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We believe Q4FY11 would be a strong quarter for the
luxury hospitality industry. A robust tourist season,
coupled with the recently-concluded Cricket World Cup,
is expected to drive revenues and hence profitability.
We expect hotel players to report healthy numbers and
end the year on a strong note. We retain our Buy rating
on Indian Hotels Company (IHCL) and Hold on EIH and
Hotel Leela. Improving operating metrics along with a
favourable environment make IHCL our top pick.
�� Robust demand to drive revenue growth: We expect
IHCL to report 27% YoY sales growth to Rs5,121mn,
buoyed by robust demand. EIH is expected to notch
growth of 21.6% YoY to Rs4,006mn, while Hotel Leela
should report growth of 5.3% YoY to Rs 1,427mn.
�� Margins to be stable: We expect IHCL’s EBITDA margin
to expand 240bp QoQ to 32.1%. However, margins for
EIH and Hotel Leela are expected to contract 250bp
QoQ and 40bp QoQ to 34.6% and 38.7%, respectively.
�� New Properties opened: IHCL would have
commissioned its 327-room luxury property in
Bangalore. Hotel Leela has already had a soft
commissioning of its ~290 room property in New Delhi.
The company fully launch the property in April 2011.
�� Key points to watch: IHCL recently did a stake sale of
Rs2.2bn to a private equity in its subsidiary, Roots Corp,
through which it runs the Ginger brand of hotels. The
details of this stake sale (pricing and stake, reason,
utilisation of resources) would be something to watch
out for. Also, EIH recently concluded its rights issue. The
amount raised was for mainly meant for debt
repayment purposes. The year-ending balance sheet
numbers of the company would be something to
watch out for.
�� Valuations: We have valued the standalone operations
IHCL at 15x FY13E EV/EBITDA to arrive at fair value of
Rs117. Our SOTP target price is Rs135. We value EIH at
18x FY13E EV/EBITDA to arrive at a target price of Rs93.
We value Hotel Leela at 15x EV/EBITDA to arrive at a fair
value of Rs 39.
Indian Hotels Company (Buy; Target Price: Rs135)
�� We expect sales to grow 27% YoY (and 5.5% QoQ) to Rs5,121mn. For the full year (FY11), we
expect 12% rise in sales to Rs16,547mn
�� We expect EBITDA margin to expand 240bp QoQ to 32.1%, mainly due to higher ARRs
witnessed in the quarter on account of strong foreign tourist arrivals (FTAs) and the Cricket
World Cup. We expect EBITDA to rise 14.1% QoQ to Rs1,646mn
�� We expect 56% YoY PAT growth to Rs820mn. PAT margin is likely to expand 510bp QoQ and
300bp YoY to 16%
�� IHCL is expected to have commissioned its 327-room luxury property in Bangalore in Q4FY11.
The company is also expected to commission two more Ginger hotels in Q4FY11.
�� The company also undertook a stake sale in Roots Corp which runs the Ginger brand of hotels.
The company sold a minority stake to Singapore-based Omega Holdings for Rs3.2bn. The
company has not disclosed any details with regard to pricing or stake divested. For FY10, Roots
Corp recorded revenue of Rs581mn with adjusted PAT loss of Rs 81mn. The debt on the books
was Rs3,252mn as of FY10.
�� The stock currently trades at 9.1x FY13E EV/EBITDA and Rs8.0mn FY13E EV/Adjusted Room
�� We have a Buy rating with a SOTP-based target price of Rs135. We have valued the standalone
operations at 15x FY13E EV/EBITDA, translating into a fair value of Rs117. The implied
EV/Adjusted Room is Rs9.9mn
EIH (Hold; Target Price: Rs93)
�� We expect consolidated net sales to grow 22.6% YoY (and 11.7% QoQ) to Rs3,364mn. We expect
full year sales to rise 36.8% YoY to Rs10,588mn
�� We expect 39.7% YoY (and 11.3% QoQ) rise in EBITDA at Rs1,167mn. EBITDA margin is expected
to expand 80bp YoY (but contract 250bp QoQ) to 34.6%
�� We expect adjusted PAT to grow 54.7% YoY and 40.8% QoQ to Rs399.7mn and PAT margin to
expand 140bp YoY and 180bp to 11.9%
�� The company will record a loss of Rs303mn on account of the insurance claim not being
recognized, thus reducing reported PAT to Rs91mn. The company had recognized insurance
claims worth Rs1601mn, out of which the insurance companies have settled an amount of
Rs1,298mn and thus the loss
�� The company recently completed its rights issue of Rs11.8bn. The primary aim of the capital
raising exercise was to repay debt ~Rs9bn and Rs1bn for construction and commissioning of a
new flight kitchen at Delhi. The end of the year balance sheet would be something to watch out
for
�� We have a Hold rating on the stock with a target price of Rs93. We are valuing the stock at 17.9x
FY13E EV/EBITDA, a 10% discount to its 8-year average multiple. The implied EV/Adjusted Room
translates to Rs20.8mn
Hotel Leela (Hold; Target Price: Rs39)
�� We expect consolidated net sales to grow 5.3% YoY (and 0.3% QoQ) to Rs1,427mn. For FY11, we
expect sales to rise 10.2% YoY to Rs4,739mn
�� We expect EBITDA at Rs552mn, up 39% YoY, but flat QoQ. EBITDA margin will marginally shrink
40bp QoQ, but expand 940bp YoY, to 38.7%.
