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MOSL: INDIAN HOTEL (Buy)-Focusing on management contracts and new/reimagined brands bodes well for return ratios

Indian Hotel: Focusing on management contracts and new/reimagined brands bodes well for return ratios     

(IH IN, Mkt Cap USD2.4b, CMP INR152, TP INR180, 18% Upside, Buy)

 

IH hosted its investors meet, where it articulated its strategy to capitalize on business recovery, focus on new brands and businesses, pursue asset light growth, sustain spend optimization, strengthen the Balance Sheet, and focus on RoCE. Key highlights from the meet are: 

To stay asset light through management contract room additions 

• In FY18, management contract Hotels formed 32% of the overall portfolio, which has now increased to 46% (including Hotels in the pipeline). IH targets to take it to 50% going forward. About 78% of current pipeline Hotels are under management contracts.
• As per ‘Aspiration CY22’ announced in CY18, it looked to sign 15 Hotels under management contract annually. However, it added 22/29/17 Hotels in FY19/FY20/FY21.
• IH recorded the highest number of new Hotel signings and openings in the industry during CY20, with 17 signings and seven new Hotel openings.
• It generated a revenue of INR2.2b from management contracts, which it intends to take to INR3.5b.
• It is to be noted that EBITDA flow through in management contract income is 70-80% and that too without deploying capital, thus the said initiative is RoCE accretive.

 Unlock the potential from reimagined and new brands

• IH reimagined Ginger, which ensured: i) revenue at 63% of pre-COVID levels, ii) doubling of F&B revenue, iii) positive EBITDA in FY21, and iv) 78 hotels at present (targets to take it to 100), with 36% Lean Luxe Hotels.
• The Chambers — Taj’s exclusive business club — was relaunched with enhanced features. It has over 2,200 members currently, and IH intends to increase the same to over 4,000. Currently, seven Chambers are operational, with two in the pipeline. It has the potential to become an INR1.5b business, which is also margin accretive.
• IH launched Qmin – a food delivery app. It has witnessed over 0.3m/0.1m app downloads/orders since its launch (now in 15 cities, targets over 25 cities). IH charges 22% fees on the gross merchandise value in case of sales made through management contract Hotels. The GMV potential of the Qmin brand is INR5b, with an EBITDA follow through of 50%.