down its operating
cost is variable, we estimate costs by 10%/15% in standalone/consolidated entity in Q3FY22. Considering a third
net saving of 6.5-10% of the of IHCL’s cost is variable, we estimate net saving of 6.5-10% (2/3rd) of the total
total operating cost or over operating cost or over Rs2bn. It is pertinent to note that over a half of this proposed
Rs2bn saving would come from corporate cost reduction from Rs3.5bn in FY20 to Rs2.4bn
in FY22E.
Exhibit 26: Total operating cost has been brought down Exhibit 27: Permanent cost saving will likely step from reduced
corporate overheads
Total operating cost (Rs bn - LHS)
Fixed cost (Rs bn - LHS)
Operating margin (% - RHS)
50 40% Corporate overhead cost (Rs bn - RHS)
27% 28% 32 3.5 3.5 3.5 4.0
37 35
40 34 17% 20%
22% 38 24 2.4 3.0
30 18% 35 2.1
16%
19 0%
26 16 20 2.0
20
16
-20% 14
10 8 1.0
-23%
0 -40% 0 0.0
FY18 FY19 FY20 FY21 FY22E FY23E FY24E FY18 FY19 FY20 FY21 FY22E
Trimming staff-to-room ratio is one of the levers used by the company to lower its
fixed cost. It achieved this by redeploying its staff in the upcoming hotel pipeline,
reducing duplicate functions and curtailing some low marginal utility services. In
FY21, steady hotel commissioning pipeline aided the company to redeploy 206
associates, but for which, IHCL would have needed to retrench staff, which is not a
favourable outcome in a high-touch industry.
A reflection of the cost saving could be seen in the expense line item in Q3FY22.
Power and other expenses are inching back to pre-COVID levels, in line with
occupancy (which was 90%+ of pre-COVID levels). It is the employee and admin
expenses which contributed to much of the cost reduction.
Exhibit 28: Staff-to-room ratio Exhibit 29: Reduction in expenses from pre-COVID levels (%)
FY20 FY21 Power Other expenses Raw material cost
4.0 Employee cost Admin expense Total expenses
60 52
2.9
3.0
2.3 45 41 39
36 38
2 1.9
2.0
1.5 1.4 1.51.5 30 25
1.3 23
20
1.0 17 16
1.0 15
0.40.3 8
4
0.0 0
Taj Palace SeleQtions Vivanta Safari Ginger Q3FY21 vs Q3FY20 Q3FY22 vs Q3FY20
Other initiatives taken by IHCL since the COVID first wave are highlighted in the table
below.

Exhibit 30: Recent cost cutting/restructuring initiatives

S.No. Segment Initiative Other facets Total saving
US$2m perpetual cost saving by terminating banquet arrangement
with Barney’s NY. Also, the existing pre-function area and banquet
space is redesigned. Strong labour union US$4.25m
The Pierre, New
1 795 Corp is the lessor of or
York
US$2m saving by rationalizing staff strength by 25 executives The Pierre Rs300m
US$0.25m saving from lease renegotiation

Total debt before acquisition
was US$50m, which
2 Taj Cape Town Acquired for US$1mn. Infused US$18m and paid off US$14m debt -
management aims to
reduce to US$14m
Propose to acquire remaining 39.84% stake in Root Corporation
(Ginger portfolio) for Rs5bn from Omega TC Holding and other
3 Roots Corporation -
minority holders. Post this transaction, Roots will become a wholly-
owned subsidiary of IHCL
ELEL owns the lease of
4 Hotels Sea Rock Acquired remaining 14.28% stake in ELEL for Rs2.5bn 9,500sqm land parcel -
expiring in 2075
IHCL owns 51% in Taj SATS
Air Catering Ltd. TMFK
IHCL sold 50% stake in TMFK to Taj SATS Air Catering Ltd for
Taj Madras Flight started as a JV between
5 Rs298m. This helped reduce duplication in compliance and -
Kitchen (TMFK) IHCL (20%), Oriental Hotels
regulatory cost
(20%), SATS (20%) and
Malaysian Airline (20%)
The Pierre particularly has In its global expansion drive in the year 2005, IHCL bought ‘The Pierre’ in New York
been a drag on IHCL’s for Rs2bn, followed by Ritz Carlton in Boston for Rs7.7bn (later sold) and Campton
financials, but recent Place in San Francisco for Rs2.7bn. Currently, these assets are held by a subsidiary
restructuring has helped bring called United Overheads Holding (UOH). The Pierre particularly has been a drag on
down the cash losses from IHCL’s financials, but recent restructuring has helped bring down the cash losses
the US from the US.
Exhibit 31: Cash loss from The Pierre has come down materially
Impairment in US investments (Rs m) Provision for loss in Cape Town (Rs m)

2014 2015 2016 2017 2018 2019 2020 2021 Q1FY22 Q2FY22 Q3FY22
0
(130) (68) (23)
(317)
-900 (571) (643) (690)
(805)
-1,800
(1,640)
-2,700
-3,600
(4,000)
-4,500

Financial analysis
Improvement in EBITDA The pace of recovery in every new COVID wave has shrunk materially, apparent from
margin and reduction in debt the few restrictions seen in the 3rd wave. Also, pent up seen via the burgeoning
owing to Rs20bn cash raised demand for hotels in leisure destinations is a heartening sign for business travel as
from rights issue in FY22 well.
should help lift PAT margins
going ahead Improvement in EBITDA margin and reduction in debt owing to Rs20bn cash raised
from rights issue in FY22 should help lift PAT margins going ahead, in our view.
Overall, we estimate IHCL to clock 11%/19% EBITDA/PAT CAGR over FY20-24E
Exhibit 32: Revenue and EBITDA to recover by FY23E… Exhibit 33: …in line with occupancy and ARR recovery
Revenue (Rs bn) - LHS EBITDA (Rs bn) - LHS
ARR (Rs - LHS) Occupancy (% - RHS)
EBITDA Margin (%) - RHS
60 53 40% 15,000 70% 80%
48 67% 68% 67% 68%
45 45
41 28% 57%
22% 27% 12,000
40 31 20% 60%
16% 18% 17% 39%
9,000
20 16 13 15 0%
8 10 40%
7 5
6,000
0 -20%
10,722
11,003
10,734
10,900
11,429
-23% -4 20%
8,587
7,351
3,000
-20 -40%
FY18 FY19 FY20 FY21 FY22E FY23E FY24E 0 0%
ARR and Occupancy shown is for standalone entity, a proxy for rest of
the domestic portfolio as well
Exhibit 34: PAT and PAT margin to significantly improve…. Exhibit 35: ….helped by reduced debt burden
PAT (Rs bn) - LHS PAT Margin (%) - RHS Net Debt to EBITDA Interest coverage ratio
9.0 12% 14% 20% 4.0 2.5 2.6 2.7 3.1

8% 1.4 2.1 1.7 1.9 1.9
6% 1.7 0.7
2% 0.2 0.1
-5% 7 0.0
4.5 6 0%
1 3 4 -4.0
0.0 -20%
-8.0
-2
-4.5 -46% -40% -12.0
-15.4
-9.0 -7 -60% -16.0
FY18 FY19 FY20 FY21 FY22E FY23E FY24E FY18 FY19 FY20 FY21 FY22E FY23E FY24E
Exhibit 36: ROE-ROCE will likely steadily inch up… Exhibit 37: ….helped by reduced debt burden
ROE ROCE EV/EBITDA

20 60
57
8 9
10 5 6 6 45
1
9 10
0 6 6 26 24
-8 30 23 22 23 21
2 20
-3 15 16 14
-10
15 7
5
-20
-19 0
FY15
FY11
FY12
FY13
FY14
FY16
FY17
FY18
FY19
FY20
FY21
FY22E
FY23E
FY24E
-30

Valuation
We arrive at a TP of Rs250 We have valued IHCL using the SOTP method, assigning the asset-heavy business a
per share, which implies a 15x EV/EBITDA on FY24E EBITDA and 30% discount to the market value of Tata
14% upside from the CMP Sons’ 1.1% stake owned by IHCL. We arrive at a target price of Rs241 per share,
which implies a 16% upside from the CMP. Initiate with an Outperformer rating
(implied EV/EBITDA multiple of 22x FY24E).
Exhibit 38: Valuation

Ownership FY24 Per
Value
Label Criteria Factor / Shares Valuation share
(Rs m)
Held (Rs m) value
Owned Asset A 15 x EBITDA EBITDA 8,731 1,30,970 99
Managed Asset B 20 x EBITDA EBITDA 2,041 40,829 31
New Businesses (Ama, Q-min, etc) C 20 x EBITDA EBITDA 823 16,451 12
Piem Hotels D 10 x EBITDA EBITDA 51.6% 682 3,517 3
30% discount to (Debt+Market value of
Benares Hotels E 51.7% 2,624 949 1
investments)
Oriental Hotels F 35.7% 11,537 2,881 2
investments)
TajGVK Hotels & Resort G 25.5% 10,624 1,898 1
investments)
Taj Sats H 10 x EBITDA EBITDA 51.0% 498 2,540 2
Roots Corporation I 15 x EBITDA EV 100.0% 11,552 11,552 9
St James Court J 10 x EBITDA EBITDA 72.4% 1,018 7,363 6
Other International Subs K Book Value 13,268 10
US subs cash loss L CFO (382) (2,991) (2.3)
30% discount to (NW+market value of
Tata Sons stake M 1.1% 90,15,203 1,00,381 76
investments)
EV (Rs m) N=Sum (A:M) 3,29,607
Net Debt (Rs m) O 10,668 8
Valuation of Equity (Rs m) P=N-O 3,18,939
Number of Shares Outstanding
Q 1,321
(mn)
Fair Value R=P/Q 241
CMP S 209
Upside 16%
Key risks
 Long delay in business travel resumption
 Delay in commissioning the pipeline inventory: IHCL’s profitability is highly
dependent on the growth in management contract business, hence timely
commissioning and filling up the pipeline would be key.
 Increase in overseas losses
Key Management Personnel

 Puneet Chhatwal (Managing Director): He was earlier the CEO and member of
the executive board of Steigenberger Hotels AG – Deutsche Hospitality. He was
also the Chief Development Officer of The Rezidor Hotel Group – Carlson Hotels
Worldwide. Mr. Chhatwal is an alumnus of IHM Delhi and also holds an MBA in
Hospitality from ESSEC, Paris, and an Advanced Management Programme from
INSEAD.
 Giridhar Sanjeevi (CFO): He has been involved in various businesses – consumer
businesses, financial services, retail and pharma in Asia and Europe over his 34-
year career. A Chartered Accountant by training, Mr. Sanjeevi is an alumnus of
IIM Ahmedabad.

Income statement Key ratios
Year to 31 Mar (Rs m) FY20 FY21 FY22E FY23E FY24E Year to 31 Mar FY20 FY21 FY22E FY23E FY24E
Net sales 44,631 15,752 31,363 47,502 52,770 EBITDA margin (%) 21.7 (23.0) 16.7 27.2 27.6
% growth (1.1) (64.7) 99.1 51.5 11.1 EBIT margin (%) 12.6 (49.0) 3.4 18.0 19.0
Operating expenses 34,956 19,369 26,130 34,594 38,194 PAT margin (%) 7.0 (55.9) (5.7) 11.8 13.6
EBITDA 9,675 (3,618) 5,233 12,909 14,575 RoE (%) 6.1 (18.7) (3.5) 8.8 10.4
% change 16.6 0.0 (244.7) 146.7 12.9 RoCE (%) 6.2 (7.7) 1.1 8.1 9.0
Other income 1,324 1,647 1,369 1,415 1,518 Gearing (x) 0.4 0.7 0.2 0.2 0.0
Net interest cost 3,411 4,028 4,290 3,222 3,252 Net debt/ EBITDA (x) 1.9 (8.4) 2.4 0.8 0.1
Depreciation 4,042 4,096 4,166 4,354 4,542 FCF yield (%) 0.7 (2.8) 0.1 1.3 3.7
Pre-tax profit 3,676 (11,109) (2,735) 6,877 8,814 Dividend yield (%) 0.2 0.0 0.0 0.2 0.2
Deferred tax (1,244) (1,563) 0 0 0
Current tax 1,692 10 (249) 1,957 2,407 Valuations
Profit after tax 3,228 (9,556) (2,485) 4,920 6,408
Preference dividend 0 0 0 0 0
Reported EPS (Rs) 3.0 (6.1) (1.3) 4.2 5.4
Minorities (93) 755 692 692 768
Adj. EPS (Rs) 2.6 (7.4) (1.4) 4.2 5.4
Adjusted net profit 3,135 (8,801) (1,794) 5,612 7,176
PE (x) 28.4 NM NM 49.1 38.4
Non-recurring items 0 0 0 0 0
Price/ Book (x) 1.7 3.1 4.3 4.2 3.8
Reported net profit 3,544 (7,201) (1,604) 5,612 7,176
EV/ Net sales (x) 3.0 11.9 9.5 6.5 5.7
% change 23.6 0.0 0.0 (449.9) 27.9
EV/ EBITDA (x) 13.9 (51.8) 57.2 24.1 20.7
EV/ CE (x) 1.3 1.9 2.9 2.9 2.6
Balance sheet
As on 31 Mar (Rs m) FY20 FY21 FY22E FY23E FY24E
Paid-up capital 1,189 1,189 1,321 1,321 1,321 Shareholding pattern
Preference capital 0 0 0 0 0
Reserves & surplus 42,379 35,295 53,380 58,331 64,846
Shareholders' equity 51,217 42,830 61,047 65,998 72,513
Total current liabilities 13,685 14,998 14,408 12,609 15,230
Total debt 26,020 36,330 20,666 20,666 21,352
Deferred tax liabilities 1,869 781 781 781 781
Other non-current
22,392 20,189 20,165 20,125 20,138
liabilities
Total liabilities 63,966 72,297 56,020 54,181 57,501
Total equity &
1,15,183 1,15,127 1,17,067 1,20,180 1,30,014
liabilities
Net fixed assets 61,051 64,620 65,043 65,277 65,324
Investments 9,904 10,345 10,408 10,408 10,408
Cash 3,156 1,536 4,890 7,149 15,045
Other current assets 11,217 10,003 8,692 9,899 12,380
Deferred tax assets 765 1,180 1,180 1,180 1,180
Other non-current
29,090 27,443 26,854 26,266 25,677
assets
Net working capital 688 (3,459) (826) 4,440 12,195
Total assets 1,15,183 1,15,127 1,17,067 1,20,180 1,30,014
As of Dec-21
Cash flow
Year to 31 Mar (Rs m) FY20 FY21 FY22E FY23E FY24E
Pre-tax profit 3,676 (11,109) (2,735) 6,877 8,814
Depreciation 4,042 4,096 4,166 4,354 4,542
Chg in Working capital (16,937) 4,299 (1) (2,417) 2,729
Total tax paid (2,062) 234 249 (1,957) (2,407)
Net Interest 3,411 4,028 4,290 3,222 3,252
Others 15,637 (7,055) (190) (44) (19)
Operating cash flow 8,235 (3,187) 7,017 9,910 16,428
Capital expenditure (4,874) (2,155) (4,589) (4,000) (4,000)
Free cash flow (a+b) 1,776 (6,959) 219 3,698 10,212
Chg in investments 1,336 53 (63) 0 0
Debt raised/(repaid) 2,227 7,124 (15,664) 0 686
Net interest (2,916) (3,710) (4,290) (3,222) (3,252)
Capital
0 0 19,821 0 0
raised/(repaid)
Dividend (incl. tax) (757) (601) 0 (661) (661)
Other items (1,207) (9) 0 0 0
Net chg in cash 562 (1,580) 3,353 2,260 7,896

