Dolat Capital recommended accumulate rating on Indian Hotels with a target price of Rs 84 in its research report dated August 07, 2020.
Dolat Capital’s research report on Indian Hotels
Indian Hotels (IHCL) Q1FY21 revenue decline at 86% YoY was higher (estimate 80%). Yet, EBITDA was ahead of estimates led by higher than expected costs savings in employee, P&F and other expenses. As expected, net debt increased by Rs 4.1bn QoQ to Rs 23.3bn. We remain positive on IHCL led by its strong brand recall and footprint across segments, asset-light approach, monetization of non-core assets, focus on driving alternate revenue streams, repositioning Ginger in lean luxury segment and efficient costs management. The worst phase for the hotel industry is likely behind. But, revival may be gradual over 18-24 months to hit the historic 65-70% occupancies and Rs 10k+ ARR in our view. That said, we expect the operating performance to improve from hereon led by recovery in occupancies, ARR and few of the cost rationalization benefits to sustain in feature. 70% of IHCL portfolio is operational with occupancies at ~30-40%.
We have cut our FY21/22 revenues by 17/3% to factor extended lockdown and recovery. Yet, EBITDA is +4/-2% on account of costs-savings measures. Post the 15% stock-price decline (Rs 91 to Rs 77) since Q4FY20, we upgrade IHCL to Accumulate with revised TP of Rs 84 @ 15x FY22E EV/EBITDA (vs. Rs 90 earlier at 15x). A higher multiple is warranted but we would wait for sustainability of costs savings and pace of recovery. Historically, IHCL has traded at 20x 1-year forward EV/EBITDA. Downside remains limited, risk-reward remains favorable. Over-ownership is a risk.
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First Published on Aug 9, 2020 09:16 pm