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Oriental Hotels Ltd>
  • CMP : 141.4 Chg : -1.11 (-0.78%)
  • Target : 80.0 (26.98%)
  • Target Period : 12-18 Month

19 Apr 2022

Omicron led restriction impacts Q4; Outlook stays strong...

About The Stock

Oriental Hotel (OHL) operates in South India with Indian Hotels Co Limited (IHCL) being one of the promoter entities. The company owns and operates 7 hotels with ~825 rooms across business & leisure locations south. It derives majority of the revenues from two of its properties in Chennai 1) Taj Coromandel 2) Taj – Fisherman’s Cove.

Tata Group companies hold ~39.1% stake in OHL and the company is an associate of IHCL (28.6% stake). Apart from the ownership, the company has strong operational and financial linkage with IHCL

Q4FY22 update
  • Oriental Hotel’s revenue for Q4FY22 declined 13% QoQ to ₹66.1 crore due to lockdown during Jan-22 on account of omicron.
  • Margins were also lower by 800bps QoQ to 17.5%. This led to a marginal PAT of ₹4 lac vs ₹9.2 crore reported in Q3.
  • For the full year FY22, revenues grew 189% YoY to ₹ 219.4 crore though it was still 34% lower than pre-pandemic levels
What should Investors do?

On a replacement basis, the stock is trading at EV/room of ~₹1.6 crore which is still at ~40% discount to current replacement costs.

We remain positive on the company and maintain our BUY rating

Target Price Valuation

We value co. at ₹80 i.e.21x FY24E EV/EBITDA or ₹2.0 crore EV/room (Vs. earlier TP ₹73/share)

Key Triggers for future price performance
  • In our view, this minor blip in revenue is temporary as forward hotel booking data suggests strong buoyancy in the demand with hotel booking for March-May crossing pre-pandemic levels led by wedding season, vacations and IPL matches. Further with opening of international borders for foreign tourists and resumption of corporate offices, we expect sharp traction in the revenues H1FY23E onwards.
  • In terms of rooms supply, we expect launch of new hotel projects to get delayed due to higher land and input costs that would augur well for the existing branded players. Further, hotel players are now leaner in terms of costs that are sustainable in nature. 
  • We expect healthy 29.2% revenue CAGR over FY22-24E. Expect co’s business to recover fully in FY23E while EBITDA to surpass pre-covid levels in FY23E; margins seen at 18.1% and 20.2% for FY23E and FY24E respectively.
  • The company enjoys strong patronage from IHCL. Operationally, OHL’s properties are managed by IHCL apart from over 39% holding by Tata group. Hence, in our view, OHL has strong financial flexibility due to comfort arising from being an associate of IHCL
New Stock Ideas

Apart from Oriental hotels, we also like TajGVK Hotels.

  • Like Oriental Hotels, its properties are strategically located in South India and has strong BS.
  • BUY with a target price of ₹ 210/share

Key Financial Summary

Particulars FY19 FY20 FY21 FY22 3 Year CAGR FY23E FY24E 2 Year CAGR (FY22-FY24E)
Net Sales 346.8 291.1 116.0 219.4 -14.2 326.9 366.1 29.2
EBITDA 51.4 38.4 -32.0 23.4 -23.1 59.2 74.1
EBITDA (%) 14.8 13.2 -28.0 10.7 - 18.1 20.2 -
Net Profit 7.9 -7.5 -71.0 -20.3
EPS (|) 0.4 -0.4 -4.0 -1.1 - 1.1 1.7 -
EV/EBITDA 25.9 34.2
RoNW 1.5 -1.4 -16.0 -4.6 - 4.1 6.3 -
RoCE 3.9 2.4 -8.0 0.6 - 5.6 7.8 -
Source: Company, ICICI Direct Research

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