EIH
INITIATING COVERAGE
A play on luxury hoteliering
NEUTRAL
“Many say that once you stay at the Oberoi chain, you are spoilt and no other
21 March 2022 place can match up” From Oberoi to Oyo
BSE Sensex: 57292 EIH secures 49% of its revenue from Mumbai-Delhi markets, highest proportion
Sector: Hotels within listed peers. Low financial leverage allowed it to absorb losses during last
COVID, while it focussed on maintaining ARRs even at the cost of lower
occupancies. We believe, the scales should now shift towards recovery in
business hotels, starting with Mumbai and Delhi. EIH also used the COVID crisis
to make the organisation leaner, albeit at a lesser rate than other listed peers.
Stock data Also, we expect the company to negotiate deals with other airline carriers to
increase the utilisation of its catering business. All these factors should help
CMP (Rs) 139 prop EIH’s EBITDA structurally from ~Rs3bn pre-COVID to ~Rs5bn by FY24E,
Mkt Cap (Rs bn/USD m) 87.0 /1,148 with further Rs1.3bn upside, if sharp RevPAR hikes materialise. However, lack
of room addition, resulting in growth remaining capped on RevPAR (cyclical in
Target Price (Rs) 154 nature) and opex reduction (no historical evidence) pose key concerns. We
estimate EIH to clock 7%/21%/23% revenue/EBITDA/PAT CAGR over FY20-
Change in TP (%) NA
24E. We believe, the recent run-up in stock price captures much of the upside.
Potential from CMP (%) 10.5 We initiate coverage with a Neutral rating, and SOTP-based target price of
Rs154 (11% upside), valuing the asset heavy portfolio at 15x and 30% holding
Earnings change (%)
company discount on investment, implying a multiple of 16x FY24E EV/EBITDA.
FY22E  Key risks to our assumptions are delays in resumption of business travel and in
securing contracts for the catering business.
FY23E 
Best bet on Mumbai-Delhi recovery: About 75% of EIH’s inventory is in business
Bloomberg code EIH IN cities, with 57% of it in Mumbai-Delhi. While this concentration hurt them during
COVID, given the restrictions, historically, it has helped them consistently garner
1-yr high/low (Rs) 155/81
high occupancies and ARRs. We expect the scale to now shift in favour of
6-mth avg. daily volumes (m) 1.0 business hotels, starting with large metro cities, which would allow EIH to reap
the benefits as well.
Reduction in employee and admin costs unlikely to flow entirely to EBITDA: With
(Rsm/USDm) 132.8/1.8 over 30-year average vintage, and the consequent need for high service levels,
EIH has had long serving employees, which has put pressure on its opex. At an
Shares outstanding (m) 625.4
employee per room ratio of 1.9, EIH operates at nearly 2x its younger peers
Free float (%) 64.3 (Chalet and Lemon Tree). It used COVID as an opportunity to bring down the
employee to room ratio to 1.6 (lowest percentage reduction), although it plans to
Promoter holding (%) 35.7
utilise the savings on marketing to drive traffic. What proportion of these savings
would flow into EBITDA after the said marketing push, remains to be seen.
EIH Sensex Key valuation metrics
200
150
Net sales (Rs m) 13,503 4,327 9,097 14,699 17,640
100 Adj. net profit (Rs m) 1,411 (2,942) (523) 1,863 2,828
Shares in issue (m) 572 625 625 625 625
50
Adj. EPS (Rs) 2.5 (4.9) (0.8) 3.0 4.5
0
Mar-19 Dec-19 Sep-20 Jun-21 Mar-22 % change (24.3) (299.1) (83.0) (456.2) 51.8
(%) 3-mth 6-mth 1-yr PE (x) 26.1 NM NM 46.7 30.8
Price/ Book (x) 1.3 1.9 3.0 2.9 2.7
EIH IN 4.3 29.5 38.7
EV/ EBITDA (x) 19.3 (22.0) 325.0 25.4 18.1
BSE Sensex 1.5 (2.0) 16.2
RoE (%) 4.9 (10.1) (1.8) 6.3 9.1
RoCE (%) 2.5 (11.2) (2.6) 6.5 9.7
Rajiv Bharati
rajiv@damcapital.in
+91 22 42022506
EIH
Story in Charts
Exhibit 1: EIH’s path to ~Rs6bn EBITDA
EBITDA could rise by
Stable state standalone EBITDA pre-COVID (CY19) 2.6 another Rs1.3bn if
EBITDA from subsidiaries (proportionate share) 0.5 EIH’s portfolio
Permanent cost saving from COVID 0.9
witnesses 8% CAGR
in RevPAR over the
Additional EBITDA as flight catering business recovers 0.6 next 3 years
Total EBITDA (post IndAS) 4.6
Exhibit 2: Betting on Mumbai-Delhi business travel Exhibit 3: Steep Mumbai–Delhi exposure of listed peer set
Others, Mumbai Delhi

689 , 2,800
25.3%
Mumbai,
1,278 , 2,100
Hyderabad, 46.9% 1,125
52 , 1.9%
1,400 274
Kolkata,
209 , 7.7%
700 1,435 1,513
Chennai, 1,278 636
61 , 2.2%
Bengaluru, 303
Delhi, 274 , 0
160 , 5.9% EIH IHCL Chalet Lemon Tree
10.1%
Exhibit 4: RevPAR recovery vs pre-COVID: Metro portfolio should Exhibit 5: Employee and admin expenses contribute to much of
bounce back hereon the cost reduction
Q2FY21 Q3FY21 Q4FY21 Q1FY22 Q2FY22 Q3FY22 Raw material cost Employee cost
160% Admin expense Total expenses
60.0 55
51
120%
42
45.0
80% 31
30.0 22
40% 19 21
15.0 7
0%
Oberoi Trident Oberoi Trident Trident Total
Leisure Leisure Metro Metro City 0.0
(Vilas) Q3FY21 vs Q3FY20 Q3FY22 vs Q3FY20

EIH
 EIH derives ~49% of its revenue from Mumbai-Delhi markets; in line with
distribution of rooms in its portfolio. At 57% of total inventory, it also has
one of the largest room inventories in the two important cities of India.
 EIH, a service-heavy player, has long vintage hotels and commensurate
costs emerging from long-serving employees. It cut this slack during
COVID. It reduced its operating cost by 17%, bringing down employee-to-
room ratio from 1.9 to 1.6. Bulk of the savings during Q3FY22 came from
employee and other expenses. It expects to employ this cost to aggressive
marketing to drive traffic in their hotels.
 Overall, we estimate EIH to clock 7%/21%/23% revenue/EBITDA/PAT
CAGR over FY20-24E, respectively. We initiate coverage with a Neutral
rating, and an SOTP-based target price of Rs154 (an upside of 11%,
valued it at 15x FY24E EV/EBITDA, and 30% holding company discount on
investment), implying a multiple of 16x FY24E EV/EBITDA.
 Key risks to our estimates: 1) Mumbai business district shifting away from
south Mumbai to suburbs: EIH sources 50% of the revenue from its
Mumbai hotels, 2) More project delays: EIH has been slow at building
room inventory (owned or managed). Already, its existing pipeline is
relatively small, 3) Disruption of key client: Grounding of Jet Airways and
lack of alternative full-service airline has already impacted the economics.
Path to ~Rs6bn EBITDA

Past few years have been difficult for EIH. Most of its new initiatives (flight catering
business, overseas portfolio) have not panned out well, having suffered external
shocks (key client of flight catering business, ‘Jet Airways’, ceased operations in
FY20). In the Exhibit below, we have attempted to chalk out its path to~Rs6bn
profitability, factoring in its peak EBITDA of Rs3.5bn (proportionate share) in FY19.
Exhibit 6: EBITDA's path from to ~Rs6bn

EBITDA could rise by
Stable state standalone EBITDA pre-COVID (CY19) 2.6 another Rs1.3bn if
EBITDA from subsidiaries (proportionate share) 0.5 EIH’s portfolio
Permanent cost savings from COVID 0.9
witnesses 8% CAGR
in RevPAR over next
Additional EBITDA as flight catering business recovers 0.6 3 years
For EIH to scale its pre-COVID EBITDA levels, two significant changes need to
materialise. One, Rs0.9bn of the cost savings should get reflected in margin
improvement, which currently management aims to spend towards marketing
expenses to drive sales, and two, the company needs to find a like-for-like
replacement to fill the void created by Jet Airways. On the former, EIH’s high cost
structure stems from few things (a) average age of its domestic hotels is over 30
years, (b) average staff age is higher in older hotels, resulting in comparatively
higher employee costs, (c) it prides itself on service, which also requires high
employee-to-room ratio, (d) comparatively lower rooms per hotel, resulting in
functions getting duplicated at each hotel, thereby warranting more manpower.

EIH
Exhibit 7: Staff-to-room ratio Exhibit 8: Vintage of domestic portfolio
Staff to room ratio (pre-COVID) Staff to room ratio (post-COVID) Hotels vintage (years)
1.9 35
2.0 30
28
1.6
1.5 28
1.5
1.2 21
1.1
1.0
1.0 0.9
0.7 14
9
0.5 7 3
0.0 0
Indian Hotel EIH Chalet Hotel Lemon Tree Indian Hotel EIH Chalet Hotel Lemon Tree
“Suresh Nair, general manager, India, Sri Lanka and Bangladesh, Air Asia group, says that he can never forget
the service at Trident Chennai. He cites two instances: One day at breakfast he enquired of the hostess at the
F&B station if there was pesarattu, a lentil and rice pancake preparation from Andhra Pradesh. She regretfully
said it could not be made as the dish required pre-soaking of lentils. Next morning when Nair came for
breakfast, he was astonished to find pesaruttu served at his table. The second instance he cites is when the
hotel car supposed to pick him up from the airport was delayed by seven or eight minutes. When he reached the
hotel, the front office manager was waiting to receive him—he apologized profusely and said they were
upgrading his room to make up for the delay. That is service, says Nair.” From Oberoi to Oyo
Management indicated that it In line with savings seen by other hoteliers, EIH also guided that it would reduce its
would utilize the said savings fixed expenses by ~Rs900m. Although, management indicated that it would utilise
towards marketing; the same the said savings towards marketing, as a result of which, the same would not
would not percolate into percolate into EBITDA improvement. We see this as a negative, considering its
EBITDA improvement strongest brand positioning within the peer set.
Exhibit 9: Reduction in expenses from pre-COVID levels

%
Raw material cost Employee cost Admin expense Total expenses
60.0 55
51
42
45.0
31
30.0
22 19 21
15.0 7
0.0
Q3FY21 vs Q3FY20 Q3FY22 vs Q3FY20

EIH
Best bet on Mumbai–Delhi recovery

EIH’s portfolio of over 30 hotels comprises 4,572 rooms, nearly equally split across
two brands - Oberoi and Trident. Almost 16% of its rooms fall outside of India, all
under the Oberoi brand.
Exhibit 10: Hotel distribution by brand/ownership Exhibit 11: Room distribution by brand/ownership
Oberoi Trident Total Oberoi Trident Total
Fully Owned Domestic 8* 2 10 Fully Owned Domestic 1,050* 991 2,040
Partly Owned Domestic 4 7 11 Partly Owned Domestic 333 1,051 1,384
Only Managed Domestic 2 1 3 Only Managed Domestic 263 136 399
Total Domestic 14 10 24 Total Domestic 1,646 2,178 3,823
Partly Owned International 5 5 Partly Owned International 381 - 381
Only Managed International 3ⴕ 3 Only Managed International 368ⴕ - 368
Total International 8 8 Total International 749 749
Overall 22 10 32 Overall 2,395 2,178 4,572
*includes The Oberoi M.V. Vrinda (Luxury Cruiser, 8) and Maidens Hotel, New
Delhi
ⴕ
includes The Oberoi Zahra (Egypt Luxury Nile Cruiser, 27)
Its portfolio is skewed towards business districts, with ~74% of the hotels in such
locations. All its business hotels are in the top 6 metro cities, dominated by
Mumbai.
Exhibit 12: A play on business hotels*… Exhibit 13: …with 3/4th of the portfolio in large metros*
Others,
Leisure, 689 ,
733 , 26% 25.3%
Mumbai,
1,278 ,
Hyderabad, 46.9%
52 , 1.9%
Kolkata,
Business, 209 , 7.7%
2,137 ,
74% Chennai,
61 , 2.2%
Bengaluru,
Delhi, 274 ,
160 , 5.9%
10.1%
*Equity adjusted rooms. Unadjusted room count stands at 4,572 *Equity adjusted room counted
rooms
Further, if we split the domestic portfolio by brand and traffic (purpose) combo, we
Amongst the listed peers, EIH
find the leisure portfolio has equal representation from Oberoi and Trident at 11%
has one of the highest
each, while Metro cities have 25% more Trident rooms compared to Oberoi.
representations from
Further, amongst listed peers, EIH has one of the highest representations from
Mumbai-Delhi-based assets
Mumbai-Delhi-based assets (i.e., 57% of the total inventory and 75% of the
standalone entity), which contributes to bulk of EIH’s valuation).

EIH
Exhibit 14: Steep Mumbai–Delhi exposure within the listed peer set
Mumbai Delhi
2,800
2,100
1,125
1,400 274
700 1,435 1,513

1,278 636
303
0
EIH IHCL Chalet Lemon Tree
Exhibit 15: Domestic portfolio by brand-traffic combo Exhibit 16: Domestic portfolio by estimated revenue
Oberoi Trident City, Trident City
Leisure 283 , 8% Oberoi 5%
(Vilas), 421 Oberoi
Leisure Oberoi
, 11% Metro,
(Vilas) Metro
1,193 , 31%
21% 34%
Trident
Leisure,
414 , 11%
Trident
Leisure
7%
Trident Trident
Metro, Metro
1,481 , 39% 33%
Bulk of the room inventory in Mumbai is from the Trident umbrella. EIH has 991
rooms under the Trident brand in Mumbai (555 rooms at Trident Nariman Point,
and 436 rooms Trident BKC). Hence, recovery of the south Mumbai market is
critical to EIH’s recovery. In case of Delhi, the entire inventory is under the Oberoi
brand.
Exhibit 17: City-wise inventory: Oberoi* Exhibit 18: City-wise inventory: Trident*
Delhi, 274 ,
20% Chennai,
Bengaluru, 61 , 5%
160 , 11%
Hyderabad,
Mumbai, 52 , 4%
287 , 20%
Kolkata,
209 , 15% Mumbai, Others, 207
991 , 75% , 16%
Others, 482
, 34%
Note: *Equity adjusted room count Note: *Equity adjusted room count
Trident’s Mumbai room count is 1.8x that of Oberoi’s Mumbai-Delhi room count.
But, Oberoi makes up for lower room count in ARR at 1.7x, implying Oberoi and
Trident rooms from Mumbai-Delhi region equally contribute to revenues. During
FY20, Mumbai and Delhi hotels generated Rs5.7bn and Rs2.5bn revenue,
respectively, contributing to 34% and 15% of the total consolidated revenue,
respectively.

