The Indian hospitality industry is on the cusp of a long-term structural growth story with room demand expected to stay ahead of room supply led by rising demand from domestic travellers, the emergence of new tourism segments and India becoming one of the better names in global tourism along with strong support from the government in the form of improved infrastructure and favourable policies.
Indian Hotels Company Ltd (IHCL) remains the best player in the structural growth story, implementing strong growth strategies, strengthening the balance sheet and improving its business model with efficient capital allocation plans. We expect FY2024 to be another strong year after a sturdy FY2023 with high-teens revenue growth and EBITDA margins at ~32% driven by double-digit RevPAR growth. Consistent growth in domestic air travel and high demand from domestic tourism will lead to double-digit room demand growth ahead of room supply.
This will help IHCL to post another year of strong performance in FY2025 with revenues and PAT expected to grow by 16% and 26% y-o-y, respectively.
ARRs to grow by 10-15% in FY2025.
IHCL’s average room rentals (ARRs) are expected to grow by 1012% in FY2025 with macro tailwinds remaining strong. Room demand is expected exceed room supply as foreign tourist arrivals (FTAs) are yet to reach pre-pandemic levels and sustenance of strong domestic demand with 50% of room demand coming from transients (non-negotiable bookings). Further, India has witnessed significant overall air travel growth in the past few months, driven by strong domestic demand (both for leisure and corporate travel) and gradual recovery in FTA. Airline passenger movement and room demand largely move hand-in-hand. Thus, with rising airline passenger movement, room demand is also expected to see an uptick
Identified levers to drive next phase of growth.
The management has stated that the company is ready to announce strategies that will drive IHCL’s next phase of growth, which include introduction of new brands and harnessing existing partnerships to explore more opportunities in the emerging tourism segments such as wildlife, adventure and wellness tourism. Along with a focus on other strategies to drive growth, IHCL continued its focus on portfolio expansion in FY2024, with the signing of 52 hotels and opening of 20 hotels during the year. Further, the company currently has over 90 hotels in the pipeline. The company’s management has indicated that supply additions from IHCL is set to accelerate to 25 openings per year going ahead (versus 15-20 hotel openings in past 2-3 years).
Revenue growth momentum to sustain in Q4FY2024.
margins to remain stable: IHCL’s revenues are expected to be higher by 15% y-o-y to Rs. 1,876 crore in Q4FY2024, aided by strong leisure travel, growing business travel and robust demand for MICE and weddings. We expect 17% y-o-y rise in room revenue, 16% y-o-y rise in the F&B revenue and 18% y-o-y rise in management fees during Q4FY2024. EBIDTA margin is expected to improve by ~60 bps y-o-y to 33.5% led by strong revenue growth and better operating efficiencies. In line with EBITDA growth of 17% y-o-y and higher other income, PAT is expected to grow by 24% y-o-y to Rs. 376 crore.
Valuation View and Target Price.
IHCL has charted a strong growth plan to be achieved by FY2025-26 with a strong improvement in cash flows and strengthening balance sheet with a focus on becoming debt-free. EBITDA margins will consistently improve in coming years. With strong room inventory, IHCL is the best pick to capture strong growth momentum in domestic tourism in the coming years. The stock trades at 33x/27x/22x its FY2024E/25E/26E EV/EBIDTA. We maintain a Buy recommendation on the stock with a revised price target of Rs. 679.
#stockstobuy,#stockmarket,#marketpost.
0 Comments
Share Your View