Buy Indian Hotels; Target : Rs 90 ::ICICI Securities,

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H i g h e r   o p e r a t i n g   c o s t   w e i g  h s   o n   m a r g i n s …
Indian Hotels Company (IHCL) came out with its Q2FY12 results wherein
the company reported standalone net revenues of ~ | 358 crore (up ~9%
YoY)  in  line  with  our  estimate  of  |  355  crore.  However,  the  PAT  of  |  8.1
crore (against loss of | 6 crore in Q2FY11) was below our estimate of |
15.2 crore in Q2FY12 mainly on account of higher operating costs. We
believe the revenue growth was mainly driven by improved occupancy
and marginal improvement in average room rates (ARRs). The EBITDA
margin dipped by 33 bps YoY to 10.8% mainly on the back of a rise in
employee cost and P&F cost by 22% YoY and 17% YoY, respectively.
Interest cost declined by 16% YoY to | 25 crore due to conversion of
short-term loans into long-term loans.
ƒ Better geographical room mix aids topline growth
IHCL reported topline growth of ~8.8% YoY to | 358 crore on a
standalone basis largely driven by ~100 bps YoY rise in occupancy
(I-direct estimate: 63%) due to its better geographical room mix and
marginal growth in ARR by ~2% YoY. Performance of leisure
destinations remained subdued due to seasonality impact while
among business destinations RevPAR across Delhi, Bangalore and
Kolkata improved ~1%, ~5% and ~8% YoY for the same period.
ƒ Higher operating costs put pressure on margins
IHCL’s operating profit grew merely by 6% YoY to ~| 39 crore as
operating cost remained at a higher level with 9.3% YoY growth at
~| 319 crore. Among major cost drivers, employee cost and power
& fuel cost surged by 22% YoY to | 117 crore and 17% YoY to | 33
crore, respectively.
V a l u a t i o n s
We expect FY12E and FY13E revenues to grow by ~9.5% and ~11.5%,
respectively, on account of a moderate industry outlook. At the CMP of |
70, the stock is trading at 12.6x and 10.1x its FY12E and FY13E
EV/EBITDA, respectively. However, we continue to maintain our target
price of | 90 (i.e. 12x FY13 EV/EBITDA) factoring its asset value and
maintain our BUY rating on the stock.