EIH
Exhibit 19: Oberoi RevPAR scales Trident’s RevPAR by 1.7x… Exhibit 20: …with Oberoi Metro’s ARRs scaling Trident Metro’s by 1.7x
Oberoi (Rs - LHS) Oberoi Metro (Rs - LHS)
Trident (Rs - LHS) Trident Metro (Rs - LHS)
Oberoi / Trident RevPAR ratio (RHS) Oberoi / Trident ARR ratio (RHS)
15,000 2.5 16000 2.1 2.3 2.2 2.0 2.4
2.0 1.8
1.9 2.0 1.8
12,000 1.6 1.6 2.0 1.6
1.5 1.5 12000 1.4 1.4 1.6 1.8
9,000 1.5
8000 1.2
6,000 1.0
3,000 0.5 4000 0.6
0 0.0 0 0.0
Q1FY19
Q2FY19
Q3FY19
Q4FY19
Q1FY20
Q2FY20
Q3FY20
Q4FY20
Q1FY20
Q2FY20
Q3FY20
Q1FY21
Q2FY21
Q3FY21
Q1FY22
Q2FY22
Q3FY22
We expect the scales to tip in EIH’s leisure portfolio has largely driven RevPAR recovery, having scaled close to
favour of metro cities, once pre-COVID levels during Q2-Q3FY22. However, the critical piece in its portfolio
local restrictions are fully (metro hotels) still hovers below 60% on RevPAR basis, vis-à-vis pre-COVID levels.
withdrawn We expect the scales to tip in favour of metro cities, once local restrictions are fully
withdrawn. Alternatively stated, 72% of the portfolio (by room revenue) should see
1.7x growth in RevPAR in the short term.
Exhibit 21: RevPAR recovery vs pre-COVID: Metro portfolio should bounce back hereon
Q2FY21 Q3FY21 Q4FY21 Q1FY22 Q2FY22 Q3FY22

160%
120%
80%
40%
0%
Oberoi Leisure Trident Leisure Oberoi Metro Trident Metro Trident City Total
(Vilas)
A long-term risk to this dense portfolio is the business district shifting away from
south Mumbai to suburbs. It has also started reflecting on other hotels matching
and outperforming Trident Nariman Point on ARR metrics. Secondly, there are
hotels coming at Lower Parel (an area in south Mumbai), which would cut the
catchment area further, thereby putting south Mumbai occupancy under threat.
Exhibit 22: ARRs: Trident Nariman Point

EIH
Exhibit 23: ARRs: Trident BKC
“With the growth of the Taj and ITC chains, a constant challenge for the Oberoi,
as a former general manager in the group reveals, was how do you compete
against the two on occupancy? It can battle the two on price and service, but
both ITC and Taj get a fixed occupancy because they are business
conglomerates with diversified interests. Industry reckoning is that at least 12–
13% of ITC and Taj’s occupancies comes from the Tata Group and ITC Group
employees, who pay market rates. But this is a challenge that Reliance can
undoubtedly help the Oberoi group with.” From Oberoi to Oyo

EIH
Triggers beyond RevPAR pickup

In terms of triggers, EIH has been slow on inventory addition, and has not seen
rapid management contract-led expansion as well. Further, the other capex on flight
catering business was jolted, as Jet Airways got grounded. Trigger on both these
aspects would be a welcome change.
“A story that a former Oberoi executive shares is how when the Trident in
Gurgaon was being built, and the architect and designers could not translate
what Biki Oberoi wanted, he didn’t mind pulling it all down and redoing it, the
couple of crores of additional cost notwithstanding. When the hotel was finally
ready, it was a masterpiece. But guess who was paying for the cost of these
redesigns, the owner. Very few owners would give the Oberoi so much freedom
to experiment and that’s perhaps one of the reasons Biki Oberoi didn’t want to
expand”… From Oberoi to Oyo
 Slow at inventory addition

As of FY20, EIH had a pipeline Over the years, EIH has been slow at adding inventory, with room addition at 2.5%
of over 700 rooms at various CAGR between FY10 and FY20, as against 4.5% CAGR for players like IHCL. Accor,
stages of development Intercontinental Hotels Group and Lemon Tree grew at ~40.6%, 30.1% and 29.5%,
respectively, over FY07-17. Room additions for EIH, both under Oberoi and Trident
brands (owned or managed), have been few and far between, barring the
renovation of older assets.
Exhibit 24: EIH: Room inventory expanded at 2.5% CAGR over the last 10 years
Oberoi (RHS) Trident (RHS) Cumulative Room Count (LHS)
4,489 4,489 4,489 4,573
4,800 436 4,339 4,339 4,339 480
3,562 3,562 3,764 3,764
3,600 323 360
252
2,400 202 240
150
1,200 84 120
- - - - - - - - - - - - - - - -
0 0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Exhibit 25: Other hotel chains have been more aggressive

FY07-17 FY13-17
50%
41%
40%
30% 30%
30%
22% 21% 20%
20% 17% 16% 17%
12% 11% 11% 13%
7% 7% 5%
10%
0%
Accor Carlson Hyatt Intercontinental ITC Hotels Lemon Tree Marriott Sarovar
Hotels Group Hotels (including
Starwood)
As of FY20, EIH had a pipeline of over 700 rooms at various stages of development.
The three main projects under EIH’s own fold are The Oberoi’s at Rajgarh, Goa
beachfront and Hebbal (Bengaluru). Going by EIH’s building trend, we estimate
these three projects would need ~Rs10bn investment. Management may bring in
other equity partners to help execute these projects. The Oberoi, Hebbal is
expected to be a mix use property with hotels and commercial spaces.

EIH
Exhibit 26: Expansion plan

S.No. Property details Rooms Other details Owned/ Status
The Oberoi Rajgarh Palace, Khajuraho
1 70* 62 acres Owned Under construction
(MP)
Land use consent obtained; further approvals
2 The Oberoi, Goa 55 acres Owned
are sought
Owned
3 The Oberoi, Bengaluru 225 (Mix use Planning for the mix-use project in progress
project)
Under construction, delayed, won’t be ready
4 The Oberoi, Doha 282 Managed
before 2022 cricket world cup
5 Oberoi Resort, Kenya (Maasai Mara) 32 Managed On hold, due to prevailing market conditions
6 The Oberoi Wildlife Resort Bandhavgarh 22 acres Managed Under construction
7 Oberoi Koh Tan, Koh Samui, Thailand Managed In planning stage
8 Trident Koh Tan, Koh Samui, Thailand Managed In planning stage
9 Oberoi, Kathmandu 80 6 acres Managed In planning stage
The Oberoi, Bardiya Wildlife Resort,
10 20 30 acres Managed In planning stage
Bardiya National Park, Nepal
709
Source: Company, DAM Capital Research, *tentative count
We have not factored in any Given the pace at which Oberoi has been executing projects, we have not factored
inventory expansion-led in any inventory expansion-led growth in our numbers, unless it brings in a strategic
growth in our numbers investor and expands aggressively via the inorganic route.
We have built in full recovery

 Reviving the inflight catering business
of flight catering business by
FY24E, assuming EIH is able EIH’s inflight catering business made Rs2.9bn revenue in FY19, at 20% EBITDA
to forge tie-ups with few new margin. This fell by half, once Jet Airways, its key client, ran into financial trouble.
carriers Since then, EIH has not been able to make this business profitable, although it has
tied up with domestic airlines to fill the gap. Net block in this business currently is
~Rs3.6bn.
A trivia from the past spells out the issues in garnering business from other carriers
“…By the end of the 1970s, the Taj had shot past the Oberois. Such was the
growth of the Taj that there was a time when M.S. Oberoi wrote a curt letter to
J.R.D. about why Air India was giving its business exclusively to the Taj. In those
days, Air India was run by the Tatas. J.R.D. wrote a polite reply back which in so
many words just said that they saw no reason to change policies.”….From
Oberoi to Oyo
We have built in full recovery of flight catering business by FY24E, assuming EIH is
able to forge tie-ups with few new carriers.

EIH
Financial analysis
Overall, EIH’s conservatism on room additions, operating in uber-luxury segment,
and preference towards new builds also reflect the lack of revenue and EBITDA
growth.
Exhibit 27: Historical revenue and margin movement
Revenue Operating Margin PAT Margin

20 40%
32% 32% 32%
16 23% 24% 30%
21% 22% 22% 20% 21% 22%
18% 19% 17% 19% 18%
12 24% 20%
12% 12%
20% 9% 20% 20%
8 6% 18% 10%
11% 9%
8% 9% 9% 8% 7%
4 7% 7% 0%
4% 3% 4%
1%
-4% -1%
0 -10%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Exhibit 28: Revenue and EBITDA to recover by FY23E… Exhibit 29: …In line with occupancy and ARR recovery
Revenue (Rs bn - LHS) EBITDA (Rs bn - LHS) ARR (Rs - LHS) Occupancy (% - RHS)
EBITDA Margin (% - RHS)
16,000 70% 70% 72% 80%
20 18 40% 68% 69%
15 15
13 14 27%
21% 17% 24% 12,000 51% 60%
16% 9
10 0%
4 3% 5
2 3 2 3 8,000 40%
0
0 -40% 27%
11,246
12,200
11,970
10,665
12,600
12,960
4,000 20%
-3 8,030
-63%
-10 -80% 0 0%
Being unperturbed by the aggression shown by competition in inventory addition

also reflects in its financials, in terms of high dividend payouts in a sector where
most players make losses while EIH has maintained a well-controlled debt position.
Exhibit 30: PAT and PAT margin Exhibit 31: Debt has never been a concern for EIH
PAT (Rs bn - LHS) PAT Margin (% - RHS) Net Debt to EBITDA Interest coverage ratio
24 22
4.0 12% 14% 30%
8% 7% 9% 2 20
-9% 2
2.0 1 1 1 0% 16
12
12 10
0.0 -30%
8 6
4
-1 2.0 3.0 3
-2.0 -60% 4 1.5 1.8 2
-79% 0.1
0
-4.0 -3 -90% -1.0 -0.4
-4

EIH
Exhibit 32: RoE-RoCE slated to steadily inch up Exhibit 33: EV/EBITDA*
ROE ROCE EV/EBITDA

20.0 60
43
10 38 37
7 45
10.0 6
3 3 30
9 30 24 23 24
7 -3 6 18 17 19 19 17
0.0 4 5
-11 -2 15
-10.0
-10 0
FY18
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY19
FY20
FY21
FY22E
FY23E
FY24E
-20.0
Note: *FY21/FY22E has EBITDA level losses
Exhibit 34: Dividend payout ratio

Dividend
80%
70%
66% 65%
57%
60%
49% 46%
38% 37%
40%
28%
20%
0%
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20
Valuation
We have assigned a multiple We value EIH using the SOTP method, and have assigned a multiple of 15x FY24E
of 15x FY24E EV/EBITDA, to EV/EBITDA, to arrive at a target price of Rs154 per share, which implies 11%
arrive at a TP of Rs154 upside from the CMP. We initiate coverage on the stock with a Neutral rating
(implied EV/EBITDA multiple of 16x FY24E).

FY24E
Label Criteria Factor Value
Valuation
EV (Standalone – Rs m) A 15x EBITDA EBITDA 4,534 71,413
EIH Associated (36.8% stake – Rs m) B 30% holdco discount to market value 3,030
EIH International(Rs m) C 15x EBITDA EBITDA 941 14,116
Net Debt (Rs m) D (525)
Fair Value (Standalone - Rs m) E=A+B+C-D 89,083
Fair Value (Other Subs – Rs m) F 7,064
Fair Value (Rs m) G=E+F 96,147
Number of Shares Outstanding (m) H 625
Value per Stock (Rs) I=G/H 154
CMP (Rs) J 139
Upside (%) K=I/J-1 11%

EIH
Key risks
EIH has been slow in building  Mumbai's business district shifting away from south Mumbai to suburbs.
room inventory
 More project delays: EIH has been slow in building room inventory (owned or
managed); the existing pipeline is relatively small.
 Disruption of key client: Grounding of Jet Airways and lack of any alternative full-
service airline has already impacted the company’s economics. This is similar to
Thomas Cook’s bankruptcy impacting Dubai National Air Travel Agency’s (dnata)
profitability.

