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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



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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

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