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Indian Hotels Overweight
IHTL.BO, IH IN
1Q FY12 - An encouraging start to the year
IHCL has reported an encouraging start to the year, delivering growth both
on revenues (Rs3.7B, +12% Y/Y) and EBITDA (Rs681MM, + 28% Y/Y)
in 1Q. EBITDA margin at 18% was lower than our estimate of 20% on
account of lower operating leverage. However, commentary on ARR/
occupancy points to an improvement in domestic business. However this
improvement is contingent on how the overall macro shapes up into 2H.
Note that 1Q is normally a weak seasonal quarter for the hotel industry
with full year profit substantially back-loaded in the 3rd and 4th quarters.
Taj president stake increase done at Rs 35MM/room: During the Q
the company acquired 5% shareholding in Piem (Taj Cuffe Parade) for
Rs 501MM valuing the property at close to Rs35MM/Room (JPM
estimate). With this transaction the company has become a subsidiary of
IHCL and hence its EBITDA will get consolidated into the company.
This should drive a Rs410MM increase (9% pro forma basis) to consol
EBITDA (which in our view has been done to help coverage ratios). We
note that the transaction value of Rs35MM/room is far in excess of
current market implied EV/Room of Taj’s portfolio (which we think is
undervalued).
Key operating highlights: Y/Y trends reported by IHCL point to
improvement in the domestic business both on ARR and occupancies.
Quarterly revenue for the company grew by 12% whereas EBITDA grew
by 28%. We note that 1Q EBITDA is now back to the 2007 level on the
back of inventory growth and contribution from management contracts.
In terms of domestic business, YTD CY11 Foreign tourist arrival growth
is 10.9%, which is an improvement of 200bp over the 2010 level. We are
currently factoring in no increase in occupancies from last year’s level
(65% vs. peak of 73%) in our estimates.
Investment thesis: We remain Overweight. IHCL, in our view, remains
in a deep value zone trading at a substantial discount to its asset value
(EV/ Room 13MM) and offering near-term volume growth. Promoters
have infused close to Rs~5B into the company already (at Rs104/share,
37% above the current price), thus helping to reduce debt to some extent.
However, given the overall macro uncertainty, catalysts for a stock price
re-rating in the medium term may be limited.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Indian Hotels Overweight
IHTL.BO, IH IN
1Q FY12 - An encouraging start to the year
IHCL has reported an encouraging start to the year, delivering growth both
on revenues (Rs3.7B, +12% Y/Y) and EBITDA (Rs681MM, + 28% Y/Y)
in 1Q. EBITDA margin at 18% was lower than our estimate of 20% on
account of lower operating leverage. However, commentary on ARR/
occupancy points to an improvement in domestic business. However this
improvement is contingent on how the overall macro shapes up into 2H.
Note that 1Q is normally a weak seasonal quarter for the hotel industry
with full year profit substantially back-loaded in the 3rd and 4th quarters.
Taj president stake increase done at Rs 35MM/room: During the Q
the company acquired 5% shareholding in Piem (Taj Cuffe Parade) for
Rs 501MM valuing the property at close to Rs35MM/Room (JPM
estimate). With this transaction the company has become a subsidiary of
IHCL and hence its EBITDA will get consolidated into the company.
This should drive a Rs410MM increase (9% pro forma basis) to consol
EBITDA (which in our view has been done to help coverage ratios). We
note that the transaction value of Rs35MM/room is far in excess of
current market implied EV/Room of Taj’s portfolio (which we think is
undervalued).
Key operating highlights: Y/Y trends reported by IHCL point to
improvement in the domestic business both on ARR and occupancies.
Quarterly revenue for the company grew by 12% whereas EBITDA grew
by 28%. We note that 1Q EBITDA is now back to the 2007 level on the
back of inventory growth and contribution from management contracts.
In terms of domestic business, YTD CY11 Foreign tourist arrival growth
is 10.9%, which is an improvement of 200bp over the 2010 level. We are
currently factoring in no increase in occupancies from last year’s level
(65% vs. peak of 73%) in our estimates.
Investment thesis: We remain Overweight. IHCL, in our view, remains
in a deep value zone trading at a substantial discount to its asset value
(EV/ Room 13MM) and offering near-term volume growth. Promoters
have infused close to Rs~5B into the company already (at Rs104/share,
37% above the current price), thus helping to reduce debt to some extent.
However, given the overall macro uncertainty, catalysts for a stock price
re-rating in the medium term may be limited.
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