 Vikramjit Singh Oberoi (Managing Director): He holds a Bachelor's degree in
Science from the Pepperdine University, US, and has over 25 years of
experience in the hospitality industry.
 Kallol Kundu (CFO): Hold a BCom degree from the University of Burdwanin and a
degree in chartered accountancy from ICAI. He earlier worked with CESC Ltd as
Senior Finance Executive.
Corporate structure
Exhibit 36: Corporate structure

EIH
Net sales 13,503 4,327 9,097 14,699 17,640 EBITDA margin (%) 16.7 (63.5) 3.0 23.7 27.0
% growth (12.5) (68.0) 110.2 61.6 20.0 EBIT margin (%) 6.8 (91.2) (9.5) 15.0 19.3
EBITDA 2,254 (2,746) 272 3,483 4,761 RoE (%) 4.9 (10.1) (1.8) 6.3 9.1
% change (30.0) 0.0 (109.9) 1,181.9 36.7 RoCE (%) 2.5 (11.2) (2.6) 6.5 9.7
Other income 840 409 465 479 544 Gearing (x) 0.1 0.1 0.0 0.0 (0.1)
Net interest cost 495 404 331 181 157 Net debt/ EBITDA (x) 1.8 (1.0) 3.0 0.1 (0.4)
Depreciation 1,342 1,200 1,139 1,285 1,359 FCF yield (%) 1.4 (2.2) 2.2 1.2 3.4
Pre-tax profit 1,257 (3,941) (734) 2,496 3,789 Dividend yield (%) 0.7 0.0 0.0 0.6 0.6
Deferred tax (364) (1,011) (25) 0 0
Current tax 210 12 (186) 633 961 Valuations
Profit after tax 1,411 (2,942) (523) 1,863 2,828
Reported EPS (Rs) 2.2 (5.7) (1.3) 3.0 4.5
Minorities 0 0 0 0 0
Adj. EPS (Rs) 2.5 (4.9) (0.8) 3.0 4.5
Adjusted net profit 1,411 (2,942) (523) 1,863 2,828
PE (x) 26.1 NM NM 46.7 30.8
Price/ Book (x) 1.3 1.9 3.0 2.9 2.7
Reported net profit 1,245 (3,431) (797) 1,863 2,828
EV/ Net sales (x) 3.2 13.9 9.7 6.0 4.9
% change 9.8 0.0 0.0 (333.8) 51.8
EV/ EBITDA (x) 19.3 (22.0) 325.0 25.4 18.1
EV/ CE (x) 1.2 1.8 2.7 2.6 2.4
Balance sheet
Total debt 4,151 2,784 968 868 400
Deferred tax liabilities 1,236 236 1,599 1,599 1,599
Other non-current
1,706 1,680 1,702 1,727 1,754
liabilities
Total equity &
39,138 36,573 36,138 37,273 39,521
liabilities
Net fixed assets 19,446 18,969 17,746 17,611 17,472
Investments 9,206 8,716 8,716 8,716 8,716
Cash 85 70 57 249 1,984
Deferred tax assets 0 0 0 0 0
Other non-current
7,172 6,999 7,075 7,156 7,241
assets
Net working capital 460 (728) (535) 744 2,623
Total assets 39,138 36,573 36,138 37,273 39,521
As of Dec-21
Cash flow
Pre-tax profit 1,257 (3,941) (734) 2,496 3,789
Depreciation 1,342 1,200 1,139 1,285 1,359
Chg in Working capital (43) 1,462 (265) (1,150) (210)
Total tax paid (19) (87) 1,574 (633) (961)
Net Interest 495 404 331 181 157
Others (348) 218 30 31 33
Operating cash flow 2,518 (1,233) 1,805 2,216 4,172
Capital expenditure (1,436) (598) 84 (1,151) (1,219)
Free cash flow (a+b) 1,082 (1,831) 1,889 1,065 2,953
Chg in investments 0 (96) 0 0 0
Debt raised/(repaid) (560) (1,367) (1,816) (100) 0
Net interest (495) (404) (331) (181) (157)
Capital raised/(repaid) 0 3,465 0 0 0
Dividend (incl. tax) (589) (4) 0 (563) (563)
Other items (13) (24) 293 20 (447)
Net chg in cash (6) (11) (13) 192 1,735

Chalet Hotels
INITIATING COVERAGE
Leveraged asset owner
OUTPERFORMER
Since its IPO in Jan 2019, Chalet had its work cut out to milk its already well-
21 March 2022 performing assets (high occupancy and leading ARRs, generating over Rs2bn
BSE Sensex: 57292 cash profit per annum). The intention was to reduce financial leverage
(Debt/EBITDA of 5 and Net Debt of Rs18bn as of FY20) and eventually build
Sector: Hotels
assets on other leasehold assets, or acquire other standalone hotels. But, COVID
threw a spanner in the wheel, and leverage rose instead. With normalcy likely
returning, we believe its initial script of milking its well-performing assets is in
play again. Also, it has used the COVID period to repurpose some of its assets in
Stock data the pipeline to higher-yielding end use (commercial asset instead of hotel or
retail). We believe, these should structurally prop its EBITDA from Rs3bn pre-
CMP (Rs) 268
COVID to Rs6bn by FY24E, with another Rs2bn upside, if sharp RevPAR hikes
Mkt Cap (Rs bn/USD m) 54.9 /724 materialise. We estimate Chalet to clock 6%/14%/22% Revenue/EBITDA/PAT
CAGR over FY20-24E, with upward bias, in case ARRs rise sharply. We initiate
coverage with an Outperformer rating, and an SOTP-based target price of Rs341
Change in TP (%) NA (27% upside), valuing the hotels business at 15x FY24E EV/EBITDA, commercial
real estate business using 8.3% cap rate and NAV for the Koramangala project,
implying a multiple of 15x FY24E EV/EBITDA. Key risks to our assumptions are
Earnings change (%) long delays in inbound business travel resuming, and concentration risk in
FY22E  Mumbai suburbs.
FY23E  A play on Mumbai recovery: Chalet used to derive over 50% of its revenue from
Mumbai region, as 59% of its hotel rooms are in Mumbai suburbs. This also
Bloomberg code CHALET IN
makes Chalet a good recovery play on upscale and upper-upscale business
1-yr high/low (Rs) 302/123 hotels. Another factor that worked in Chalet’s favour was that bulk of its hotels
were being managed by Marriott, which attracted traffic from global corporates
with network level tie-ups; pre-COVID, overseas visitors comprised 50% of
6-mth avg. daily traded value Chalet’s overall customer base. Further, lower employee cost per room allows it
to make similar EBITDA per room compared to luxury peers, but on much lower
(Rsm/USDm) 201.4/2.7
revenue per room.
Shares outstanding (m) 205.0
Deleveraging FY24E onwards: Chalet would have spent Rs17bn during FY19-24E
Free float (%) 28.4 on hotels and commercial projects (including acquisition of Novotel Pune). Most
Promoter holding (%) 71.7 of these projects are expected to achieve full productivity post FY25, enabling the
company to reduce its financial leverage.
Chalet Hotels Sensex Key valuation metrics
200
150 Net sales (Rs m) 9,808 2,944 4,711 8,828 12,614
100
Adj. net profit (Rs m) 1,131 (1,308) (1,143) 48 2,278
Shares in issue (m) 205 205 205 205 205
50
Adj. EPS (Rs) 5.5 (6.4) (5.6) 0.2 11.1
0
Mar-19 Dec-19 Sep-20 Jun-21 Mar-22
% change (3,262.7) (215.7) (12.6) (104.2) 4,621.7
PE (x) 37.0 NM NM 1,137.2 24.1
(%) 3-mth 6-mth 1-yr
Price/ Book (x) 2.7 2.1 4.2 4.2 3.6
CHALET IN 16.2 48.6 62.7 EV/ EBITDA (x) 17.4 712.4 86.3 27.2 13.6
BSE Sensex 1.5 (2.0) 16.2 RoE (%) 7.6 (8.8) (8.4) 0.4 16.1
RoCE (%) 7.0 (3.1) (0.7) 4.3 10.3
Rajiv Bharati
rajiv@damcapital.in
+91 22 42022506
Chalet Hotels
Story in Charts
Exhibit 1: Path to Rs8bn EBITDA
Source of EBITDA Rs mn
Stable state standalone EBITDA pre-COVID (CY19) 3,220
Permanent cost saving from COVID 50 EBITDA could rise
EBITDA from second Westin (Hyderabad) 185 by another Rs2bn
if Chalet’s portfolio
Additional EBITDA from new commercial assets 1,181
witnesses 8%
Additional EBITDA from Belaire, Gurugram 264 CAGR in RevPAR
RevPAR improvement and rental hike across assets (operating leverage) 755 for 3 years
Reduction in real estate development cost (156)
Total EBITDA (post IndAS) 5,810
Exhibit 1: High exposure to Mumbai suburbs (rooms) Exhibit 2: We expect RevPAR to revert to pre-COVID levels by
FY24E
Bengaluru, MMR Bengaluru Hyderabad Pune
391 , 15%
8,000
6,000
MMR*,
Hyderabad, 4,000
1,513 , 59%
427 , 17%
2,000
Pune, 223
, 9% 0
*MMR stands for Mumbai Metropolitan Region
Exhibit 3: Deleveraging to begin FY24E onwards Exhibit 4: Return ratios expected to pick up
Net Debt (LHS - Rs bn) Net Debt/Equity (RHS) ROE ROCE ROIC
Net Debt to EBITDA (RHS) 30
30.0 27 27 12.0
23 24 20 16
22.5 20 20 9.0 14
18 9
16 10 6
15
15.0 6.0 2
11 0
-6 -2 -1
7.5 3.0
-10
0.0 0.0 -20

FY18 FY20 FY22E FY24E FY26E FY18 FY19 FY20 FY21 FY22E FY23E FY24E FY25E

Chalet Hotels
 Chalet sits on the asset heavy side of the hotels equation. As the
promoters (K Raheja Corp) have a background in real estate, they have
built large hotels and given it to global operators (Marriott and Accor) to
manage. Incremental growth depends on asset addition, which in turn
depends on debt to EBITDA ratio reducing below 4x.
 Chalet used to derive over 50% of its revenue from the Mumbai region, as
59% of its hotel rooms are in Mumbai suburbs. This makes Chalet a good
recovery play on upscale and upper-upscale business hotels.
 Another factor that works in Chalet’s favour is that bulk of its hotels is
managed by Marriott. This encourages traffic from global corporates, who
enjoy network-level tie ups; pre-COVID, overseas visitors constituted 50%
of this traffic. Further, Chalet’s lower employee cost per room allows it to
make similar EBITDA per room compared to its luxury peers, on much
lower revenue per room.
 On the commercial assets side, we expect 2.7x growth in rented area,
resulting in EBITDA here expanding at 2.9x to Rs1.8bn over FY20-FY24E.
 Bulk of the Rs17bn funds deployed by Chalet since its IPO (acquisition and
capex) is expected to achieve peak productivity beyond FY24E. This would
help lower its financial leverage (Net debt to EBITDA) to more comfortable
level of sub 4x, allowing the company to chart out its next expansion drive.
 Overall, we estimate Chalet to clock 6%/14%/22% revenue/EBITDA/PAT
CAGR over FY20-24E. We initiate coverage with an Outperformer rating,
and an SoTP-based target price of Rs341 (27% upside, valuing hotels at
15x FY24E EV/EBITDA multiple, with commercial real estate business
using 8.3% cap rate and NAV for the Koramangala project).
 Key risks to our estimates include 1) long delays in resumption of inbound
business travel, 2) concentration risk on Mumbai and suburban region,
with over 50% rooms and revenue contribution, 3) likely cap in inorganic
expansion, if the high debt to EBITDA ratio prevails.
Beneficiary of likely pickup in FTA

Chalet has repurposed most From the point of its IPO in Jan 2019, Chalet had its work cut out to milk its already
of its retail assets towards well-performing assets (high occupancy and leading ARRs, generating over Rs2bn
commercial use, which brings cash profit per annum). This included reducing its financial leverage (Debt to
about better visibility EBITDA of 5 and net debt of Rs18bn as of FY20) and then building assets on other
leasehold assets or acquiring other standalone hotels. However, COVID threw A
spanner in the wheels, as its primary assumption that it would milk its well-
performing assets, did not materialise, but instead led to its leverage rising. With
normalcy now returning gradually, we expect its first script to play again.
Pre-COVID Chalet used to draw 50% booking from FTAs, as it reaped benefits of
being part of a global chain. It suffered double whammy as business from FTAs
dried up, while it did not have hotels to service Indian tourists who otherwise travel
abroad on holidays and were touring India, as international flights were restricted.
We believe, the scales will likely tilt in Chalet’s favour, as things revert to pre-COVID period.
Further, Chalet has repurposed most of its retail assets towards commercial use,
which brings about better visibility. For instance, it has repurposed a planned W
hotel in Powai towards commercial use, which we expect would yield higher than
the original hotel on the same land.

Chalet Hotels
All these efforts, and return to pre-COVID level of operations of most assets should
enable Chalet to generate Rs6bn EBITDA per annum by FY24E, in our view. Visibility
beyond FY24 is a little hazy, considering the company has no visible plans, barring
Hyatt Airoli on the anvil. Incremental revenue growth would be driven by Chalet’s
ability to acquire underperforming assets and ARR growth in its key markets
(primarily Mumbai and its suburbs).
Exhibit 5: Annual EBITDA run rate should shift from Rs3.5 to Rs6bn
Source of EBITDA Rs m
Stable state standalone EBITDA pre-COVID (CY19) 3,220
Permanent cost saving from COVID 50 EBITDA could rise by
EBITDA from second Westin (Hyderabad) 185 another Rs2bn if
Additional EBITDA from new commercial assets 1,181
Chalet’s portfolio
witnesses 8% CAGR
Additional EBITDA from Belaire (Gurugram) 264 in RevPAR for 3
RevPAR improvement and rental hike across assets (operating leverage) 755 years
Reduction in real estate development cost* (156)
Total EBITDA (post-IndAS) 5,810
*Real estate development cost is with regard to the residential Koramangala project borne by the promoters
Chalet’s journey to an EBITDA beyond Rs6bn hinges on few factors such as (a) the
Mumbai market recovering to pre-COVID levels, with no restrictions on inbound
travel (as Chalet used to have more than 50% foreign guests), and, (b) timely
completion of its projects in the pipeline.
An extrapolation from pre-COVID financials shows that the hotels business used to
generate gross margin of 69% and EBITDA margin of 40%, implying a fixed cost (as
% of revenue) of 29%. We used the percentage change in cost items compared with
the drop in RevPAR to estimate the fixed cost, which the company needs to
maintain, even if the hotel is scarcely occupied (shown in column B below). Fixed
cost at 39% of the steady state revenue or 65% of the overall cost implies an
operating leverage of 2x vs 1.7x.
Exhibit 6: True fixed cost

Steady state assumption (A) Learnt from COVID (B)
Revenue (Assuming F&B to room income ratio of 0.6) 100 100
COGS 31 21
GP (assuming 81% flow through of room income and 49% for F&B income)* 69 79
Derived fixed cost as per reported EBITDA 29 39
Total cost 60 60
Fixed cost as % of total cost 48% 65%
Reported EBITDA^ 40 40
Operating leverage (Contribution margin/EBITDA Margin) 1.7 2.0
Note; *assumed in line with IHCL’s data; în line with Chalet’s stabilized pre-COVID performance in hotels
We can use the above operating leverage metric to estimate additional EBITDA flow
through, if a round of RevPAR hikes materialise. Optimistically assuming RevPAR
growth of 26% over 3-4 years would cause EBITDA to increase by 50% to Rs8bn.

Chalet Hotels
Sharpening focus
Chalet expects to complete Chalet currently derives its revenues from two businesses (a) hospitality, and, (b)
the Koramangala project in a commercial real estate. The company had retail assets at Sahar Mumbai and
couple of years Inorbit Mall, Bengaluru, as well. Both these assets are now getting repurposed into
commercial office spaces, thereby shrinking the company’s focus to the hospitality
(cyclical) and commercial real estate (annuity) businesses. It also has one long-
pending real estate project in Koramangala (Bengaluru), which was under litigation,
which was recently settled with Hindustan Aeronautics Ltd (HAL). Chalet expects to
complete the project in a couple of years (we have provided the details of the
dispute in a later section).
Exhibit 7: Chalet’s business segments Exhibit 8: City-wise portfolio across markets
Hospitality
(80%/70% 2,554 operational rooms
Revenue/EBITDA across 7 hotels.
contribution) Pipeline of 516 rooms
Chalet
Commercial
(20%/30% 0.5m sqft lease out.
Revenue/EBITDA Pipeline of 2.6m sqft
contribution)
Source: Company
 Hotels – Concentrated in business districts

Chalet’s entire portfolio is in In the hospitality segment, Chalet has 7 operational hotels comprising 2,554 rooms
business districts, of which, spread across 4 cities. Chalet’s entire portfolio is in business districts, of which,
59% is in Mumbai suburbs 59% is in Mumbai suburbs. Pre-COVID, Mumbai suburbs contributed more than
50% to the company’s revenue and EBITDA. This also makes Chalet a good
recovery play on upscale and upper-upscale business hotels. Another factor that
worked in Chalet’s favour was that bulk of its hotels were being managed by
Marriott, which attracted traffic from global corporates with network level tie-ups;
pre-COVID, overseas visitors comprised 50% of the company’s overall customer
base.

