loader2
Partner With Us NRI
EIH Ltd>
  • CMP : 472.0 Chg : -10.35 (-2.15%)
  • Target : 0.0 (-100.0%)
  • Target Period : 12-18 Month

16 Feb 2023

Demand stays firm in business destination

About The Stock

EIH Ltd is the flagship company of the Oberoi group that manages 33 hotels (~11 owned and 22 under management contract) with room inventory of ~4247 rooms.

  • The company operates the hotels under the brands Oberoi - super luxury brand, Trident-five star brand and Maidens (heritage)
  • EIH also provides catering/kitchen services to airlines and operates restaurants/lounges at airports and is also into air charter and car hire services
Q3FY23 Results:

EIH’s operational performance for Q3FY23 remained far better than our estimates with revenue & EBITDA reporting growth of 21% & 52%, respectively, from pre-Covid levels.

  •               Revenues were up 62.9% YoY, 44% QoQ to ₹ 512.2 crore (higher than I-direct estimate of ₹ 412.4 crore)
  •               EBITDA margin came in at 35.2%, better than our estimate of 26.5%. It was also far higher than EBITDA margin of 28.2% during Q3FY20
  •               The company reported exceptional expenses of ₹ 21 crore, mainly on account of impairment in the value of subsidiary investments. Despite this, net profit was up 39% from pre-Covid levels to ₹ 103.9 crore vs. expected net profit of ₹ 63.6 crore
What should Investors do?

While the balance sheet provides strong immunity to weather the challenges, we expect the growth momentum to see moderation beyond FY24E due to lack of major expansion and higher base effect.

  • Hence, we now downgrade our rating on the stock from BUY to HOLD
Target Price and Valuation

We value EIH at ₹ 190 i.e.20.0x FY24E EV/EBITDA.

Key Triggers for future price performance
  • Rebound in foreign tourist arrivals to provide further fillip to leisure and business hotel room demand, going forward
  • The recent venture into premium café business to lead to potential value unlocking of F&B segment in the long run. Strong b/s to support growth
  • Looking at the strong performance in in 9MFY23E, FY24 is looking more promising due to many mega international events lined up (G20, CWC, etc). We expect revenue CAGR of 39.2% during FY22-24E. Margins are expected to stay above ~28% driving healthy profitability growth
Alternate Stock Idea:

Apart from EIH, we also like Indian Hotels.

  • It has strong “Taj brand” in the premium segment along with having larger presence in the midscale and economy segment
  • BUY with a target price of ₹ 390/share

Key Financial Summary

Particulars FY19 FY20 FY21 FY22 3 year CAGR (%) FY23E FY24E 2 year CAGR (%)
Net Sales 1,810.8 1,596.3 497.1 1,034.5 -17.0 1,839.8 2,004.8 39.2
EBITDA 405.9 290.3 -291.9 15.1 -66.6 530.3 573.7 516.6
EBITDA (%) 22.4 18.2 -58.7 1.5 - 28.8 28.6 -
PAT 194.4 163.2 -377.3 -58.6 -167.0 305.0 328.7
EPS (|) 3.1 2.6 -6.0 -0.9 - 4.9 5.3 -
EV/EBITDA 26.6 37.6 -36.9 713.1 - 19.8 17.6 -
D/E 0.2 0.2 0.2 0.2 - 0.1 0.1 -
RoNW (%) 6.5 5.2 -12.2 -1.9 - 9.4 9.6 -
RoCE (%) 9.6 5.7 -9.9 -1.5 - 12.5 13.7 -
Source: Company, ICICI Direct Research

Key performance highlights

  • In November 2022, the Indian hotel industry recorded its best performance since the pandemic began, with occupancy of 68-70% and average rates exceeding | 7,000. Mumbai was the market leader in November 2022 and December 2022, with occupancy rates exceeding 80%
  • At the company level, occupancy levels reached 77%, higher than the pre-Covid level of 74%. RevPAR at domestic hotels was up over 70% YoY to over | 12,800/room. It was also higher by over ~27% from pre-Covid levels
  • Air catering business – Many clients are foreign airlines. With the resumption of foreign travel, the company is expected to see healthy traction in the air catering business
  • Room nights from foreign tourists have reached 43% in November 2022 from average of 31% during Q2FY23. This segment is yet to see a full recovery
  • Reducing carbon footprint: Solar plants with total capacity of 3.0 MW at four different locations being commissioned, which is expected to generate 4.2 million units per annum

Key triggers for future price performance

Benefit of efficiency measures now getting visible: FY23 began on a strong note for the hotel sector in terms of growth and margin expansion. With the full reopening, corporate demand and MICE segment also joined the growth bandwagon in Q1FY23 while leisure continued to perform well. This, in turn, helped the company to raise room tariffs without disturbing demand. Further, the company utilised the long 18-24 months of the pandemic phase to structurally realign its cost base and become leaner in terms of costs. Hence, in our view, while FY23 would see efficiency led margin expansion, it would accelerate further with traction in occupancies from FY24E.

