Recommendation From Hotels Industry

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year

THE INDIAN HOTELS COMPANY 

GROW WITH GRACIOUS HOSPITALITY

HERE IS WHY
Robust financials
Reduction in debt
Optimistic outlook

The Indian Hotels Company Ltd (IHCL) is engaged in hospitality activities and restaurants as well as mobile food services. The company is primarily engaged in the business of owning, operating and managing hotels, palaces and resorts. Its area of business includes The Taj, Taj Safaris, Vivanta by Taj, Ginger, and Taj Trade and Transport. Its other area of business is the Taj Air. IHCL opened its first hotel Taj Mahal Palace & Tower in Mumbai. In India, the Taj is recognised for its premier hospitality, excellence in dining, business facilities, interiors and world-class personalised service. In cuisine, Taj was the first to introduce Sichuan, Thai, Italian, Mexican, and Californian cuisine into the country. IHCL has also created hotel chains under different brands such as Taj hotels, Taj Safari, Taj Exotica, The Gateway Hotel and Ginger.

The global travel and tourism industry posted a strong growth in the financial year, growing at 4.6%, with particularly good performance in Asia. This had a positive ripple effect on the hospitality sector in India, which had been struggling with declining room occupancy and pricing. 



IHCL plans to monetize around 10 properties in the next three years as part of a larger plan to bring down its debt and fund its future growth, aiming to be an asset-light model company. Thus, it is planning to divest some of its non-core assets and build room inventory through management contract. In line with this strategy, Oriental Hotels, an associate of Indian Hotels, sold Gateway Hotel Beach at Visakapatnam to Varun Group. However, the company has retained management of the property. Going ahead, the company might divest stake in the South African property.

Consequently, improvement in operating cash flows and funds raised through exiting from non-core assets would help IHCL to reduce debt substantially in the coming years. In the recent quarter, the company's operating profit grew by almost 80 per cent YoY to Rs.119.5 crore.

On the financial front, on a consolidated basis, the net sales of the company have improved by 13.25 per cent for Q2FY19 and stood at Rs.964.53 crore as against Rs.851.67 crore in the corresponding quarter of the previous year. The profit before, interest, depreciation and tax (PBIDT) has surged substantially to Rs.99.23 crore in Q2FY19, while in the Q2FY18 it was Rs.54.58 crore, posting an 81 per cent growth. The company’s net loss in Q2FY19 reduced to Rs.5.6 crore from Rs.59.95 crore in Q2FY18.

On the annual front, the company’s net sales rose marginally by 2 per cent and came in at Rs.4103.55 crore in FY18 as against Rs.4020.57 crore in FY17. The PBIDT has expanded by 10 per cent and stood at Rs.741.61 crore in FY18 versus Rs.672.52 crore in the previous year.On the valuation front, the company is available at a PE multiple of 81.08x on its TTM earnings as against industry PE of 69.63x. The return on equity (RoE) stood at 1.89 per cent and the return on capital employed (RoCE) was 7.4 per cent. We recommend a BUY based on the confluence of the above factors.


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