Chalet Hotels
Exhibit 9: City-wise distribution of operational rooms by city Exhibit 10: Room-wise revenue distribution (FY20)
(total 2,554 rooms)
Bengaluru, Bengaluru
391 , 15% 18%
MMR*, MMR*
1,513 , Hyderabad, 61%
59% 427 , 17%
Hyderabad
18%
Pune, 223 Pune
, 9% 3%
Note: *MMR stands for Mumbai Metropolitan region
Exhibit 11: Operational hotels: More rooms per hotel help in keeping opex/room lower compared to the peer set
Source: Company
Further, it has three projects in the pipeline 1) expansion of existing Novotel (Pune)
by 88 rooms, which is slated for completion by FY24. These 88 rooms were bare
shells at the time of acquisition, which Chalet is looking to complete now, 2)
completion of six months of construction work left (as per management) at its
second Westin hotel in Hyderabad, which is a warm shell (the landlord does
majority of the capex). The company expects to operationalize this as soon as the
Hyderabad market recovers, 3) Hyatt Airoli, which is expected to take much longer,
as work is yet to commence there.

Chalet Hotels
Novotel Pune - Valuation

We conservatively estimate Novotel Pune is the most recent addition to Chalet’s portfolio, with 223 operational
5% CAGR in room addition rooms acquired by it in Feb 2020 at Rs3.5bn or EV/Room of Rs16m. Assuming it
over FY22-24E completes these additional 88 rooms at a capex of Rs250m, and scales the ARR to
Rs5,000 with 70% occupancy and 50% business from F&B, we arrive at an EBITDA
margin of 40% and EV/EBITDA of 14x (FY24E).
Exhibit 12: Hotels distribution by city and pipeline

Room inventory Under Assumed Total Operated
Hotels City Positioning Land type
as of Q3FY22 construction completion Rooms by
JW Marriott Sahar Mumbai Luxury 588 588 Marriott Freehold
Renaissance Convention Centre Upper
Mumbai 600 600 Marriott Freehold
Hotel# Upscale
Lakeside Chalet, Marriott Upper
Mumbai 173 173 Marriott Freehold
Executive Apartments Upscale
Leasehold
Four Points by Sheraton, Vashi Mumbai Upscale 152 152 Marriott
^
Hyatt Airoli Mumbai 260 FY26 260 Hyatt Leasehold
W Powai Mumbai Repurposed to a commercial asset
Upper
Marriott Hotel, Whitefield Bengaluru 391 391 Marriott Freehold
Upscale
Upper
The Westin, Mindspace Hyderabad 427 427 Marriott Freehold
Upscale
Upper
Westin (Second) Hyderabad 168 FY23 end 168 Marriott Leasehold
Upscale
Novotel Pune Upscale 223 88* FY24 311 Accor Freehold
Total 2,554 516 3,070
Note: *additional 88 rooms are being built, which was a bare shell at the time of acquisition; ^Land at Vashi is allocated to promoters K Raheja
Corp Pvt Ltd. In Dec 2005, Chalet purchased the entire building of hotels and apartments therein, together with the demarcated portion of
leasehold rights; #Renaissance will soon be rebranded as Westin
Pre-COVID, Chalet’s focus on business district hotels paid rich dividends, as all its
hotels clocked in healthy occupancies and ARRs (a shade below the market leader).
We conservatively estimate 5% CAGR in room addition over FY22-24E, beyond
which, it would largely depend on the company’s net debt to EBITDA ratio. We
believe, any further capex or inorganic expansion may not happen before the net
debt to EBITDA number claws back to below 4 by FY25E.
Exhibit 13: We expect RevPAR to touch pre-COVID levels by Exhibit 14: Net debt to EBITDA should claw back to <4 by FY25E,
FY24E allowing headroom for room expansion
MMR Bengaluru Hyderabad Pune Avg net debt to EBITDA ratio

12.0
8,000
6,000 9.0
4,000 6.0
2,000 3.0
0 0.0
FY17 FY18 FY19 FY20 FY21 FY22EFY23EFY24EFY25E FY18 FY19 FY20 FY21 FY22E FY23E FY24E FY25E

Chalet Hotels
 Sweats asset-heavy portfolio better than peers

The entire difference in opex Chalet’s EBITDA per room is similar to that of IHCL and EIH, but its opex is much
can be explained by lower lower. Almost the entire difference in opex can be explained by lower manpower
manpower cost per room for cost per room for Chalet vs peers. This advantage comes from three factors:
Chalet vs peers
i. Lower average age of its hotels (<10 years), which manifests in the form of
lower staff age and lower average cost per employee.
ii. Also, the newly constructed hotels are more efficient on space utilization, with
higher number of rooms per hotel, thereby resulting in the central cost getting
distributed over larger set of rooms
iii. Chalet constructed room-heavy hotels, limiting the number of F&B outlets, which
by design are employee heavy. IHCL and EIH too happen to have higher
employee per room count, because their heritage portfolios (palaces and villas)
are relatively high on service. Further, unionized employees in IHCL and EIH’s
portfolios increase the cost compared to new hoteliers.
Exhibit 15: Unit metrics compared to other listed peers

Indian
Hotels
Rooms per hotel 365 120 142 101
Staff per room (Pre-COVID) 1.2 1.5 1.9 1.0
Cost per employee (Pre-COVID - Rs m) 0.5 1.2 1.1 0.3
Staff cost per room (Pre-COVID - Rs m) 0.6 1.8 2.1 0.3
Revenue per room (Pre-COVID - Rs m) 3.9 5.2 4.9 1.5
EBITDA per room (Pre-COVID - Rs m) 1.5 1.3 1.3 0.4
Opex per room (Pre-COVID - Rs m) 2.4 3.9 3.6 1.1
F&B revenue as % of room revenue 56% 98% 60% 38%
Being an asset owner, Chalet Hotels traditionally have high OCF-to-EBITDA ratio. With Chalet’s portfolio at an
pays royalty, management fee average capital employed (CE) of over Rs12m per room, it would take Chalet ~10
along with business years to recover the capital (assuming 70% occupancy). This is materially superior
promotion expenses to to its other asset-heavy peers, owing to lower CE per room for Chalet, generating
operators similar EBITDA per room. This works out particularly better during an up cycle, as
being an asset owner, operating leverage (~65% fixed cost, in upper-upscale
players) allows for higher pass through to EBITDA.
Being an asset owner, Chalet pays royalty, management fee along with business
promotion expenses to operators (in this case Marriott and Accor). So far, it has
maintained these at less than 9.5% level. Chalet’s EBITDA per room is at par with
peers, even after paying this 9.5% fees. Comparatively, EIH pays 1% royalty to
promoters.
Exhibit 16: Royalty, management and business promotion expenses as % of revenue from
hotels segment
Paid to Marriott & Accor
10.0%
7.5%
5.0%
2.5%
0.0%

Chalet Hotels
Rental/annuity business
Owing to lower occupancy, The other contributor to Chalet’s revenue is the annuity revenue stream from its
management decided to commercial and retail assets portfolios. The mix-use portfolio had commercial and
repurpose the retail portion of retail leasing assets pre-COVID. Owing to lower occupancy, management decided to
the two operational assets to repurpose the retail portion of the two operational assets to commercial office
commercial office space space, which it expects to complete by FY23. Meanwhile, the operational portfolio
has shrunk to 0.48m sqft in the interim.
Exhibit 17: Operational commercial assets mix-use portfolio (pre-COVID)
Pre-COVID, the annuity portfolio was spread across 0.9m sqft, which would have
otherwise grown to 2.35m sqft by FY24E and to 3.1m sqft by FY27, helped by
under pipeline projects.
Exhibit 18: Ongoing commercial projects

Chalet Hotels
Exhibit 19: Commercial assets portfolio

Under Assumed
Commercial projects (m sqft) City Operational Discontinued Repurposed Total Land type
construction completion
Whitefield, Bengaluru Bengaluru 0.11 - 0.11 Freehold
Business Center, Sahar Mumbai 0.37 0.12 FY23 0.50 Freehold
Marriott Whitefield Bengaluru - 0.66 0.66 Freehold
Commercial Tower 1- Powai Mumbai - 0.78 FY24 0.78 Freehold
Repurposed to commercial assets -
Repurposed Inorbit, Bengaluru Bengaluru - 0.30 FY23 0.30 Freehold
Commercial Tower 2- Powai Mumbai - 0.75 FY27 0.75
Retail projects
Inorbit, Whitefield Bengaluru -0.26* Freehold
Sahar, Mumbai Mumbai -0.12 Freehold
Total 0.48 -0.38 1.44 1.17 3.10
Note: *While bulk of the retail assets have been repurposed, Inorbit Mall, Whitefield would continue to have 7 F&B tenants
Exhibit 20: Commercial asset to expand to 2.7x by FY24E, helped partly by repurposing of retail
assets for commercial purposes
Whitefield, Bengaluru Business Center, Sahar Marriott Whitefield
Commercial Tower 1- Powai Repurposed Inorbit, Bengaluru Discontinued retail projects
2.5
2.0
1.5
1.0
0.5
-
Exhibit 21: Revenue contribution from commercial projects (%) Exhibit 22: Absolute revenue contribution from commercial
projects (Rs m)
Discontinued retail projects Repurposed Inorbit, Bengaluru
Discontinued retail projects Repurposed Inorbit, Bengaluru
Commercial Tower 1- Powai Marriott Whitefield
Commercial Tower 1- Powai Marriott Whitefield
Business Center, Sahar Whitefield, Bengaluru Business Center, Sahar Whitefield, Bengaluru
100%
2,500
80%
2,000
60%
1,500
40% 1,000
20% 500
0% 0
FY17 FY18 FY19 FY20 FY21 FY22E FY23E FY24E FY25E FY17 FY18 FY19 FY20 FY21 FY22E FY23E FY24E FY25E
We believe this estimated 2.7x jump in commercial projects would cause EBITDA to
also expand at 2.9x to Rs1.8bn by FY24E.

Chalet Hotels
Details and update on the Koramangala project

Dispute as stated in RHP: Chalet owns a property situated at Koramangala Industrial Layout, Bengaluru, where
they were constructing a residential complex. The completion of the residential complex is stalled on account of
the revocation of certain approvals by Hindustan Aeronautical Limited. The company had filed a writ petition
before the Karnataka High Court in relation to the cancellation of the approvals and the construction and further
sale of residential apartments at this property, among others. Pending the outcome of the proceedings and a
final closure of the matter, Chalet suspended revenue recognition based on the percentage completion method
and have also been derecognizing profits on cancellation of flats previously sold.
Update as per FY21 Annual Report: Chalet had entered into a Subscription Agreement dated June 4, 2018 with
Mr. Ravi C. Raheja and Mr. Neel C. Raheja, Promoters of the Company, wherein they agreed to provide the
Company with funds required to meet any costs, expenses and liabilities pertaining to the Koramangala
Residential project, including any costs and expenses towards the ongoing litigation and the completion of the
Koramangala Residential project, by way of subscription by themselves or by their Designated Nominees to
20,000 Zero Coupon Non-Cumulative, Non-Convertible, Redeemable Preference Shares (‘NCRPS’ / ‘Subscription
Securities’) of Rs100,000 each in two series (viz. Series A and Series B) of 10,000 each, aggregating to
Rs2,000m (Initial Subscription Amount). The Promoters have further agreed that in the event the amount
required towards meeting the project expenses exceeds the Initial Subscription Amount, the Promoters shall
provide such additional funds as may be required to meet the project expenses. The NCRPS have been fully
subscribed. An amount of Rs1,000m and Rs250m has been called and paid-up as on the date of the Balance
Sheet in respect of the Series A NCRPS and Series B NCRPS, respectively. The amounts raised have been utilised
in line with the Subscription Agreement referred to hereinabove. Further, keeping in mind the project
requirements and expected capital expenditure to be incurred, it has been decided to raise up to Rs1000m from
the Promoters or their Designated Nominees, either by way of further issue up to a maximum of 10,000 Zero
Coupon, Non-Cumulative, Non-Convertible, Redeemable Preference Shares, viz., Series C NCRPS of Rs100,000
each, or Unsecured Loans or Inter Corporate Deposits. The Series C NCRPS, if issued, will be allotted in tranches
based on the requirement of funds.
Settlement (22 Oct 2021): Chalet and HAL signed terms for an amicable settlement of all disputes between the
parties for filing in Court and obtaining orders, as per which:
i. The Company shall undertake the demolition of already-constructed structures above 932 meters Above
Mean Sea Level (AMSL) of the existing structures. The Company shall not modify / alter / renovate or develop
the existing buildings/apartments up to 932 meters in any way until demolition of structures above 932
meters and issuance of fresh NOC by HAL.
ii. Upon intimation of completion of demolition, HAL has undertaken to issue the NOC within 7 days from receipt
of the application, as per the regulations.
iii. The Company has accepted the site elevation of the property at 892.41 meters (‘AMSL’) basis which fresh
NOC shall be granted by HAL for construction up to 932 meters AMSL.
Update as per Q3FY22: The holding company has paid up preference share capital of Rs1,750m as of 31 Dec
2021 (it was Rs1,250m as of 31 Mar 2021).
Exhibit 23: Cash flow from Koramangala project

S.No. Property details Residential Commercial Total
1 Area yet to be sold (m sqft) 0.57 0.15
2 Assumed selling rate (Rs per sqft) 12,500 12,500
3 Revenue (Rs m) 7,125 1,875 9,000
4 Indicative cost to complete the project (Rs m) 4,250
5 Profit (Rs m) 4,750
6 Money taken from promoters so far (Rs m) 1,750
7 Portion of profit to Chalet shareholders (Rs m) 3,000
8 Shares outstanding (m) 205
9 Per share value* (Rs) 15
Note: *unadjusted for the time it would take to complete the project