To add 20 properties over next five years: The company is adding 20 properties under owned and managed contracts to its portfolio over the next five years. Of these, four properties are in different stages of construction, five are under planning stage and 11 hotels, including one serviced apartment, under active discussion stage

Company has strong balance-sheet: On the b/s front, the company is well placed as far as liquidity and debt is concerned with D/E being 0.2x. As the company derives majority of revenues from the domestic market with Mumbai and Delhi being the key revenue contributor, looking at the strong performance in the seasonally weak quarter, H2FY23 (i.e. peak season) is now looking more promising. This season will also have an advantage of influx of foreign tourists who generally visit India for long haul vacation.

Valuation & Outlook: While the b/s provides strong immunity to weather the challenges, we expect the growth momentum to see moderation beyond FY24E due to lack of major expansion and higher base effect. Hence, we now downgrade our rating on the stock from BUY to HOLD. We value the company at | 190 i.e. 20.0x FY24E EV/EBITDA

Disclaimer

ANALYST CERTIFICATION

I/We, Rashesh Shah (CA), Debotro Sinha (MBA) Research Analyst, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. It is also confirmed that above mentioned Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months and do not serve as an officer, director or employee of the companies mentioned in the report.

Terms & conditions and other disclosures:

ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products.

ICICI Securities is Sebi registered stock broker, merchant banker, investment adviser, portfolio manager and Research Analyst. ICICI Securities is registered with Insurance Regulatory Development Authority of India Limited (IRDAI) as a composite corporate agent and with PFRDA as a Point of Presence. ICICI Securities Limited Research Analyst SEBI Registration Number – INH000000990. ICICI Securities Limited SEBI Registration is INZ000183631 for stock broker. ICICI Securities is a subsidiary of ICICI Bank which is India’s largest private sector bank and has its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. (“associates”), the details in respect of which are available on www.icicibank.com.

 

ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities and its analysts, persons reporting to analysts and their relatives are generally prohibited from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover.

 

Recommendation in reports based on technical and derivative analysis centre on studying charts of a stocks price movement, outstanding positions, trading volume etc as opposed to focusing on a companys fundamentals and, as such, may not match with the recommendation in fundamental reports. Investors may visit icicidirect.com to view the Fundamental and Technical Research Reports.

 

Our proprietary trading and investment businesses may make investment decisions that are inconsistent with the recommendations expressed herein.

 

ICICI Securities Limited has two independent equity research groups: Institutional Research and Retail Research. This report has been prepared by the Retail Research. The views and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating, and target price of the Institutional Research.

 

The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securities is under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this company, or in certain other circumstances.

 

This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice.

 

ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months.

 

ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction.

 

ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the companies mentioned in the report in the past twelve months.

 

ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its associates or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts and their relatives have any material conflict of interest at the time of publication of this report.

 

Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.

 

ICICI Securities or its subsidiaries collectively or Research Analysts or their relatives do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report.

 

Since associates of ICICI Securities and ICICI Securities as a entity are engaged in various financial service businesses, they might have financial interests or actual/beneficial ownership of one percent or more or other material conflict of interest various companies including the subject company/companies mentioned in this report.

 

ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report.

 

Neither the Research Analysts nor ICICI Securities have been engaged in market making activity for the companies mentioned in the report.

 

We submit that no material disciplinary action has been taken on ICICI Securities by any Regulatory Authority impacting Equity Research Analysis activities.

 

This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction.

 

RATING RATIONALE

ICICI Direct endeavours to provide objective opinions and recommendations. ICICI Direct assigns ratings to its stocks according to their notional target price vs. current market price and then categorizes them as Buy, Hold, Reduce and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts valuation for a stock

Buy: >15%

Hold: -5% to 15%;

Reduce: -15% to -5%;

Sell: <-15% 

Pankaj Pandey

Head – Research

pankaj.pandey@icicisecurities.com

 

 

ICICI Direct Research Desk,

ICICI Securities Limited,

1st Floor, Akruti Trade Centre,

Road No 7, MIDC,

Andheri (East)

Mumbai – 400 093

 

 

research@icicidirect.com

Read More