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Indian Hotels Overweight
IHTL.BO, IH IN
Trading below replacement cost, even as cycle starts
trending up
Indian Hotel’s (IHCL) stock price over the last one year has the lagged
broader market (-22%) and US hospitality peer group (-26%) even as: 1)
operating trends (ARR/Occupancies) in the domestic business have continued
to improve and are slowly approaching pre crisis levels; 2) Visible debt
reduction (via warrant/stock issuance at Rs103.6) has happened; and 3)
fundamentals of its international portfolio have markedly improved. Further,
commentary coming out of US hotel companies point toward an overall
healthy demand environment. On an asset value basis, the stock on our
calculations is trading at EV/Room of Rs18MM, below replacement cost
levels. In terms of EV/EBITDA, FY13 multiple of 11x compares favorably
against the long-term (10-year) average of 14x. Our FY13 EBITDA estimate
is 10% lower than consensus. Reiterate OW, Mar -12 PT of Rs130.
• Operational performance is improving: 9MFY11 occupancy levels for
the domestic business have improved to 64% (vs. 62% in 1H, +300bps Y/Y)
and ARRs (at Rs8,975) increased by 7-8% Y/Y (after a long gap). While the
overall occupancy levels are still below the peak levels of 70-75%
witnessed in FY07-08, the low occupancy was party attributable to some
security warnings in Mumbai. In terms of new room additions, the company
is looking to add ~2600 rooms during FY12-13, with an estimated
standalone capex of Rs3B (majority of rooms coming via management
contracts and JVs). Overall for FY11, room additions remain largely on
track with an incremental 600 rooms to be added in 4Q.
• International portfolio performance seems to be healthy with Pierre
operating at 62% occupancy level and rest of the markets (Boston, SFO,
London) at 67-84% levels (+4-11% Y/Y). While ARRs improved
meaningfully in London/Sydney (+12%/6% Y/Y), it remained largely stable
in US hotels Y/Y.
• Debt reduction has happened- IHCL has raised Rs5B via share issuances
and warrants in Dec-Q and additional Rs3.5B is expected to come in FY12
on warrant conversions. Funds will be primarily used for debt repayment,
thereby bringing the net debt down to Rs34B by Q2FY12, as per the
management (FY12 net D/E- 1.0x vs. 1.5x as of FY10).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Indian Hotels Overweight
IHTL.BO, IH IN
Trading below replacement cost, even as cycle starts
trending up
Indian Hotel’s (IHCL) stock price over the last one year has the lagged
broader market (-22%) and US hospitality peer group (-26%) even as: 1)
operating trends (ARR/Occupancies) in the domestic business have continued
to improve and are slowly approaching pre crisis levels; 2) Visible debt
reduction (via warrant/stock issuance at Rs103.6) has happened; and 3)
fundamentals of its international portfolio have markedly improved. Further,
commentary coming out of US hotel companies point toward an overall
healthy demand environment. On an asset value basis, the stock on our
calculations is trading at EV/Room of Rs18MM, below replacement cost
levels. In terms of EV/EBITDA, FY13 multiple of 11x compares favorably
against the long-term (10-year) average of 14x. Our FY13 EBITDA estimate
is 10% lower than consensus. Reiterate OW, Mar -12 PT of Rs130.
• Operational performance is improving: 9MFY11 occupancy levels for
the domestic business have improved to 64% (vs. 62% in 1H, +300bps Y/Y)
and ARRs (at Rs8,975) increased by 7-8% Y/Y (after a long gap). While the
overall occupancy levels are still below the peak levels of 70-75%
witnessed in FY07-08, the low occupancy was party attributable to some
security warnings in Mumbai. In terms of new room additions, the company
is looking to add ~2600 rooms during FY12-13, with an estimated
standalone capex of Rs3B (majority of rooms coming via management
contracts and JVs). Overall for FY11, room additions remain largely on
track with an incremental 600 rooms to be added in 4Q.
• International portfolio performance seems to be healthy with Pierre
operating at 62% occupancy level and rest of the markets (Boston, SFO,
London) at 67-84% levels (+4-11% Y/Y). While ARRs improved
meaningfully in London/Sydney (+12%/6% Y/Y), it remained largely stable
in US hotels Y/Y.
• Debt reduction has happened- IHCL has raised Rs5B via share issuances
and warrants in Dec-Q and additional Rs3.5B is expected to come in FY12
on warrant conversions. Funds will be primarily used for debt repayment,
thereby bringing the net debt down to Rs34B by Q2FY12, as per the
management (FY12 net D/E- 1.0x vs. 1.5x as of FY10).
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