Investment Idea Indian Hotel Company
Key Take Away Best placed for cyclical revival
Recommended Strong Brand: IHCL is a Tata Group company, one of India’s largest Price Rs 88 conglomerates, with a worldwide presence and about 220,000 staff. The group Target Price Rs 125 has interests in telecoms, automotives, IT/ITES, chemicals, engineering, energy Expected Upside 42% and consumer products. Association with the Tata Group lends credibility to the IHCL management and corporate governance standards. Market Data Largest Player in the Industry: IHCL is the largest player in the country with Nifty Code INDHOTEL 11,546 rooms (owned or managed) spread across several cities in India and Sensex 16696.0 overseas. While IHCL is the largest player in India it also has properties in Nifty 4952.7 overseas locations such as Maldives, Mauritius, the US, the UK and Australia, 52 week range (Rs) 92/34 which increases brand visibility and helps to improve service standards within Market Cap (Rs the group. IHCL operates under the ‘Taj’ brand, which has a strong image for crore) 6365.9 service excellence and high business standards.
Shareholding Pattern (%) Acquisition of Sea Rock hotel: IHCL is planning to demolish Sea Rock and erect a new hotel complex, which will also house a convention centre, besides As on Sept 2009 commercial and retail outlets. The company plans to integrate the site with Taj Promoters 29.5 Lands End in Bandra within three years. The funds for the acquisition would MFs, FIs & Banks 26.1 come from the Rs 1400 crores rights issue and internal accruals. Sea Rock hotel FIIs 15.0 is located right opposite to Taj Land’s end. The hotel has location advantage as Other Bodies corporate 7.2 compared to Taj Lands End as it has a better view as it is right on the seashore. Public and others 22.2 With this acquisition, IHCL has five prime hotel properties in Mumbai.
Price Performance Revenue per room (RevPAR) to recover marginally: RevPAR declined by 37%
and 29% on YoY basis respectively during Q1FY10 and Q2FY10, while the Occupancy rate improved on a sequential basis during Q2FY10. Though, the (%) 3M 6M 12M trend in RevPAR is likely to remain muted for the rest for the financial year, we Price (Rs) 62.20 54.10 48.15 expect an improvement in FY11 led by improvement in occupancy levels. We Absolute 29.3 38.5 45.3 expect FTA to improve gradually in the coming quarter led by improved Rel to Nifty 18.0 3.8 (28.8) economic scenario and positive impact of the Commonwealth Games.
Opening up of Taj Heritage wing and Pierre: IHCL will re-introduce rooms in Comparative Price Taj Palace which were affected by the terror attack in phases during Q4FY10. It Movement had closed down 287 rooms in the Palace Wing of Taj Palace due to renovation. All the rooms, restaurants and banqueting space should re-open by April next 100 Indian Hotels 6000 year. IHCL had completely shut down its New York property ‘The Pierre’ for Ni f t y ( RHS) renovation in January 1, 2008. Rooms in the Pierre were launched on October 5000 75 19, 2009. The total capex will be amortized over the lease period of 40 years. 4000 50 According to the management, ARRs at the Pierre can be as high as 3000 US$700/night. 25 2000 Investment Argument: With improvement in macro economic outlook and up 08 08 09 09 9 09 09 09 9 09 09 v- c- n- b- r-0 y- n- ul- g-0 p- ct- No De Ja Fe Ap Ma Ju J Au Se O tick in tourism trends, we are positive on the prospects of the Indian hotel industry. Hotel industry stocks and IHCL in particular, have consistently enjoyed
premium valuations compared to its global peers given the strong growth Analyst : Nisha Harchekar potential of the industry. As we forecast cyclical recovery in the hotel sector Email: [email protected] over the next three years and beyond, hotel stocks will see a re-rating, whilst Contact: 022 – 40192900 earnings to be the key driver of the stock returns going forward. At the CMP of Rs 88, the stock quotes at P/BV of 1.9x and EV/EBITDA of 18.9% its FY11E financials. One can BUY ON DIPS with a one year target appreciation of 40%+.
