Industry-leading recovery brightens Indian Hotels’ outlook


The Indian Hotels Co. Ltd put up a weak performance in the March quarter (Q4FY22) with revenue per available room (RevPAR) being a key disappointment. RevPAR is a crucial performance indicator for the hospitality industry. On a standalone basis, the company’s RevPAR, at 6,176, rose nearly 27% year-on-year (y-o-y) aided by higher average room rate. However, it fell by 18% sequentially as occupancies were affected by the Omicron wave in the initial part of Q4. “We were surprised by the weak Q4FY22 results of Indian Hotels as it implied that the impact of Omicron was higher than expected. We had expected only an impact of about a fortnight in January 2022, but the results indicated that January 2022 was completely washed out,” analysts at Nirmal Bang Institutional Equities said in a report.

Nonetheless, the stock closed about 5% up on NSE on Thursday at 247. Investors are seemingly pleased with the company’s upbeat outlook on demand.

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According to the management, leisure demand is faring well, and with people returning to office, the demand for corporate travel and events is also expected to improve going ahead. RevPAR would reach pre-covid levels once demand in its three key markets Delhi, Bengaluru, and Mumbai bounces back. The management said, estimated recovery in RevPAR in Delhi, Mumbai, and Bengaluru was 121%, 118%, and 102%, respectively, y-o-y in April 2022.

Besides, the company’s continued focus on deleveraging is a positive. The management said proceeds raised through qualified institutional placement and rights issues of 3,982 crore will be used to repay Indian Hotels’ debt of 450 crore and subsidiaries’ debt of 620 crore. The company’s presentation shows that until 27 April, from these proceeds, Indian Hotels’ debt of 2,052 crore has been repaid. Remaining funds would be deployed to scale up the operations of its existing business, the management told analysts.

“The management’s focus on increasing inventory through management contract, robust growth in new business segments such as Qmin, Ama, and Chambers, balance-sheet strengthening through fundraise, and healthy business recovery in international markets bode well for sustainable future earnings growth,” said Archana Gude, lead mid-cap analyst at IDBI Capital Markets and Securities.

Note that the company aims to expand operations using the asset-light model.

Inflationary cost pressures may pose a threat to operating margins in the near term, but the company is well poised to pass on the incremental cost to protect margin, she said.

Meanwhile, the stock hit an all-time intraday high of 260.30 on NSE on 13 April. Meaningful upsides from current levels would depend on the pace of further debt reduction and growth plans.

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