Chalet Hotels
Deleveraging to begin FY24E onwards

Chalet is looking to deploy Since its IPO, Chalet has deployed Rs8.2bn towards acquiring a hotel and capex on
further Rs8.5bn combined commercial assets, most of which is yet to operationalize or reach peak
capex during FY23-FY24E performance (Novotel Pune). It is looking to deploy further Rs8.5bn combined
capex during FY23-FY24E. Bulk of this ~Rs17bn capex is expected to sweat beyond
FY24E. We believe, legacy assets reaching pre-COVID levels of throughput and the
commercial assets in pipeline getting operationalized should converge in FY24. This
would help bring down the company’s financial leverage (net debt to EBITDA) ratio
to more comfortable levels, allowing it to chart out its next expansion drive.
Exhibit 24: Expect debt to peak in FY23, post which deleveraging should begin
Net Debt (LHS - Rs bn) Net Debt/Equity (RHS) Net Debt to EBITDA (RHS)
30 27 27 12.0
23 24
23 20 20 9.0
18
15 16
15 6.0
11
8 3.0
0 0.0
FY18 FY19 FY20 FY21 FY22E FY23E FY24E FY25E FY26E FY27E
Paid Rs12bn debt Acquired Novotel Capex of Rs1.16bn Capex of Rs3.5bn on Capex of Rs5bn on
using Rs7.2bn of the (Pune) for a and cash loss of commercial commercial
IPO proceeds and consideration of 1.2bn complexes complexes and
working capital Rs3.5bn Rs3bn on hotels in
release FY23-24, combined

Chalet Hotels
Financial analysis
Chalet is slated to come at We estimate revenue/EBITDA CAGR of 6%/14%, respectively, over FY20-24E,
par with peers anticipating ARRs and occupancy to scale back to pre-COVID levels.
Exhibit 25: Revenue and EBITDA to recover by FY23E… Exhibit 26: …in line with occupancy and ARR recoveries
Revenue (Rs bn - LHS) EBITDA (Rs bn - LHS) ARR (Rs - LHS) Occupancy (% - RHS)
EBITDA Margin (% - RHS) 10,000 100%
16.0 60% 8,482 8,327
13.8 7,840 8,210 8,198
12.6 8,000 80%
77% 6,895 75%
12.0 46% 45% 73% 71% 71%
9.9 9.8
8.8 47% 6,000 60% 60%
8.0 35% 4,54051%
8.0 34% 6.4 30% 4,040
31% 32% 5.8 4,000 40%
4.7
3.2 3.4 2.9 30%
4.0 2.4 19% 3.0 15%
2,000 20%
0.9
0.1
0.0 0% 0 0%
2%
FY18 FY19 FY20 FY21 FY22E FY23E FY24E FY25E FY18 FY19 FY20 FY21 FY22EFY23EFY24EFY25E
Margins should start kicking in, as RevPAR and asset utilization rise. On a like-to-
like basis, return ratio of Chalet for owned assets is lower, due to relatively new
assets (higher net block); on replacement cost basis, Chalet is slated to come at
par with peers.
Exhibit 27: PAT and PAT margin Exhibit 28: RoE and RoCE should steadily inch up
PAT (Rs bn - LHS) PAT Margin (% - RHS) ROE ROCE ROIC
4.0 18% 22% 30% 30
11%
2.96
-1% 1% 2.28 20 16
14
2.0 -12% 0% 9
1.06 10 6
-25% 2
0.05 0
0.0 -30% -6 -1
-46% -2
-0.08
-10
-0.93 -1.35 -1.18
-2.0 -60% -20
FY18 FY19 FY20 FY21 FY22E FY23E FY24E FY25E FY18 FY19 FY20 FY21 FY22E FY23E FY24E FY25E

Chalet Hotels
Valuation
We expect profitability to We have used SoTP method to value Chalet, as we expect the deleveraging process
scale back to pre-COVID levels to commence post FY24E. Our premise being that profitability and would scale back
as Rs17bn capex turns fully to pre-COVID levels, as Rs17bn capex turns fully operational. Our target price of
operational Rs341 per share implies 27% upside from the CMP; we initiate coverage with an
Outperformer rating (implied EV/EBITDA multiple of 15x FY24E).
Exhibit 29: SOTP valuation

FY24E Implied
Labels Criteria Value Multiplier
Valuation EV/share
EV (Standalone) A EBITDA (FY24E) 4,173 15 62,594 305
EV (Commercial) B Capitalization rate 1,688 1/8.3% 20,332 99
EV (Koramangala Project) C 3,000 15
EV (Total) D=A+B+C 85,925
Net Debt E 23,992 (123)
CWIP F 7,959 43
Valuation of Equity (Rs. mn) G=D-E+F 69,892
Number of Shares Outstanding (mn) H 205
Fair Value I=G/H 341
CMP J 268
Upside K=I/J-1 27%
Key risks
 Concentration risk arising from Mumbai and suburban regions, which contribute
over 50% to rooms and revenue.
 High debt to EBITDA ratio could cap inorganic expansion.

 Sanjay Sethi (Managing Director) was the CEO and MD of Berggruen Hotels Pvt
Ltd, which he founded and promoted in 2006, along with Berggruen Holding,
New York. He has also had a stint with ITC Ltd as its COO for the hotels division,
and with IHCL, as a general manager of hotel properties and area director of
Hyderabad hotels. He holds a Bachelor's degree in hotel management from IHM
Pusa. He is also a Certified Hotel Administrator from American Hotel and
Lodging Educational Institute.
 Milind Wadekar (CFO): has been associated with Chalet Hotels for over a
decade. Prior to this, he was the Corporate Finance controller with The Leela
Palace & Resorts. He holds a BCom degree from Mumbai University.

Chalet Hotels
Net sales 9,808 2,944 4,711 8,828 12,614 EBITDA margin (%) 35.0 2.4 19.2 34.0 46.1
% growth (0.6) (70.0) 60.0 87.4 42.9 EBIT margin (%) 23.4 (37.5) (5.6) 19.1 34.4
EBITDA 3,429 71 904 3,006 5,810 RoE (%) 7.6 (8.8) (8.4) 0.4 16.1
% change 7.4 (97.9) 1,182.0 232.5 93.3 RoCE (%) 7.0 (3.1) (0.7) 4.3 10.3
Other income 279 223 180 375 535 Gearing (x) 1.1 1.4 1.8 2.1 1.6
Net interest cost 1,462 1,520 1,703 1,998 2,094 Net debt/ EBITDA (x) 5.2 285.4 25.6 8.9 4.1
Depreciation 1,133 1,175 1,166 1,323 1,474 FCF yield (%) 2.8 0.2 (2.3) (3.2) 9.1
Pre-tax profit 1,113 (2,401) (1,785) 59 2,778 Dividend yield (%) 0.0 0.0 0.0 0.0 0.0
Deferred tax (183) (1,028) 0 0 0
Current tax 195 (63) (642) 11 500 Valuations
Profit after tax 1,101 (1,309) (1,143) 48 2,278
Reported EPS (Rs) 5.0 (6.8) (6.3) 0.2 11.1
Minorities 30 1 0 0 0
Adj. EPS (Rs) 5.5 (6.4) (5.6) 0.2 11.1
Adjusted net profit 1,131 (1,308) (1,143) 48 2,278
PE (x) 37.0 NM NM 1,137.2 24.1
Non-recurring items (63) (41) (119) 0 0
Price/ Book (x) 2.7 2.1 4.2 4.2 3.6
Reported net profit 1,027 (1,391) (1,297) 48 2,278
EV/ Net sales (x) 6.1 17.1 16.6 9.3 6.3
% change (1,438.1) 0.0 0.0 (103.7) 4,621.7
EV/ EBITDA (x) 17.4 712.4 86.3 27.2 13.6
EV/ CE (x) 1.7 1.4 2.1 2.0 1.9
Balance sheet
Total debt 19,015 20,583 23,783 28,283 26,283
Deferred tax liabilities 222 138 138 138 138
Other non-current
407 377 377 377 377
liabilities
Total equity &
40,128 39,888 42,878 48,186 50,345
liabilities
Net fixed assets 23,927 21,205 23,750 27,246 27,523
Investments 7,183 9,996 10,001 10,001 10,001
Cash 1,279 458 657 1,394 2,291
Deferred tax assets 853 1,797 1,797 1,797 1,797
Other non-current
1,587 1,341 1,341 1,341 1,341
assets
Net working capital 1,638 918 271 1,322 1,324
Total assets 40,127 39,888 42,759 48,066 50,226
As of Dec-21
Cash flow
Pre-tax profit 1,113 (2,401) (1,785) 59 2,778
Depreciation 1,133 1,175 1,166 1,323 1,474
Chg in Working capital (374) (101) 846 (314) 895
Total tax paid (257) 467 642 (11) (500)
Net Interest 1,462 1,520 1,703 1,998 2,094
Others (467) 24 (119) 0 0
Operating cash flow 2,524 602 2,452 3,056 6,741
Capital expenditure (961) (483) (3,712) (4,820) (1,750)
Free cash flow (a+b) 1,564 119 (1,259) (1,764) 4,991
Chg in investments (2,311) (950) (5) 0 0
Debt raised/(repaid) 1,940 1,081 3,200 4,500 (2,000)
Net interest (1,462) (1,520) (1,703) (1,998) (2,094)
Capital raised/(repaid) 0 0 0 0 0
Dividend (incl. tax) 0 0 0 0 0
Other items 110 98 0 0 0
Net chg in cash (85) (238) 199 738 897

Lemon Tree Hotels
INITIATING COVERAGE
A play on the mid-market segment
NEUTRAL
Lemon Tree (LT) is the sixth largest (by room count) pure-play hotel in India’s
21 March 2022 mid-market segment. The company aims to control a quarter of this segment
BSE Sensex: 57292 over the coming decade. Its flywheel pivots on aggressive asset-light expansion,
while taking up few construction projects and flipping them for handsome gains.
Sector: Hotels APG, its strategic partner, with whom it has long-term association, is a ready
buyer with first access to all deals. COVID affected LT’s strategy, as its active
pipeline of ~1,914 rooms, commissioned prior to the pandemic, is yet to witness
one full year of normal operation. A normal FY23 should help LT’s cause,
Stock data enabling the timely execution of its remaining projects, in our view. Globally, the
mid-market segment slightly lags its upper-upscale peers (e.g., Wyndham vs
CMP (Rs) 55 Marriott), but we expect the catch up to happen in FY23. We estimate 8%/15%
Mkt Cap (Rs bn/USD m) 43.7 /576 CAGR in LT’s revenue/EBITDA over FY20-24E. We believe, the recent run-up in
stock price captures much of the upside. We initiate coverage with a Neutral
Target Price (Rs) 59 rating, with an SOTP-based target price of Rs59 (6% upside), we have valued the
Change in TP (%) NA asset-heavy portfolio at 15x, and management contract income at 20x FY24E
EV/EBITDA, implying a multiple of 16x FY24E EV/EBITDA. Key risks to our
Potential from CMP (%) 6.4 assumptions are, long delays in business travel resumption and time and cost
Earnings change (%)
over runs in the Aurika Mumbai project.
FY22E  Recently commissioned/acquired assets to stage recovery: About 40% of the

rooms under Fleur currently form 75% of consolidated LT’s capital employed and
FY23E  nearly 100% of its CWIP. LT added ~56% of these 3,426 rooms or 1,914 rooms
Bloomberg code LEMONTRE IN
post FY18 (including 936 rooms in Keys acquisition, 303 in LT Premier Andheri,
139 in Aurika Udaipur, 142 in LT Premier Kolkata and 199 in LT Premier Pune).
1-yr high/low (Rs) 61/27 All these hotels haven’t seen one full year of normal operations/integration. We
expect this portfolio of underperforming assets to pull up LT’s
revenue/profitability, as they mature.
Achieves cash breakeven: LT used the COVID phase to bring down its operating
(Rsm/USDm) 353.0/4.7 cost by Rs1bn per annum, which enabled it to achieve cash breakeven (including
Shares outstanding (m) 792.2 Rs1.8bn interest outgo, Rs1bn annual debt repayment and Rs0.3bn rent) on a
monthly revenue run rate of Rs0.5bn, which the company surpassed in Dec
Free float (%) 74.1 2021. We believe, with RevPAR recovering to pre-COVID levels, LT would be able
Promoter holding (%) 25.9 to generate cash to fund bulk of the remaining capex of Aurika Mumbai, thereby
keeping its financial leverage under check.
Lemon Tree Hotels Sensex Key valuation metrics
200
150
Net sales (Rs m) 6,694 2,517 4,320 7,604 9,138
100 Adj. net profit (Rs m) (95) (1,271) (640) 197 934
Shares in issue (m) 790 790 790 790 790
50
Adj. EPS (Rs) (0.1) (1.6) (0.8) 0.2 1.2
0
Mar-19 Dec-19 Sep-20 Jun-21 Mar-22 % change (118.0) 1,231.8 (49.7) (130.9) 373.1
(%) 3-mth 6-mth 1-yr PE (x) NM NM NM 220.8 46.7
Price/ Book (x) 1.1 1.9 3.3 3.6 3.8
LEMONTRE IN 19.8 36.8 44.8
EV/ EBITDA (x) 15.6 83.2 40.1 21.7 15.9
BSE Sensex 1.5 (2.0) 16.2
RoE (%) (0.7) (8.3) (4.5) 1.6 7.9
RoCE (%) 5.0 (1.3) 1.7 5.0 7.6
Rajiv Bharati
rajiv@damcapital.in
+91 22 42022506
Lemon Tree Hotels
Story in Charts
Exhibit 1: Lemon Tree’s path to Rs7bn EBITDA
Consolidated EBITDA pre-COVID (pre IndAS) 2.4 EBITDA estimated to
Additional EBITDA from hotels in pipeline and new initiatives 0.8 increase by another
Permanent cost savings 1.0 Rs1.8bn if Lemon
IndAS impact 0.05 Tree’s portfolio
witnesses 8% RevPAR
EBITDA (base case) 4.3
CAGR for 3 years
Additional EBITDA from Aurika Mumbai 1.0
Exhibit 1: Discernible shift towards asset-light strategy Exhibit 2: Capital employed breakup (FY21 = Rs33bn*)
Owned Rooms Leased rooms
Management contracts Carnation
100% 6% 9% 14% 1%
23% CWIP
80% 33% 34% 35% 38%
43% 48% 52% 7%
60% Owned
(Fleur) Owned
40%
75% (Parent)
20% 17%
0%
FY19
FY14
FY15
FY16
FY17
FY18
FY20
FY21
FY22E
FY23E
FY24E
Note: *Capital employed excluding lease liabilities
Exhibit 3: Monthly breakeven* achieved, capex funding would Exhibit 4: RoCE to pick up as assets mature
require further pickup
Standalone Fleur
Rs m
Hotel Operating Expenses Total Revenue Carnation Consol
552 75%
600
481 60%
500
388
400 329 340 45%
297
300 30%
186
200 142 261 15%
102 214 237
174 191 195
100 143 0%
91 116
0 -15%
Apr May Jun Jul Aug Sep Oct Nov Dec FY18 FY19 FY20 FY21 FY22E FY23E FY24E FY25E
Note: *Breakeven covers for fixed cost, interest outgo, annual debt Note: Keys owned rooms under Fleur and other newly commissioned
repayments, rent hotels haven’t seen a full normal year yet