WAY2WEALTH Securities Pvt. Ltd., 15/A Chander Mukhi, Nariman Point, Mumbai - 400 021. Tel: +91 22 4019 2900 email: [email protected] website: www.way2wealth.com
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The Indian Hotels Company Limited
Subsidiaries Associates Joint Ventures
Domestic Domestic
1. Ideal Ice & Cold Storage 1. Taj Madras Flight Kitchen Domestic Subsidiaries Company Limited Pvt. Ltd. International Subsidiaries 2. Benares Hotels Limited 2. Taj Karnataka Hotels & 1. Tifco Holdings Limited 3. Taj Air Limited Resorts Ltd. 2. KTC Hotels Limited 1. International Hotel 4. Piem Hotels Limited 3. Taj Kerala Hotels & 3. United Hotels Limited Management Services Inc. 5. Taj Trade and Resorts Ltd. 4. Taj SATS Air Catering 2. Taj International Hotels (H.K.) Transport Limited 4. Taj GVK Hotels & Resorts Limited Limited 6. Taj Enterprises Limited Limited 5. Roots Corporation Limited 3. St. James Court Hotel Limited 7. Taida Trading and 5. Taj Safaris Ltd. 6. Residency Foods & 4. Chieftain Corporation NV Industries Limited Beverages Ltd 5. IHOCO BV 8. Inditravel Private International 7. Innovative Foods Limited 6. Taj International Hotels Limited Limited 9. Oriental Hotels Limited 1. Taj Asia Limited 7. Samsara Properties Limited 10. Taj Madurai Limited 2. Taj International Hotels 8. IHMS (Australia) Pty Limited (South Africa) (Pty) Ltd. 9. IHMS (Restaurants) Pty Limited 3. Taj Asia (Thailand) Ltd. 10. Apex Hotel Management Services Pte. Ltd. 11. IHMS (HK) Limited
Source: Company, W2W Research
The Indian Hotels Company Limited (IHCL) along with its subsidiaries, associates and joint venture companies, operates under the Taj Hotels Resorts and Palaces brand. IHCL runs hotels under the brands Taj, Taj Residency, VIVANTA by Taj, Gateway and Ginger hotels. It has hotels, among other locations, in the United States, Australia, Maldives, the United Kingdom, Sri Lanka, Africa and the Middle East. IHCL’s joint venture operates four wildlife lodges in India. IHCL also operates the Taj Spa and air catering business.
During FY09, 12 hotels were opened with an inventory of 1,167 rooms. As of March 31, 2009, the Taj Group operated 99 hotels with 11,754 rooms, and over 281 food and beverage outlets. FY09, it commenced operations at the VIVANTA by Taj in Bangalore, Karnataka; opened TAJ Mount Road hotel in Chennai, and Nadesar Palace in Varanasi.
Inventory Luxury Hotel (Room) Nos. Luxury Premium Gateway International Ginger Total IHCL 9 (2,210) 8 (1,009) 8 (414) - - 25 (3,633) Subsidiaries - 2 (188) - 5 (1,011) 17 (1,709) 24 (2,908) Associate Companies 1 (213) 8 (1,315) 8 (585) - - 17 (2,113) Joint Venture 1 (260) 6 (732) 7 (221) 1 (62) - 15 (1,275) Management Contracts 2 (143) 8 (705) 5 (520) 1 (249) - 16 (1,617) Total 13 (2,826) 32 (3949) 28 (1,740) 7 (1,322) 17 (1,709) 97 (11,546) Source: Company, W2W Research
WAY2WEALTH Securities Pvt. Ltd., 15/A Chander Mukhi, Nariman Point, Mumbai - 400 021. Tel: +91 22 4019 2900 email: [email protected] website: www.way2wealth.com
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120 No. Of Hotels (LHS) Inventory 14000
100 12000
10000 80 8000 60 6000 40 4000
20 2000
0 0 FY 04 FY 05 FY 06 FY 07 FY 08 FY 09
Source: Company, W2W Research
Taj group has introduced a chain of budget hotels in June 2004 by launching 'Smart Basics' concept, indiOne, at Bangalore through its wholly owned subsidiary, Roots Corporation Ltd. Later the company renamed the budget hotel brand to ‘Ginger’ with currently around 1,709 rooms. It plans to have around 3,500 rooms across 25 locations under this brand. The company has also launched its exclusively developed 'Jiva Spa'. This is based on traditional Indian ayurvedic and yogic systems, set in an internationally contemporary ambience. This is currently operational in five hotels. Further rollouts are in progress.
