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Indian Hotels
Overweight
IHTL.BO, IH IN
Decent 3QFY11: Operational performance is improving
• 3Q FY11 results: Indian Hotels (IHCL) reported standalone 3Q FY11
EBITDA of Rs1.44B (+294% Q/Q, -5% Y/Y), ahead of our estimate of
Rs1.1B. 3Q FY11 revenues of R4.9B were up 48% Q/Q and EBITDA
margins recovered to 30% (from 16%/11% in 1Q/2Q) in Dec-Q aided by
higher occupancies and improved ARRs. However, the reported margins are
still lower than peak levels of 2HFY07/08 partly on account of high staff
costs (re-instatement of salary benefits) in Dec-Q. 3Q PAT at Rs503MM
comes after two consecutive quarters of standalone loss (due to one-offs).
9M FY11 revenues/EBITDA of Rs11.4B/Rs2.3B rose 18%Y/Y/32%Y/Y
respectively (adjusting for income from insurance income claim last year).
• Operational performance is improving but still below peak levels of
2007-08: 9MFY11 occupancy levels for the domestic business improved to
64% (vs. 62% in 1H, +300bp Y/Y) and ARRs (avg at Rs8,975) increased by
7-8% Y/Y. While the overall occupancy levels are still below the peak
levels of 70-75% witnessed in FY07-08, it could partly be attributable to
low occupancy across Mumbai hotels in Dec due to security warnings. In
terms of new room additions, company is looking to add ~2600 rooms over
FY12-13 with an estimated standalone capex of Rs3B (majority of rooms
coming via management contracts and JVs). For FY11, room additions
remain largely on track with incremental 600 rooms to be added in 4Q.
• International portfolio showing positive trends with occupancies/ARRs
remaining steady across all properties. Pierre is operating at 62% occupancy
level and the rest of the markets (Boston, SFO, London) at 67-84% (+4-11%
Y/Y). While ARRs improved meaningfully in London/Sydney (+12%
Y/Y/6% Y/Y), they remained largely stable Y/Y in US hotels.
• IHCL raised Rs5B via share issuances and warrants in Dec-Q and an
additional Rs3.5B is expected to come in FY12 on warrant conversions.
Funds will be primarily be used for debt repayment thereby bringing the net
debt down to Rs34B by 2Q FY12, according to management (FY12 net D/E-
1.0x vs. 1.5x as of FY10).
• Maintain OW: IHCL is the largest play on the hospitality sector in India
and should be the prime beneficiary of improving occupancy/ARR trends in
the industry. Further, India is set to witness a number of sporting events in
CY11, which bodes well for the entire hotel industry/IHCL.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Indian Hotels
Overweight
IHTL.BO, IH IN
Decent 3QFY11: Operational performance is improving
• 3Q FY11 results: Indian Hotels (IHCL) reported standalone 3Q FY11
EBITDA of Rs1.44B (+294% Q/Q, -5% Y/Y), ahead of our estimate of
Rs1.1B. 3Q FY11 revenues of R4.9B were up 48% Q/Q and EBITDA
margins recovered to 30% (from 16%/11% in 1Q/2Q) in Dec-Q aided by
higher occupancies and improved ARRs. However, the reported margins are
still lower than peak levels of 2HFY07/08 partly on account of high staff
costs (re-instatement of salary benefits) in Dec-Q. 3Q PAT at Rs503MM
comes after two consecutive quarters of standalone loss (due to one-offs).
9M FY11 revenues/EBITDA of Rs11.4B/Rs2.3B rose 18%Y/Y/32%Y/Y
respectively (adjusting for income from insurance income claim last year).
• Operational performance is improving but still below peak levels of
2007-08: 9MFY11 occupancy levels for the domestic business improved to
64% (vs. 62% in 1H, +300bp Y/Y) and ARRs (avg at Rs8,975) increased by
7-8% Y/Y. While the overall occupancy levels are still below the peak
levels of 70-75% witnessed in FY07-08, it could partly be attributable to
low occupancy across Mumbai hotels in Dec due to security warnings. In
terms of new room additions, company is looking to add ~2600 rooms over
FY12-13 with an estimated standalone capex of Rs3B (majority of rooms
coming via management contracts and JVs). For FY11, room additions
remain largely on track with incremental 600 rooms to be added in 4Q.
• International portfolio showing positive trends with occupancies/ARRs
remaining steady across all properties. Pierre is operating at 62% occupancy
level and the rest of the markets (Boston, SFO, London) at 67-84% (+4-11%
Y/Y). While ARRs improved meaningfully in London/Sydney (+12%
Y/Y/6% Y/Y), they remained largely stable Y/Y in US hotels.
• IHCL raised Rs5B via share issuances and warrants in Dec-Q and an
additional Rs3.5B is expected to come in FY12 on warrant conversions.
Funds will be primarily be used for debt repayment thereby bringing the net
debt down to Rs34B by 2Q FY12, according to management (FY12 net D/E-
1.0x vs. 1.5x as of FY10).
• Maintain OW: IHCL is the largest play on the hospitality sector in India
and should be the prime beneficiary of improving occupancy/ARR trends in
the industry. Further, India is set to witness a number of sporting events in
CY11, which bodes well for the entire hotel industry/IHCL.
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