Hotel management

Indian Hotels Company Review: Buy | Proxy play for travel recovery

Earlier this month we launched coverage on Indian hotels. In this update, we summarize key investor feedback and our views on a few concerns raised regarding occupancy sustainability, as well as the cyclical recovery, asset-light mix growth, Ginger Hotels and valuations. . We continue to believe that in a favorable industry environment, IHCL, with its leadership position, improving asset mix, margin profile and healthy BS, is a strong investment story. To buy.

1: What happens if occupancy drops when pent-up demand plummets or Indian tourists start heading overseas? This is a key question. Of course, we think some domestic tourists will go abroad once visa bottlenecks ease, but the strength in leisure travel is likely to remain, especially in the face of greater accessibility, d connectivity improvements in recent years, from the post-Covid trend of driving vacations. , and the return of foreign tourists. In addition, strengthening demand for business travel/government delegates is expected to keep the recovery dynamic in metros. Foreign tourist arrivals to India typically pick up in October-December, which will be the time to watch for any trend reversals in the resumption of international travel.

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2: Where are we in the industry cycle? Industry data suggests that the pace of adding supply for quality/branded hotels is likely to remain limited, and with demand remaining stable (without a global crisis), the likelihood that rates, occupancy and Upward trending RevPAR is high in the short to medium term.

3: Impact on profitability of increased hotel mix Ginger: Ginger is a mid- to economy-sized hotel chain operated by IHCL’s wholly-owned subsidiary. The Ginger segment is accretive to the business. IHCL aims to increase the number of Ginger properties from 57 in FY22 to 125 hotels by 2025. This could be a significant growth driver over the next 2-4 years.

4: Will asset-light strategy affect quality? With scale expansion, the company is focusing on asset light strategy via management contracts (50/50% mix). For IHCL, management contracts are taken on the basis of compliance with standards; operations are targeted to be similar in hotels under management contracts as in the case of owned/leased hotels.

5: Is the sharp rise in inventories leaving room for valuations? With the strong rise of IHCL over the last 6 months / 1 year, the debate is whether it fully integrates the recovery. We believe IHCL can continue to trade at a premium given that it is a strong indirect player in the travel recovery, as well as its brand value, leadership position and group. strong promoters. Its strong hotel portfolio should help it capture an outsized share of the industry’s growth. New initiatives, a strong focus on building an “asset-right” model and the strengthened BS bode well for the long term.