Indian Hotels Company (IHCL) had reported a strong comeback post initial hiccup of second wave of Covid-19 in Q1FY22. The company’s outperformance on key parameters was majorly driven by healthy growth in occupancy and ADR in both domestic and international operation. Net sales shot up by 184% YoY to Rs 7.2 billion. EBITDA came in at Rs 728 million compared to negative Rs 1,503 million in Q2FY21. The company’s net loss has come down significantly from Rs 2,300 million to Rs 1,206 million.

"Focus on prudent cost management, inventory addition through management contract and improved operations of Qmin and Chambers would be the key drivers to sustainable earnings growth in future. We have introduced FY24E in this report and recommend maintain Hold with a revised TP of Rs 228, assigning 20x EV/EBITDA to FY24E," stated IDBI Capital Equity Research.

Key highlights and investment rationale

Another quarter of strong recovery in RevPAR

After an initial hiccup in Q1FY22 due to second wave of Covid-19, the company has shown strong recovery in both occupancy and ADR in Q2FY22. For domestic operations, the company’s occupancy improved by 2,430bps YoY to 56.6%, while ADR was higher by 52% YoY to Rs 8,273. This resulted in 2.5x jump in RevPAR to Rs 4,679 in Q2FY22 in the domestic operations.

Prudent cost management supported operating margin

The company’s effective cost management initiatives led to EBITDA of Rs 723 million in Q2FY22. Our interaction with the management suggests that these cost saving initiatives will continue and drive further EBITDA margin improvement in future.

Strong growth outlook for FY24E, HOLD with a TP of Rs 228

Global hospitality segment is on a robust recovery mode led by increasing travel confidence owing to vaccination drive. After a lull, business travel is showing early signs of recovery, which bodes well for the overall sector growth in near term. We maintain our positive outlook on IHCL and recommend HOLD with a TP of Rs 228.

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