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MOSL: INDIAN HOTEL (Buy)-Strategy execution on track; Support from industry yet to follow

INDIAN HOTELS: Strategy execution on track; Support from industry yet to follow

(IH IN, Mkt Cap USD2.3b, CMP INR138, TP INR189, 37% Upside, Buy)

 

Indian Hotels (IHIN) appears to be firing well on its ‘Aspiration 2022’ target on EBITDA margin (expansion of 800bp), revenue (improvement of 3-4%), cost (reduction by 3-5%), project addition (15 every year) and portfolio (equal proportion of owned and managed rooms). At its third Capital Markets meet, the company articulated execution toward this goal – it will achieve 400bp margin expansion by FY20 and the proportion of managed rooms has already reached 43% (as of 9MFY20). Key highlights from the meet: 

 Looking beyond near term; hotel industry still in upcycle

• India’s hotel industry performance this fiscal has been impacted by various factors, including Jet Airways shutdown, general elections, protests (albeit to a smaller extent) in the NCR region, and the lack of pick-up in corporate demand due to the economic slowdown.
• However, Mr Achin Khanna from Hotelivate (hospitality consulting firm) appeared sanguine about the underlying theme on the back of the prospects of a favorable demand-supply scenario. While supply CAGR is estimated at 5% over FY20-24, demand growth will likely outpace that rate going forward (interestingly, demand growth has ranged from 9-14% over the last 14 years, including some very challenging years).
• Although bookings have been cancelled following the outbreak of coronavirus, domestic demand has been good enough to compensate for the same. The shift of wedding destinations from South East Asia to India in the wake of coronavirus has also supported the bookings trend.