�� We expect PAT to grow 24% YoY (but decline 30% QoQ) to Rs153mn. We expect PAT margin to
expand 170bp YoY, but contract 470bp QoQ to 10.8%
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We believe Q4FY11 would be a strong quarter for the
luxury hospitality industry. A robust tourist season,
coupled with the recently-concluded Cricket World Cup,
is expected to drive revenues and hence profitability.
We expect hotel players to report healthy numbers and
end the year on a strong note. We retain our Buy rating
on Indian Hotels Company (IHCL) and Hold on EIH and
Hotel Leela. Improving operating metrics along with a
favourable environment make IHCL our top pick.
�� Robust demand to drive revenue growth: We expect
IHCL to report 27% YoY sales growth to Rs5,121mn,
buoyed by robust demand. EIH is expected to notch
growth of 21.6% YoY to Rs4,006mn, while Hotel Leela
should report growth of 5.3% YoY to Rs 1,427mn.
�� Margins to be stable: We expect IHCL’s EBITDA margin
to expand 240bp QoQ to 32.1%. However, margins for
EIH and Hotel Leela are expected to contract 250bp
QoQ and 40bp QoQ to 34.6% and 38.7%, respectively.
�� New Properties opened: IHCL would have
commissioned its 327-room luxury property in
Bangalore. Hotel Leela has already had a soft
commissioning of its ~290 room property in New Delhi.
The company fully launch the property in April 2011.
�� Key points to watch: IHCL recently did a stake sale of
Rs2.2bn to a private equity in its subsidiary, Roots Corp,
through which it runs the Ginger brand of hotels. The
details of this stake sale (pricing and stake, reason,
utilisation of resources) would be something to watch
out for. Also, EIH recently concluded its rights issue. The
amount raised was for mainly meant for debt
repayment purposes. The year-ending balance sheet
numbers of the company would be something to
watch out for.
�� Valuations: We have valued the standalone operations
IHCL at 15x FY13E EV/EBITDA to arrive at fair value of
Rs117. Our SOTP target price is Rs135. We value EIH at
18x FY13E EV/EBITDA to arrive at a target price of Rs93.
We value Hotel Leela at 15x EV/EBITDA to arrive at a fair
value of Rs 39.
Indian Hotels Company (Buy; Target Price: Rs135)
�� We expect sales to grow 27% YoY (and 5.5% QoQ) to Rs5,121mn. For the full year (FY11), we
expect 12% rise in sales to Rs16,547mn
�� We expect EBITDA margin to expand 240bp QoQ to 32.1%, mainly due to higher ARRs
witnessed in the quarter on account of strong foreign tourist arrivals (FTAs) and the Cricket
World Cup. We expect EBITDA to rise 14.1% QoQ to Rs1,646mn
�� We expect 56% YoY PAT growth to Rs820mn. PAT margin is likely to expand 510bp QoQ and
300bp YoY to 16%
�� IHCL is expected to have commissioned its 327-room luxury property in Bangalore in Q4FY11.
The company is also expected to commission two more Ginger hotels in Q4FY11.
�� The company also undertook a stake sale in Roots Corp which runs the Ginger brand of hotels.
The company sold a minority stake to Singapore-based Omega Holdings for Rs3.2bn. The
company has not disclosed any details with regard to pricing or stake divested. For FY10, Roots
Corp recorded revenue of Rs581mn with adjusted PAT loss of Rs 81mn. The debt on the books
was Rs3,252mn as of FY10.
�� The stock currently trades at 9.1x FY13E EV/EBITDA and Rs8.0mn FY13E EV/Adjusted Room
�� We have a Buy rating with a SOTP-based target price of Rs135. We have valued the standalone
operations at 15x FY13E EV/EBITDA, translating into a fair value of Rs117. The implied
EV/Adjusted Room is Rs9.9mn
EIH (Hold; Target Price: Rs93)
�� We expect consolidated net sales to grow 22.6% YoY (and 11.7% QoQ) to Rs3,364mn. We expect
full year sales to rise 36.8% YoY to Rs10,588mn
�� We expect 39.7% YoY (and 11.3% QoQ) rise in EBITDA at Rs1,167mn. EBITDA margin is expected
to expand 80bp YoY (but contract 250bp QoQ) to 34.6%
�� We expect adjusted PAT to grow 54.7% YoY and 40.8% QoQ to Rs399.7mn and PAT margin to
expand 140bp YoY and 180bp to 11.9%
�� The company will record a loss of Rs303mn on account of the insurance claim not being
recognized, thus reducing reported PAT to Rs91mn. The company had recognized insurance
claims worth Rs1601mn, out of which the insurance companies have settled an amount of
Rs1,298mn and thus the loss
�� The company recently completed its rights issue of Rs11.8bn. The primary aim of the capital
raising exercise was to repay debt ~Rs9bn and Rs1bn for construction and commissioning of a
new flight kitchen at Delhi. The end of the year balance sheet would be something to watch out
for
�� We have a Hold rating on the stock with a target price of Rs93. We are valuing the stock at 17.9x
FY13E EV/EBITDA, a 10% discount to its 8-year average multiple. The implied EV/Adjusted Room
translates to Rs20.8mn
Hotel Leela (Hold; Target Price: Rs39)
�� We expect consolidated net sales to grow 5.3% YoY (and 0.3% QoQ) to Rs1,427mn. For FY11, we
expect sales to rise 10.2% YoY to Rs4,739mn
�� We expect EBITDA at Rs552mn, up 39% YoY, but flat QoQ. EBITDA margin will marginally shrink
40bp QoQ, but expand 940bp YoY, to 38.7%.
�� We expect PAT to grow 24% YoY (but decline 30% QoQ) to Rs153mn. We expect PAT margin to
expand 170bp YoY, but contract 470bp QoQ to 10.8%
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