Indian Hotels reports best-ever quarter as occupancy and rates exceed pre-COVID levels

Indian Hotels’ shares extended gains on Wednesday but fell during intraday trade, after the hospitality company delivered its best ever quarterly results for the April to June 2022 period with demand surging past pre-COVID-19 levels. Brokerages, however, are bullish on the stock given the firm’s strong turnaround story.

Indian Hotels’ shares rose more than 2 percent in early deals but slipped to the negative territory to trade 0.22 percent lower at Rs 270.05 on BSE at 11:40 am. The stock has made investors more than 48 percent richer in 2022 (year-to-date) as against the benchmark Sensex which declined half a percent during the period.

The downtrend comes even as the company's consolidated profit after tax (PAT), the highest in the past 10 quarters, came in at Rs 170 crore for the quarter ended June, mainly due to a surge in demand as the occupancy and rates exceeded pre-COVID levels. In the corresponding quarter last year, it had reported a loss of Rs 277 crore.

The hospitality group's revenue surged by 249.45 percent to Rs 1,293 crore during the quarter under review, compared to Rs 370 crore in the year-ago period.

Indian Hotels also posted a milestone earnings before interest, taxes, depreciation, and amortisation (EBITDA) margin of 31.3 percent, an improvement of 1,140 bps over the first quarter of FY20.

Following the results, Puneet Chhatwal, MD and CEO at Indian Hotels’ said he has been very optimistic and believes in the resilience of the industry. “The quarter one for us has not been the best in the last four years. It's been the best ever on all metrics, whether its revenue, its EBITDA, its EBITDA margin, its PBT, PAT, it’s is our growth. We signed 10 new hotels, got awards for four more, we also opened four (hotels),” he told CNBC-TV18.

Chhatwal added that the group is well within its guidance of opening more than one hotel a month. “We do believe in the remainder of the eight months in this year, we will open at least 12 more properties, taking the total to 16 or 18,” he said.

He, however, pointed out that supply will be constrained as not many new hotels have got funded or will get funded in the next couple of years, which means demand will outpace supply and when that happens rates are expected to grow.

Rates also grow when inflation starts kicking in, he said, explaining that it's very positive for Indian Hotels because the group has the ability to charge on constrained supply, on basis of what's happening around the market as people want to get out and travel. It has also the ability to charge because all those who are traveling abroad are finding it difficult for a variety of reasons, be it visa or airline costs.

"So domestic is very strong. Even this was to plateau, or come down a bit when international travel kicks in, which is 15 percent of our revenue traditionally and very important for our business are palaces in Rajasthan because that's what the international inbound tourism likes. I think, we have a good outlook for our industry ahead," he said.

The hospitality company currently has 242 hotels, of which 179 are operational and 63 are in the pipeline. In India, IHCL has 163 hotels.

Global brokerage Jefferies called Indian Hotels a strong turnaround story for exceeding pre-COVID performance on all metrics. The brokerage has given the company’s stock a buy rating with a target price of Rs 325 per share. This means it sees a 20 percent upside in the stock from its closing price on BSE on Monday.

Jefferies has also estimated that IHCL’s room count targeted shall grow more than 35 percent over next three to four years. It see FY25 return on equity (ROE) at 12 percent, the best in 15 years.

JPMorgan, on the other hand, has an overweight call on the hospitality group’s stock and has raised target price to Rs 315 from Rs 265 earlier. The first quarter results provide a preview of what an upcycle could look like, the brokerage said. It also revised FY23-25 profit estimate by 23 percent.

Market expert Deven Choksey of K R Choksey Shares & Securities is of the view that the conditions for Indian Hotels remain extremely buoyant for the coming three to four quarters.

“Maybe thereafter, or maybe after this quarter in the next year, we would probably see normalisation happening as far as the work is concerned. But as of now, their numbers sequentially as well as year on year basis are likely to be much better. So one could possibly argue for staying invested in Indian Hotels,” he told CNBC-TV18.