Deep Dive: Hotel Industry

Industry Analysis

• India is geographically diverse and offers a variety of cultures that

come with its own experiences, making it one of the leading
countries in terms of international tourism expenditure.

• US $ 2.1 billion is allocated to the Ministry of Tourism in budget

2023-24.

• The travel market in India is projected to reach US$ 125 billion by

FY27.

• International tourist arrivals are expected to reach 30.5 million by

2028.

• Indian hotel market including domestic, inbound and outbound is

expected to reach ~US$ 52 billion by FY27.
 Key Growth Driver

Rising Discretionary Wedding Functions, National

Income & International events to fuel
growth

Fastest Growing
Increasing
Economy in the
Infrastructure
world
capex

Indian Hospitality The change in Trend

Underpenetrated for multiple trips a
year
 Key Performance Indicator

Occupancy Rate Average Room Rate(ARR)

(Both Higher The Better)

Price Chart(5 Year)
 About the Company

• The Indian Hotels Company Ltd is primarily engaged in the business of owning, operating & managing hotels, palaces and resorts.

• The company is a part of the Tata Group wherein the group holds ~38% stake of the company.

• Company has ~193 hotels with a total inventory of ~22000 rooms.

• It also has a pipeline of ~83 hotels increasing the Taj, Vivanta and Ginger portfolios.

• It is the largest hotel player in India.

Brand Portfolio
 Competitive Advantage

Geographical Location Strong promoter

Best of the best locations are selected due to Help raise funds in more timely manner
deep pockets of IHCL which acts as a MOAT. and even negotiate better rates.

Asset Light Model Loyalty Programs

Shift in Portfolio mix 50%-50% Owned and IHCL has tied up with various aggregator platforms
Managed Signifying Asset light model. and has various loyalty programs to cross sell their
services.

Strong Brand Recall Experienced Management

Helps IHCL ensures behavioral and emotional
Well trained and experienced staff totally
loyalty of consumers towards its existing and
focusing upon experiential stay for the guests.
potential services.
 Future Roadmap

• Under the plan, it will re-engineer its margins, re-imagine its brandscape and re-structure its portfolio.
IHCL aims to build a portfolio of 300 hotels, clock 33% EBITDA margin with 35% EBITDA share
contribution from new businesses and management fees by FY 2025-26.
 Concall Highlights

• IHCL signed 6 new hotels and opened 3 new hotels in the quarter.

• IHCL reported its best-ever Q2 performance, with consolidated revenue growing by

18% YoY and EBITDA growing by 26% YoY.

• Occupancy levels in key metros like Mumbai and Delhi are expected to remain
high.

• IHCL's international markets face challenges in cities like San Francisco and New
York, but there is upside potential in London and other locations.

• The company aims to mitigate cyclicality through new businesses and asset light
models.

• The management fee income is expected to continue growing, and the company
has a strong pipeline of contracts.
Interesting Snippet
Why Is Luxury Growing?

Rising Disposable Income Evolving Consumer Preferences

& Aspirations towards personalized, unique,
and immersive experience

Age Group 24-35 significantly Surge in Tourism and Global Exposure

influencing the growth of contribute to the flourishing luxury sector.
luxury in India

Partnerships through brand Incentivizing Luxury Stays through

collaborations which focuses on exclusive deals and packages, premium
“value beyond price” amenities and Reward Programs
Does Luxury come at Huge cost?
 Let me show you how!

(Shashank talks abt HDFC Regalia alongside showing Diff between booking via
regalia and any other platform)
 Anti-Thesis

Capital Intensive Long Gestation Period

Lot of capital goes into constructing a Hotel takes around 2-3 Years after
good hotel around 5-6 Years.. construction for it to reach its optimum
operational level and 7-8 Yrs. to generate
revenue.

Cyclicality Fixed Cost

Hotel Industry depends upon Macro Almost 70% of hotels total cost E.g.:
Economic Factors like disposable income, Power, Lighting & Salary are fixed.
economy doing well, stability etc.

Seasonality Strong Competition

Demand subsides during some months of Co faces cut throat competition from local
the year. as well as established players in different
segments they operate in.
 Price & Volume Chart

• Strong Price movement since covid lows of 65 Rs due to strong outbound and Domestic tourism industry wide tailwinds.

• Co is forming Highs after Highs.

• High volume spikes can be seen signifying lot of participatory interest in the stock compared to before covid levels.
 P/E Ratio

• Company is trading almost at its median PE of 60.6.

• Co Profits were negative due to Covid impact due to which PE was indeterminate.

• EV/EBITDA is currently at 32, above its median EV multiple of 25.9.(Overvalued)

 Quarterly Performance

• There is a seasonality element in the business due to which Q2 and Q3 are the strongest.

• OPM is rising and stable due to higher occupancy rates due to increasing demand and capex going live
contributing to operating leverage.

• Sales and Net Profit increased by 36% QOQ and 16% YOY signifies demand coming back.
 Unraveling Financials

• Co’s crossed Pre covid Sales Number of around 4500 Cr signifying robust travel demand after the pandemic.

• OPM stands at 31% due to the change in the Portfolio Mix.(Good sign)

• Interest cost has reduced due to deleveraging.

• PAT is highest ever.

 Decoding the Balance Sheet

• Co’s Reserves are increasing YOY due to less expenditure being made on assets.

• Co has deleveraged, reduced their borrowings significantly to 2,718Cr from high of 5,518 Cr.

• Fixed assets are not increasing at a rapid pace this is due to the companies new Asset Light Business Model wherein they operate the Hotel and not
Own them.

• Co has investments among Group Companies as well increasing the liquidity of the Co during bad times.
 Cash Flow & Ratio Analysis

• Co is generating good Cash flows from Operations and the Ratios are Negative due to the nature of the business signifying instant recovery of
cash and delay payment to creditors and vendors.
 Part Owners

• Promoters Holdings have decreased but the stakes has been taken by FII’s and DII’s.

• FII stake has constantly gone up whereas DII’s have trimmed their stakes a bit.

• Jhunjhunwala Family owns around 2% of the Public shares bringing the real public shareholding down to 14.2%.

• No of Shareholders have increased to 4.8L signifying weak hands accumulating.

Peer Comparison
Final Review(With Shanks)
A Presentation By:
Pratham Gupta & Shashank Udupa