IHCL recently acquired Sea Rock Hotel in Mumbai for Rs 680 crore. It has picked up 85% stake in ELEL, which holds a long-term lease of the land on which Sea Rock is built.
Capacity addition in FY10 Property Location Rooms Timeline IHCL Taj Lands End Mumbai 120 Launched Falaknuma Palace Hyderabad 60 10-Feb Taj Group Taj Palace Cape Town 172 9-Dec Fishermans Cove Chennai 64 9-Oct Ginger 2 cities 164 Launched Ginger 3 cities 304 F2010 Management Contract Vivanta Panjim 170 Launched Vivanta Bekal 72 10-Mar Re-opened post renovation Pierre renovation New York 184 Launched Vivanta Maldives 62 Launched Total - FY10 1372 Source: Company, W2W Research
WAY2WEALTH Securities Pvt. Ltd., 15/A Chander Mukhi, Nariman Point, Mumbai - 400 021. Tel: +91 22 4019 2900 email: [email protected] website: www.way2wealth.com
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Highlights of Q2FY10 results
As expected, IHCL reported weak results for Q2FY10. On YoY basis, its net sales de- grew by 22.3% to Rs 285.9 crores, operating margins halved to 10.4% and the reported PAT declined by 76.6% to Rs 11.9 crores. The results include Rs 21.3 crores of claims for business interruptions because of the terror attacks in Mumbai.
Quarter Results (Rs crore) Q2FY10 Q2FY09 % Chg. H1FY10 H1FY09 % Chg. Net Sales 285.9 367.8 -22.3 548.3 744.7 -26.4 Total expenditure 256.1 277.9 -7.8 506.5 538.2 -5.9 Operating Profit 29.8 89.9 -66.9 41.8 206.6 -79.8 OPM (%) 10.4 24.4 7.6 27.7 PBT before Extra-ord -10.8 76.4 -114.1 -8.5 170.4 -105.0 PBT 18.7 67.0 -72.0 43.0 155.0 -72.3 Profit after Tax 11.9 50.7 -76.6 28.3 111.9 -74.7 PAT (adj. For extraord.) -7.3 56.8 -112.8 -5.2 121.9 -104.2 Equity Share capital 72.3 72.3 72.3 72.3 EPS (Rs.) 0.16 0.70 -76.6 0.39 1.55 -74.7 Adj. EPS -0.10 0.78 -112.8 -0.07 1.69 -104.2 Source: Company, W2W Research
However, Q2FY10 has clearly shown some symptoms of a turnaround. As can be seen in the table below, the occupancies in Q2 have witnessed an improvement on QoQ basis. Also, occupancies in all the key markets have grown on QoQ basis in a typically the weakest quarter of the year. From a low of about 52% in Q1FY10, occupancies grew to about 60% in Q2FY10. Occupancies are set to improve in the coming two quarters in the peak seasons between November and March which is when most of the businesses are generated and the occupancies are at an all time high.
