scorecardresearchIndian Hotels: New brands & management contracts to lead future growth
Incorporated by the founder of the Tata Group, Jamsetji Tata, the Company opened its first hotel - The Taj Mahal Palace, in Bombay in 1903.

Indian Hotels: New brands & management contracts to lead future growth

Updated: 17 Aug 2022, 08:18 AM IST
TL;DR.
IHCL has a portfolio of 242 hotels including 63 under development globally across 4 continents, 11 countries and in over 100 locations.

The Indian Hotels Company Limited (IHCL) and its subsidiaries bring together a group of brands and businesses that offer a fusion of warm Indian hospitality and world-class service. These include Taj – the iconic brand for the most discerning travellers and ranked as the World’s Strongestnew  Hotel Brand and India’s Strongest Brand as per Brand Finance Hotels 50 Report 2022 and India 100 Report 2022, respectively; SeleQtions, a named collection of hotels; Vivanta, sophisticated upscale hotels; and Ginger, which is revolutionising the lean luxe segment.

Incorporated by the founder of the Tata Group, Jamsetji Tata, the Company opened its first hotel - The Taj Mahal Palace, in Bombay in 1903. IHCL has a portfolio of 242 hotels including 63 under development globally across 4 continents, 11 countries and in over 100 locations.

Indian Hotels has reported its best first quarter in the company’s history. This performance has been boosted by a surge in demand across markets and segments, with both, occupancy and rates exceeding pre-COVID levels. This has resulted in a milestone EBITDA Margin of 31.3%, which is an improvement of 1140 bps over Q1 FY 2019-20. In line with company’s vision of Ahvaan 2025, company will continue its trajectory of delivering responsible profitable growth.

The company’s long-term growth will also focus significantly on digital enablers such as the super app – Tata Neu. As a founding member of Tata Neu, IHCL has seen a 50% increase in its loyalty members since the launch of the app.

Indian Hotels Company Limited
Indian Hotels Company Limited

Robust growth in signings, openings and pipeline

Robust growth in signings, openings and pipeline
Robust growth in signings, openings and pipeline

Robust industry-leading portfolio growth

Signed 10 new hotels to date in the current financial year, with three hotels each under the Taj and Ginger brands, and two hotels each under the SeleQtions and Vivanta brands. Enveloping India with presence in over 100 locations, IHCL has further strengthened its pan-India footprint with the opening of four new hotels to date in the current fiscal, including Taj City Centre, New Town – Kolkata; Anand Kashi by the Ganges, Rishikesh.

IHCL SeleQtions, Vivanta Katra, Vaishno Devi and Ginger Goregaon, Mumbai. IHCL has received letter of awards for four upcoming hotels – 2 each in Diu and Lakshadweep, taking the pipeline to over 60 hotels. Oriental Hotels Limited, an associate company, has emerged as the highest bidder for the lease renewal of the iconic Taj Malabar Resort & Spa, Cochin New businesses contributing significantly to scale and margin expansion.

Revenue snapshot

Revenue snapshot
Revenue snapshot

Ginger achieved an EBITDA margin of 41% and positive Profit Before Tax (PBT) in Q1 FY 2022-23 - Qmin, IHCL’s culinary platform, achieved the INR 100 crore revenue mark within two years of its inception, and is currently present in over 20 cities with 15 outlets and 3 food trucks. The launch of the first Qmin at Ginger Goa, Panaji continues the brand’s expansion - The Stays & Trails homestay portfolio grew to over 90 bungalows across the country.

Margin has improved on account of higher management fees, new businesses, cost efficiency, and greater ARR and occupancy. The management expects margin in 2H to be better than 1HFY23 on account of higher room rates. It expects margin to sustain in FY24. IH affirms its FY25/FY26 EBITDA margin guidance of 33% each, with 35% margin accruing in from new business

The company reported Q1FY23 consolidated revenue of Rs12.7bn, driven by stronger than expected ARR across standalone/domestic subsidiaries. This translated into Q1FY23 consolidated EBITDA of Rs3.8bn as operating leverage played out leading to reported EBITDA margins of 29.8% vs. estimated 27.1%.

At an overall level across the domestic hotel portfolio, ARR was 31% higher than Q1FY20 (pre-Covid levels) with RevPAR being 42% higher than pre-Covid levels with demand in Mumbai/Delhi NCR/Bengaluru staging a bounce back.

Demand trends remain intact, H2FY23 to be key monitorable on strength of recovery

As per company management, the occupancy and room rates seen in Q1FY23 are trending at similar levels so far up to the first week of Aug 22 with leisure travel seeing sustained demand and business travel continuing to see pickup.

With the Oct 22-Mar’22 period (H2FY23) traditionally being the strongest quarters, a further pick up in international travel (especially inbound), coupled with weddings, business travel and continued leisure demand will determine the trajectory of medium-term demand.

Indian Hotel Brand wise performance vs. pre-COVID levels

Indian Hotel Brand wise performance vs. pre-COVID levels
Indian Hotel Brand wise performance vs. pre-COVID levels

Future plans to growth

Going forward, the company will maintain a 4:1 launch ratio of management contracts to owned and leased Hotels. For example, for every owned and leased investment, it will add four-to-five management contract Hotels to maintain the mix strong momentum to continue in FY23 and FY24, led by

a) An improvement in ARR and occupancy on account of favourable demand-supply dynamics

b) Ongoing cost rationalization efforts

c) Higher income from management contracts; and

d) Unlocking value by launching reimagined and new brands. Factoring in a better-than-expected performance in 1QFY23 from standalone and key subsidiaries such as Piem and Roots, on the back of higher ARR and occupancy.

Note: This article is for informational purposes only. Please speak to a SEBI-registered investment advisor before making any investment related decision.

Shuchi Nahar is a Certified Research Analyst. She can be found on Twitter at @shuchi_nahar