Indian Hotels' outlook remains positive after a strong FY23 show – key growth drivers

Through brands like Taj, Vivanta, SeleQtions, and Ginger, Indian Hotels (IHCL) has a diversified position in the hotel industry with an inventory of 20,826 rooms. The company also has a limited presence in the luxury market through owned or managed properties in the US, the UK, Africa, the UAE, and the Maldives.

The company is well-supported by its promoter, Tata Sons, and is a crucial strategic venture for the Tata Group.

The Managing Director and CEO of IHCL, Puneet Chhatwal, commented on the performance for FY23, saying, “IHCL achieved a record-setting year with a number of noteworthy successes, including the highest ever full-year consolidated revenue, an all-time high and industry-leading EBITDA margin, and a PAT of over INR 1,000 crores, a historic first for the company.”

In addition to IHCL demonstrating RevPAR (revenue per available room) leadership across its brandscape in all of its key markets, this performance was made possible by four consecutive quarters of sustained high demand.

The extensive reach of IHCL now extends to 31 Indian states and union territories.

Additionally, the company was successful in achieving the ideal 50:50 split between the owned, leased, and managed hotels.

Domestic segment average occupancy was 71%, up from 59% in Q4 FY20, while average room rates (ARR) sharply increased to ₹11,559 per room night, up by 34% from pre-Covid levels.

The leisure room portfolio reported ARR growth of 42% within domestic segments, whereas the business and economy segments reported ARR growth of 28% and 39%, respectively, from pre-Covid levels. In the international market, average occupancy returned to pre-Covid levels, and room rates increased by 17%, resulting in 3% growth in RevPAR over pre-Covid levels.

Compared to pre-Covid levels, the RevPAR in the Maldives and Dubai increased by 27% and 44%, respectively, while the RevPAR in the UK increased by 4%. The US reported a 3% decline in growth after having passed pre-Covid levels in Q3FY23.

EBITDA margins rose from pre-Covid levels by 1330 bps to 32.9%. The higher delta during the quarter was in line with our expectation of 33% due to the healthy growth in room rates and tightly managed fixed costs.

Over the next four years, the company plans to add 9,899 new rooms in total, of which, over 7,200 will be added through a management agreement.

In FY24, IHCL intends to build 20 hotels with over 2,300 rooms.

The Taj Hotel Reaches Historic 100th Hotel Milestone

Over the past five years, the venerable brand Taj has more than doubled its room inventory, reaching a portfolio of 100 hotels.

-The Taj Dhaka, a 230-room hotel in Bangladesh's capital, is among the marquee signings.

-Taj Riyadh, a 205-room hotel in the Saudi Arabian heritage city of Diriyah, is another major addition.

- On the islands of Suheli and Kadmat, there are two Taj resorts with a total of 110 rooms each.

- Taj expanded its reach by opening hotels in the important cities of Chennai, Bengaluru, and Cochin.

- Taj announced its arrival in Raipur and Gandhinagar, the state capitals, with a 150-room hotel and 118-room resort and spa, respectively.

- Three new Taj hotels have opened in Kolkata, Wayanad, and Jaipur, and Sawai Man Mahal in Jaipur has been added to the collection of palaces.

According to the Brand Finance Hotels 50 2022 report and the India 100 2022 report, Taj continues to hold the distinction of being both the world's and India's strongest hotel brand.

Record Portfolio Growth and Balanced Portfolio Achievement

- The IHCL portfolio now totals over 260 hotels after a record-breaking 36 hotels were signed in FY 2022-2023.

- 16 new hotels opened this fiscal year, achieving performance levels that led the industry. This included five Ginger-branded hotels, three Vivanta hotels, and four hotels each under the Taj and SeleQtions brands.

- According to its plan to restructure its portfolio under Ahvaan 2025, IHCL has achieved a balanced portfolio mix between its owned/leased and managed hotels.

New Ventures That Have Been Reimagined

With revenue of ₹307 crores, an EBITDA margin of 37.4%, and a Profit Before Tax (PBT) of ₹48 crores, Ginger Hotels was able to turn things around in FY 2022–23 with the help of a 50% Lean Luxe portfolio. TajSATS held a 58% market share in FY 2022–23 with revenue of ₹641 crores, up 53% from pre–Covid, an EBITDA margin of 19.7%, and a PBT of ₹107 crores. Am Stays & Trails saw a 42% increase in the portfolio this fiscal, reaching 114 bungalows spread across 50 plus locations. Qmin, one of the new businesses, has grown to 34 locations with a presence in 24 cities.

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Expansion Catalyst

• Future growth in the number of foreign visitors, the wedding season, and the G20 summit in 2023 will all help boost demand for hotel rooms for leisure and business travel.

• The business intends to have a portfolio of 300+ hotel rooms with no net debt. Through cost-saving measures, IHCL also hopes to achieve margins of 33% or higher (35% for new businesses).

• On a higher base, we anticipate a revenue CAGR of 10.7% in FY23E-25E. The domestic market has now fully recovered.

• Strengthening of the balance sheet through improved cash flows and the sale of non-core assets.

The company also plans to open more than 3000 rooms in FY25E. The company is currently developing 73 hotels that could open in the next three years. The management claimed that April 2023's performance had been better than April 2022's, and that the trend in room reservations for May was also positive.

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

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