ARR (Rs) RevPAR (Rs) Occupancy (%) 90 13500 85 12000 80 10500 75 9000 70 ` 7500 65 6000 60
4500 55
3000 50 Q1FY08 Q2 FY08 Q3 FY08 Q4 FY08 Q1FY09 Q2 FY09 Q3 FY09 Q4 FY09 Q1FY10 Q2FY10
Source: Company, W2W Research
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Financial Summary
Rs crore INCOME STATEMENT BALANCE SHEET FY08 FY09 FY10E FY11E FY08 FY09 FY10E FY11E Revenues 2920.0 2686.1 2187.0 2732.0 Total Expenditure 2028.0 2174.4 1892.3 2224.2 Equity Share Capital 60.3 72.3 72.3 72.3 Operating Profit 892.0 511.8 294.7 507.8 Reserves & Surplus 2188.8 3105.6 3101.3 3253.3 Dep. & Amortisations 167.6 188.5 210.0 230.0 Networth 2269.1 3177.9 3173.6 3325.6 EBIT 724.4 323.2 84.7 277.8 Preference Capital 0.0 120.0 120.0 120.0 Interest 202.3 230.5 280.0 325.0 Total debt 3490.5 4670.7 5000.0 5300.0 EBT 522.1 92.8 -195.3 -47.2 Deferred tax liability 148.9 160.5 160.5 160.5 Other Income 92.6 70.5 100.0 100.0 Minority Interest 282.0 274.1 287.1 305.1 Extraordinary Items (54.2) (4.8) 60.0 0.0 Capital Employed 6190.4 8403.2 8741.2 9211.2 PBT 560.5 158.5 -35.3 52.8 Tax 247.0 155.8 -33.3 18.5 Gross Fixed Assets 4646.5 5392.4 6500.0 7000.0 PAT 313.5 2.7 -1.9 34.3 Net Fixed Assets 3514.1 4088.1 4939.8 5319.8 Minority Interest 22.74 15.77 13.00 18.00 CWIP 435.2 727.3 400.0 220.0 Share of profit from Assoc 64.18 25.49 20.00 25.00 Goodwill on consolidation 297.0 361.2 361.2 361.2 Net profit 355.0 12.5 5.1 41.3 Deposits 165.7 175.0 175.0 175.0 Revenue Growth % 16.5% -8.0% -18.6% 24.9% Foreign currency differential a/c 0.0 11.6 0.0 0.0 Op. Profit Growth % 24.0% -42.6% -42.4% 72.3% Investments 1541.9 2407.7 2407.7 2407.7 PAT Growth % -4.1% -96.5% -59.3% 714.4% Current Assets 885.0 1381.2 0.0 0.0 Current Liabilities 1894.4 2203.3 0.0 0.0 VALUATION PARAMETERS Net Current Assets 226.7 624.2 450.0 720.0 FY08 FY09 FY10E FY11E Misc exp not w/off 9.2 7.6 7.6 7.6 EPS (Rs) 5.9 0.2 -0.5 0.6 Deffered tax assets 0.4 0.4 0.0 0.0 P/E Ratio (x) 14.9 510.9 - 154.1 Total Assets 6190.4 8403.2 8741.2 9211.2 Book Value (Rs) 37.6 43.9 43.9 46.0
P/BV (x) 2.3 2.0 2.0 1.9 RATIOS FY08 FY09 FY10E FY11E CEPS (Rs) 8.0 2.6 2.9 3.7 Gearing (x) 1.3 1.5 1.5 1.6 Dividend 190% 120% 100% 100% Dividend Yield 2.2% 1.4% 1.1% 1.1% RONW 18.8% 0.6% -1.7% 1.3% Mcap/Sales (x) 2.2 2.4 2.9 2.3 ROCE 15.1% 5.4% 2.2% 4.2% EV/Sales (x) 3.3 3.6 4.4 3.5 OPM 30.5% 19.1% 13.5% 18.6% EV/EBITDA (x) 10.8 18.8 32.6 18.9 NPM 12.2% 0.5% - 1.5% Source: Company, W2W Research
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