Lemon Tree Hotels
 Lemon Tree’s flywheel pivots on its ability to execute projects and then
flip it for a profit to its subsidiary company, pocketing decent gains, as
also retaining the management contract.
 The cumulative profit from these transactions is equal to the networth of
the standalone entity. Key ingredients here are managing financial
leverage and timely execution.
 40% of the rooms under Fleur currently form 75% of LT’s consolidated
capital employed, and nearly 100% of its CWIP. ~56% of these 3,426
rooms were added post FY18. All hotels under these haven’t seen one full
year of normal operations/integration. We expect this portfolio to pull up
revenue/profitability going ahead, as they mature.
 LT brought down its overall cost by Rs1bn, which should help it achieve
cash breakeven at lower RevPAR and spare cash to fund Aurika
Mumbai’s capex.
 We estimate LT to clock 8%/15% revenue/EBITDA CAGR over FY20-24E.
We initiate coverage with a Neutral rating, and an SOTP-based target
price of Rs59 (valued asset-heavy pieces at 15x FV24E EV/EBITDA,
management contract income at 20x FY24E EV/EBITDA), thereby
implying a multiple of 16x FY24E EV/EBITDA (proportionate basis).
 Key risks to our estimates include 1) Cost and time overruns in
completing the Aurika Mumbai project, 2) Slower recovery of the asset
heavy portfolio, and, 3) Sharp rise in interest cost.
A mid-segment scale player

“May be I could have started a 2/3-star brand, I had been very tempted, but then
you have to have big volumes for that game”….PRS Oberoi
Lemon Tree is India’s sixth- LT has been following a strategy of building or accumulating strategic assets and
largest hotel company by then selling it to its 59% subsidiary, Fleur Hotels. With this, it makes money at the
room count, after Marriott, parent company level and also retains the management contract of the asset. APG
IHCL, Radisson, Accor and ITC Strategic Real Estate Pool N.V. (APG) is a strategic investor for Fleur Hotels. This
flywheel has been working so well, that LT, incorporated in 2002, has 8,489
operational rooms with another 2,006 in the pipeline, making it India’s sixth-
largest hotel company by room count after Marriott, IHCL, Radisson, Accor and ITC.
Gains from all these transactions over the years are equal the networth of the
standalone company. The flipside to this strategy is that project delays could slow
the pipeline build-up process, which makes it critical for the company to manage
financial leverage.
Considering over Rs18bn debt on its book, annual debt repayment, rental and
interest outgo of Rs3.1bn, it remains to be seen how soon the company is able to
deleverage. We chalked out a recovery glide path (we believe it could help the
process), whereby we estimate interest coverage ratio could exceed 3 in FY26E,
while it funds additional Rs6bn capex over the next 2 years.

Lemon Tree Hotels
Exhibit 5: LT’s path to Rs7bn EBITDA

Consolidated EBITDA pre-COVID (pre-IndAS) 2.4 EBITDA estimated to
Additional EBITDA from hotels in the pipeline and new initiatives 0.8 increase by another
Permanent cost savings 1.0 Rs1.8bn if Lemon
Tree’s portfolio
IndAS impact 0.05
witnesses 8% RevPAR
EBITDA (base case) 4.3 CAGR over 3 years
Additional EBITDA from Aurika Mumbai 1.0
Within the positioning spectrum, LT operates in the upscale, mid-market and

economy segments. It is the largest hotel chain in the mid-priced hotels segment,
operational since nearly two decades.
Exhibit 6: Hotels segment

Hotels Star rating Description
5-star, deluxe and Typically refers to the absolute top-tier hotels. In India, these would generally be classified as 5-star
Luxury
luxury deluxe hotels
These are hotels which are more moderately positioned and priced than the top tier hotels. Hotels in
5-star, smaller
Upper-upscale this category would normally have multiple dinning and recreational facilities with large and opulent
room size
public areas. In India, these would generally be classified as 5-star hotels
These hotels are full-service hotels, typically with fewer public areas and facilities and possibly smaller
Upscale 4-star
room sizes than upper upscale hotels. In India, these would generally be classified as 4-star hotels
Upper midscale These are usually 3-star hotels, with distinctly moderate room sizes, moderately positioned and priced.
3-4-star
/ midscale Hotels in this category may have restricted services and facilities
Economy / These are typically 2-star hotels providing functional accommodations and limited services, while being
1-3 star
budget focused on price consciousness
Source: Samhi Hotels RHP
Nearly 8% of LT’s inventory Lemon Tree operates its hotels under seven brands, with the addition of Keys
falls under an upper-upscale portfolio in Jun 2019. Nearly 8% of its inventory (operational + pipeline) falls under
brand, Aurika an upper-upscale brand, Aurika, where ~50% of its operational rooms are in the
midscale segment (LT Hotels and Keys Select), 30% in the upscale segment (LT
Premier, Keys Prima), and 18% in the economy segment.
Another way to dissect LT’s portfolio is in terms of ownership. Current operational

inventory is skewed towards owned/leased rooms forming 61% of the rooms, while
rest is managed.
Exhibit 7: LT’s operational hotels (as of Q3FY22) Exhibit 8: LT’s operational rooms (as of Q3FY22)
Managed/ % of Managed/ % of
Hotel count Owned Leased Total Hotel count Owned Leased Total
Franchised total Franchised total
Aurika 1 - 1 2 2% Aurika 139 - 55 194 2%
LT Premier 7 2 9 18 21% LT Premier 1,442 161 911 2,514 30%
LT Hotels 13 4 22 39 45% LT Hotels 1,241 321 1,305 2,867 34%
Red Fox Hotels 5 2 6 13 15% Red Fox Hotels 759 193 551 1,503 18%
Keys Prima - - 1 1 1% Keys Prima - - 40 40 0.5%
Keys Select 7 - 5 12 14% Keys Select 936 - 388 1,324 16%
Keys Lite - - 2 2 2% Keys Lite - - 47 47 1%
Total 33 8 46 87 Total 4,517 675 3,297 8,489
% 38% 8% 53% % 53% 8% 39%

Over the years, there has been a conscious shift towards asset-light expansion. In
FY14, managed rooms formed less than 6% of the room inventory, which we
estimate should expand to >50% by FY24E (assuming all expansion and launches
remain on schedule).

Lemon Tree Hotels
Midscale segment comprises Exhibit 9: Discernable shift towards asset-light strategy

58% of rooms in LT’s pipeline Owned Rooms Leased rooms Management contracts
100% 6% 9% 14%
23%
80% 33% 34% 35% 38% 43% 48% 52%
60%
40%
20%
0%
FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22E FY23E FY24E
Exhibit 10: Owned/leased room addition trajectory
Owned/Leases room addition

2,000
1,622
1,500
Aurika Mumbai
1,000
669
422
500 293
190
61 67 - 10 - -
0
FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22E FY23E FY24E FY25E
Exhibit 11: Managed room addition trajectory
Managed room addition

1,200
973
850
900 785 800 800
750
600
382
303
248
300 187
103
0
FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22E FY23E FY24E FY25E
LT’s pipeline inventory has a proportionately large representation from the

midscale segment, which comprises 58% of rooms in the pipeline. Aurika Mumbai,
under Mumbai International Airport Ltd (MIAL), is one large projected pipeline with
669 keys, which forms a third of the upcoming room inventory. We expect the
commissioning of this pipeline project (expected by FY25) to swell the total room
count by 24% to over 10,000 rooms.
Pipeline inventory is more skewed towards managed rooms and once operational,
the company would have 43% inventory in the form of management contracts.

Lemon Tree Hotels
Exhibit 12: Pipeline hotels Exhibit 13: Rooms in pipeline

Managed/ % of Managed/ % of
Hotel count Owned Leased Total Hotel count Owned Leased Total
Franchised total Franchised total
Aurika 1 - - 1 5% Aurika 669 - - 669 33%
LT Premier - - 1 1 5% LT Premier - - 80 80 4%
LT Hotels 1 - 15 16 80% LT Hotels 69 - 1,097 1,166 58%
Red Fox Hotels - - - - Red Fox Hotels - - - -
Keys Prima - - - - Keys Prima - - - -
Keys Select - - - - Keys Select - - - -

- - 2 2 10% Keys Lite - - 91 91 5%
Keys Lite
2 - 18 20 Total 738 - 1,268 2,006
Total
% 37% 63%
% 10% 90%
We currently have visibility of scaling beyond 10,000 rooms over the next few
fiscals, with an average of ~100 rooms per hotel.
Exhibit 14: Total hotels (operational + pipeline) Exhibit 15: Total Rooms (operational + pipeline)
Managed/ Managed/
Hotels Count Owned Leased Total % Hotels Count Owned Leased Total %
Franchised Franchised
Aurika 2 - 1 3 3% Aurika 808 - 55 863 8%
LT Premier 7 2 10 19 18% LT Premier 1,442 161 991 2,594 25%
LT Hotels 14 4 37 55 51% LT Hotels 1,310 321 2,402 4,033 38%
Red Fox Hotels 5 2 6 13 12% Red Fox Hotels 759 193 551 1,503 14%
- - 1 1 1% Keys Prima - - 40 40
Keys Prima
7 - 5 12 11% Keys Select 936 - 388 1,324 13%
Keys Select
Keys Lite - - 138 138 1%
Keys Lite - - 4 4 4%
Total 5,255 675 4,565 10,495
Total 35 8 64 107
% 50% 6% 43%
% 33% 7% 60%
Management’s envisions Excluding Aurika, we expect LT to have ~10,000 rooms in the mid-market segment
expanding controlling 30-40% in a few years, forming ~20% of the overall segment. Management’s envisions
of the mid-market segment expanding this to 25,000, thereby controlling 30-40% of this segment. We expect
bulk of this vision to fall under the management contract model, enabling the
company to keep its balance sheet light. Another aim is to turn debt free over next
5 years. We bookmark both these visions to gauge LT’s execution going ahead.

Lemon Tree Hotels
Fleur to drive performance, as hotels stabilise

About 40% of the rooms Fleur Hotels (Fleur) is a ~59% subsidiary of LT, which has about two-thirds and
under Fleur currently form 40% of owned rooms and total rooms, respectively. Fleur contributes over 40% of
75% of the capital employed LT’s consolidated revenue. APG Strategic Real Estate Pool N.V. (APG) owns 41.1%
for the LT consolidated entity stake in Fleur. As per the shareholder agreement (up to Jun 2024, which is
extendable by another 15 years), all new hotel projects would be first offered to
Fleur Hotels Pvt Ltd. APG also has the right to nominate and appoint up to one-
third of the board of Fleur, so long as APG or its affiliates hold more than 25% of
the total issues and paid up share capital of Fleur (on a fully diluted basis).
Carnation Hotels is ~75% subsidiary, which houses the managed asset portfolio.
Exhibit 16: Key LT subsidiaries

Controlled
Name of company Remaining stake held by
stake (%)
Fleur Hotels 58.9% APG (Dutch Pension Fund)
Carnation Hotels 74.9% Rattan Keswani
About 40% of the rooms under Fleur currently form 75% of the capital employed
for the LT consolidated entity, and nearly 100% of its CWIP. About 56% of these
3,426 rooms or 1,914 rooms were added post FY18 (including 936 rooms in Keys
acquisition, 303 rooms in LT Premier Andheri, 139 rooms in Aurika Udaipur, 142 in
LT Premier, Kolkata and 199 in LT Premier, Pune, 91 in Redfox, Dehradun). All
these hotels are yet to see one full year of normal operations/integration. We
believe, this portfolio of underperforming assets would pull up
revenue/profitability, as they mature.
Exhibit 17: Existing inventory can be bucketed across three entities Exhibit 18: Capital employed split (FY21)
Owned Carnation
(Parent), 1%
1,766
CWIP
7%
Carnation, Owned
3,297 (Fleur) Owned
75% (Parent)
17%
Owned
(Fleur),
3,426
Over the years, bulk of the asset heavy portfolio is built or transferred to Fleur while
entire management portfolio is under Carnation.

Lemon Tree Hotels
Exhibit 19: Entity-wise room addition
Standalone Fleur Carnation

6,000
4,500
3,000
1,500
0
FY16 FY17 FY18 FY19 FY20 FY21 FY22E FY23E FY24E FY25E
Note: *Room reduction in the standalone entity in FY20 owes to transfer of 303 rooms at the Andheri
hotel to Fleur. Further, Fleur acquired Keys Hotel in FY20, and the managed portfolio of Keys was
transferred to Carnation
Fleur was beginning to catch Pre-COVID, Fleur was beginning to catch up on the profitability of the standalone
up on the profitability of the entity, and we expect this trend to continue, as normalcy resumes. The trend
standalone entity should expand further, once the 669 rooms under LT Premier (Mumbai) get
commissioned.
Exhibit 20: Fleur to surpass standalone EBIT in the years to come Exhibit 21: RoCE to pick up as assets mature
Standalone Fleur
Standalone Fleur Carnation
2,400 Carnation Consol
75%
1,800 60%
1,200 45%
30%
600
15%
0
0%
-600 -15%
FY18 FY19 FY20 FY21 FY22E FY23E FY24E FY25E FY18 FY19 FY20 FY21 FY22E FY23E FY24E FY25E

Lemon Tree Hotels
Midscale and economy segments to play catch up

on upscale recovery
Luxury-upper upscale As per the recent trend, the luxury-upper upscale segment has been leading the
segment has been leading the recovery path, with the upscale and upper midscale closely following their premium
recovery path peers. Economy and midscale segments are yet to catch up on the occupancy
recovery as seen in the graph below.
LT’s ARR recovery has been
slightly slow versus the peer Exhibit 22: Segmental occupancy performance for the industry
set
occupancy
Source: STR
Lemon Tree also followed suit with occupancies, smartly recovering close to pre-
COVID levels, with LT Premier doing particularly well.
Exhibit 23: Lemon Tree: Occupancy recovery
LT Premier LT Hotels Red Fox Hotels

100%
75%
50%
25%
0%
Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21 Q4FY21 Q1FY22 Q2FY22 Q3FY22
LT’s ARR recovery has been slightly slow versus the peer set, as rate competition
from the top tier and upscale hotels have squeezed the midscale segment.

