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.
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.
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.
We value EIH at ₹ 190 i.e.20.0x FY24E EV/EBITDA.
Apart from EIH, we also like Indian Hotels.
| Particulars (₹ crore) | Amount |
|---|---|
| Market Capitalization | 29,698.5 |
| Total Debt | 507.4 |
| Cash and Investment | 253.5 |
| EV | 10,759.8 |
| 52 week H/L (₹) | 502.2/170.2 |
| Equity Capital | 125.1 |
| Face Value (₹) | 2.0 |
| 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 | - |
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
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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
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pankaj.pandey@icicisecurities.com |
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