Lemon Tree Hotels
Exhibit 24: Lemon Tree: ARR recovery

7,500
6,000
4,500
3,000
1,500
0
EBITDA per room charts seem Alternatively stated, recovery in the midscale and economy segments has trailed
to be moving in tandem with the luxury upper-upscale segment by 1-2 quarters, and even if this trend were to
the occupancy chart of late continue, the company believes it would not be far from a full-scale recovery.
It is interesting to observe the EBITDA per room recovery slope, which highlights
the extent of cost cutting and variabilisation of expenses. EBITDA per room charts
seem to be moving in tandem with the occupancy chart of late.
Exhibit 25: Lemon Tree: EBITDA per room recovery

3.0
2.4
1.8
1.2
0.6
0.0

Lemon Tree Hotels
Keeping up with the asking rate

LT can breakeven at a If we were to work back the fixed and variable costs from the recent trend in
monthly revenue run-rate of revenue and opex, we estimate LT would be currently running a fixed cost of
Rs110m Rs70m per month and a variable margin of 64%. It has annual repayments of
Rs1bn, interest outgo of Rs1.8bn and rent of Rs300m.
Apart from cash on hand, LT
has Rs1,750m unutilised line At this rate, LT can breakeven at a monthly revenue run-rate of Rs110m, and be
of credit from APG able to cover its interest cost, repayment and rent at Rs513m a month
(((1800+1000+300)/12+70)/64%) or an ARR of Rs3,300. LT is slowly inching
towards those levels every month. The company achieved that milestone in Dec
2021, first time since COVID struck.
Exhibit 26: Revenue vs opex trend (Rs m) Exhibit 27: Revenue trend (Rs m)
Hotel Operating Expenses Total Revenue CY2020 CY2021 Higest revenue recorded
600 552 800 in Q3FY22 compared to
682 745 the last 7 quarters
481
500 552
388 600
400 340 481
329
297 388
310 340
300 400 296 324 297 329
186
200 142 261 186
102 237 200 322 142
191 195 214 91 287
100 174 216
143 174
91 116 109 140 158 159 158 162
0 0
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Source: Company Source: Company
Revenue of Rs513m per month excludes the funding requirement of Rs6bn for the
MIAL project to be done over the next two years, 58% of which needs to be done by
the LT parent, with the remaining from its strategic partner, APG.
This should be doable, once the ARR scales up to Rs5,700, which would require
some getting, considering the company-level ARR has been hovering below
Rs5,600 levels in the past. Alternatively, if APG funds its part of the remaining
capex, then LT would be able to fund its share with an ARR run-rate of Rs4,500.
Shown below is the warranted ARR calculation to fund costs

Scenario 1: Covering only fixed cost
Scenario 2: Scenario1+ annual repayment, interest cost and rent
Scenario 3: Scenario2+ entire balance capex spread over 24 months
Scenario 4: Scenario2+ 59% of the balance capex spread over 24 months
Exhibit 28: ARR requirement to fund opex and capex in various scenarios
Scenario 1 Scenario 2 Scenario 3 Scenario 4
Fixed cost per month (Rs m) 70 328 556 453
Variable cost 36% 36% 36% 36%
Breakeven revenue per month (Rs m) 109 513 868 708
Owned/leased room count 5,202 5,202 5,202 5,202
Breakeven RevPAR 455 2,135 3,614 2,946
Assumed occupancy 65% 65% 65% 65%
Breakeven ARR 700 3,284 5,560 4,532
A shortfall in ARRs could result in debt rising from the current level, or further
equity dilution. Apart from cash on hand, LT has Rs1,750m unutilised line of credit
from APG.

Lemon Tree Hotels
Financial analysis
We expect further re-rating, if Recovery of Lemon Tree’s profitability depends on three levers (a) ARR scaling
LT is able to showcase back to pre-COVID levels, (b) Cost saved during COVID remains sticky, and, (c)
sustainable deleveraging asset acquired or commissioned after FY18 matures in line with the legacy LT
portfolio.
EBITDA margin at 47% assumes material reduction in fixed expenses and higher
flow through.
Exhibit 29: Revenue and EBITDA to recover by FY23E… Exhibit 30: …partly aided by occupancy and ARR recovery
Revenue (Rs m - LHS) EBITDA (Rs m - LHS) ARR (Rs - LHS) Occupancy (% - RHS)
EBITDA Margin (% - RHS) 6,000 100%
10,000 60%
4,800 80%
8,000 78%
47% 48% 76% 78% 73%
3,600 70% 60%
6,000 36% 41% 36%
38%
31% 2,400 50% 40%
4,000 28% 24% 42%
24%
2,000 12% 1,200 20%
0 0% 0 0%
Debt has been a cause of concern for Lemon Tree, considering the sector was one
of the most impacted from COVID. We expect further re-rating, if LT is able to
showcase sustainable deleveraging. LT would achieve peak debt in FY24E, close to
the commissioning of its Aurika Mumbai project, post which, we expect the interest
coverage ratio to improve.

Lemon Tree Hotels
Exhibit 31: PAT and PAT margin Exhibit 32: Debt has never been a concern for EIH
PAT (Rs m - LHS) PAT Margin (% - RHS) Net Debt to EBITDA (RHS) Interest coverage ratio
1,500 20% 24 2.1

10% 1.8
10%
750 3% -1% 3% 0% 18 1.6 1.4
1.2 1.0 1.1
0 -13% -20% 12 0.7
0.4
-750 -40% 6 0.0
-0.2
-1,500 -50% -60% 0 -0.7
Exhibit 33: RoE-RoCE to steadily inch up Exhibit 34: EV/EBITDA
ROE ROCE EV/EBITDA

10 100
8
5 80
5
5 5
4
60
0 2
-1 40
-5
20
-10 0

Lemon Tree Hotels
Valuation
Assigned EV/EBITDA of 15x to We have valued Lemon Tree using the SOTP method, whereby we have assigned
asset-heavy business and 20x EV/EBITDA of 15x to its asset-heavy business and 20x to its asset-light
to asset-light management management contract business on FY24E EBITDA. Our target price of Rs59 per
contract business on FY24E share implies 6% upside from the CMP; we initiate coverage with a Neutral rating
EBITDA (implied EV/EBITDA multiple of 16x FY24E, proportionate basis).

Value
Multiplier FY24E per
Labels Criteria Value
(x) valuation share
(Rs)
EV (Standalone – Rs mn) A EBITDA (FY24E) 593 15 15,560 11
EV (Subs - Proportionate share - Rs mn) B EBITDA (FY24E) 1,821 15 33,911 35
EV (Management Contract – Rs mn) C EBITDA (FY24E) 284 20 4,258 7
EV (Total – Rs mn) D=A+B+C 53,729
Net Debt (Proportionate share – Rs mn) E 12,337 (14)
CWIP (Proportionate share - Rs mn) F 5,002 6
Valuation of Equity (Rs mn) G=D-E+F 46,394
Number of Shares Outstanding (mn) H 790
Fair Value (Rs) I=G/H 59
CMP (Rs) J 55
Upside (%) K=J/I-1 6%
Key risks
 Slowdown in demand recovery - Historical revenue contribution in descending
ARR order: foreigners (earlier 10%, now 0%), retail (earlier 40%, now 50%), SME
(earlier 25%, now returning), MICE (earlier 5%, now returning), large corporates
(earlier 20%, now 4%). Retail is largely filling in for the missing pieces in Lemon
Tree’s demand engine. It is essential for other segments to return to derisk over
dependence on one segment.
 Further delay in the MIAL project: As per the IPO document, the project was
supposed to get commissioned in Mar 2021, but is 2.5 years behind schedule.
LT’s preference for debt-led expansion multiplies the ill effects of project
delays.
Key management personnel

 Patanjali Keswani (Chairman and Managing Director): He holds a Bachelor's
degree in Electrical Engineering from IIT, New Delhi, and a PGDM from IIM
Calcutta. He was associated with the Taj Group for 17 years, and has over 30
years of experience in the hospitality industry.
 Rattan Keswani (Deputy MD): He holds a Bachelor’s degree in commerce from
DAV College, Punjab University, and a diploma in hotel management from
Oberoi School of Hotel Management. Prior to joining Lemon Tree, Mr. Rattan
Keswani was the President of the Trident Hotels, Oberoi Group, where he was
engaged for 30 years.
 Kapil Sharma (CFO): Holds a Bcom degree from University of Delhi. He earlier
worked with Leroy Somer & Controls India, as its head of finance and accounts.
Prior to this, he worked with AFL Ltd as assistant manager (finance) and with
Onida Finance Ltd as manager.

Lemon Tree Hotels

Net sales 6,694 2,517 4,320 7,604 9,138 EBITDA margin (%) 36.4 24.3 38.4 40.6 47.0
% growth 21.8 (62.4) 71.6 76.0 20.2 EBIT margin (%) 22.6 (18.4) 14.5 24.2 32.6
Operating expenses 4,260 1,905 2,660 4,513 4,841 PAT margin (%) (1.4) (50.5) (14.8) 2.6 10.2
EBITDA 2,434 612 1,660 3,091 4,297 RoE (%) (0.7) (8.3) (4.5) 1.6 7.9
% change 44.2 (74.8) 171.1 86.2 39.0 RoCE (%) 5.0 (1.3) 1.7 5.0 7.6
Other income 58 133 88 245 263 Gearing (x) 1.0 1.0 1.4 1.7 2.0
Net interest cost 1,565 1,817 1,754 1,872 1,811 Net debt/ EBITDA (x) 6.2 25.2 10.9 6.4 5.3
Depreciation 922 1,076 1,032 1,254 1,317 FCF yield (%) (11.3) (0.7) 0.0 4.1 1.1
Pre-tax profit (22) (2,188) (1,027) 209 1,432 Dividend yield (%) 0.0 0.0 0.0 0.0 0.0
Deferred tax 78 (322) 0 0 0
Current tax 99 0 0 91 433 Valuations
Profit after tax (131) (1,866) (1,027) 119 999
Reported EPS (Rs) (0.1) (1.6) (0.8) 0.2 1.2
Minorities 35 595 387 79 (65)
Adj. EPS (Rs) (0.1) (1.6) (0.8) 0.2 1.2
Adjusted net profit (95) (1,271) (640) 197 934
PE (x) NM NM NM 220.8 46.7
Price/ Book (x) 1.1 1.9 3.3 3.6 3.8
Reported net profit (95) (1,271) (640) 197 934
EV/ Net sales (x) 5.7 20.2 15.4 8.8 7.5
% change 0.0 0.0 0.0 (130.9) 373.1
EV/ EBITDA (x) 15.6 83.2 40.1 21.7 15.9
EV/ CE (x) 1.1 1.4 1.8 1.8 1.7
Balance sheet
Reserves & surplus 1,986 1,272 314 433 1,432
Total debt 15,547 16,850 18,173 20,373 23,973
Deferred tax liabilities 0 0 0 0 0
Other non-current
4,651 4,709 5,045 5,054 5,065
liabilities
Total equity &
37,628 38,148 37,642 40,904 44,738
liabilities
Net fixed assets 29,417 29,272 30,139 32,364 35,104
Investments 120 70 25 25 25
Cash 408 1,411 99 612 1,311
Other current assets 1,184 891 827 1,086 1,252
Deferred tax assets 44 367 367 367 367
Other non-current
6,455 6,138 6,186 6,450 6,679
assets
Net working capital (390) 1,062 (325) (1,832) (1,531)
Total assets 37,628 38,148 37,642 40,904 44,738
As of Dec-21
Cash flow
Pre-tax profit (22) (2,188) (1,027) 209 1,432
Depreciation 922 1,076 1,032 1,254 1,317
Chg in Working capital (104) (484) 75 2,019 398
Total tax paid (109) 322 0 (91) (433)
Net Interest 1,565 1,817 1,754 1,872 1,811
Others (749) (138) 59 0 0
Operating cash flow 1,510 410 1,899 5,274 4,536
Capital expenditure (6,445) (704) (1,899) (3,480) (4,056)
Free cash flow (a+b) (4,935) (294) 0 1,794 480
Chg in investments 268 35 45 0 0
Debt raised/(repaid) 3,592 1,302 1,323 2,200 3,600
Net interest (1,565) (1,817) (1,754) (1,872) (1,811)
Capital raised/(repaid) 10 1 0 0 0
Dividend (incl. tax) 0 0 0 0 0
Other items 157 (1,306) 0 0 0
Net chg in cash (6) 866 (1,313) 513 699

Lemon Tree Hotels
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Contd…

Lemon Tree Hotels
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Lemon Tree Hotels
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Hotels

Valuation summary - FY24E

COMPANY-WISE INVESTMENT SYNOPSIS

Approximate Room breakup by purpose

Exhibit 2: Liquidity scenario

 Indian Hotels Company Ltd

 Chalet Hotels Ltd

 Lemon Tree Hotels Ltd

Source: Company, DAM Capital Research, Bloomberg

Investment arguments .................................................................................................... 3

Story in Charts ................................................................................................................. 7

Supply growth, a key cyclicality factor, to stay tepid ..................................................... 8

Long way to cyclical peak ............................................................................................... 9

Guest composition: Bring back the FTAs ..................................................................... 12

Latent domestic demand waiting to be captured ....................................................... 16

Re-tethering causality with air travel............................................................................ 19

Expansion playbook: Asset heavy vs. asset light......................................................... 23

An aggregate look on the listed universe .................................................................... 25

Source: DAM Capital Research

Exhibit 8: Reduction in staff per room

Supply growth, a key cyclicality factor, to stay tepid

Exhibit 9: Cycles in India’s hotel industry

To gauge the attractiveness of each micro market, we have compared demand

Exhibit 10: Favourable demand-supply gap

Long way to cyclical peak

Exhibit 12: Industry, occupancy, ARR, RevPAR trend

Exhibit 13: Hotel segments

Source: Samhi Hotels

We attribute the broadening supply base to increasing demand from domestic

10| DAM CAPITAL

11| DAM CAPITAL

Guest composition: Bring back the FTAs

Average length of stay (ALOS) of these guests is ~3 days, although business

Domestic Foreign Business Leisure

12| DAM CAPITAL

Source: DAM Capital Research

North South East US UK

Source: Ministry of tourism Source: Ministry of tourism, DAM Capital Research

13| DAM CAPITAL

Indian 1-2 weeks

Source: Bureau of Immigration, GoI Source: Bureau of Immigration, GoI

Exhibit 27: FTAs drive 21% occupancy of branded rooms

Source: Company, DAM Capital Research

In terms of seasonality, FTA arrivals in H2 have historically contributed to 60% of

14| DAM CAPITAL

Exhibit 30: FTA should see recovery by the end of FY23E

Source: Company, DAM Capital Research

18.0 Haj / Umra

15| DAM CAPITAL

Latent domestic demand waiting to be captured

Exhibit 34: Indian hospitality industry: Recovery slope is steepening

Exhibit 35: Month-wise occupancy and ARR recovery in India

-64 -62 -61

16| DAM CAPITAL

Exhibit 36: Month-wise occupancy and ARR recovery in US

Source: DAM Capital Research

We witnessed recovery rate improving in each passing quarter, across hotel

17| DAM CAPITAL

Exhibit 38: Stronger recovery in leisure destinations vs metro

Q2FY21 Q3FY21 Q4FY21 Q1FY22 Q2FY22 Q3FY22

18| DAM CAPITAL

Re-tethering causality with air travel

Exhibit 41: Domestic air-traffic recovery vs pre-COVID levels (India)