Indian Hotels–for long term portfolio stability

Some highlights from the Indian Hotels Q4 FY24 concall:

The year gone by:

• Company now has surplus cash reserve of over INR 2,200 crores.

• 60/40 mix of capital light versus capital heavy assets

• 34 hotels opened during FY ’23-’24

• 218 hotels operational

• New and reimagined businesses currently contribute roughly 14 % to consolidated revenue (this is Ginger, Qmin, amã Stays & Trails, The Chambers and TajSATS)

• ARR growth for Standalone Q4 like for like is 8 % and Revpar growth is 15 %. For reporting numbers such as ARR growth and RevPAR growth, the company includes all hotels, which have been in operation for a minimum period of 1 year. But it takes 3 years normally for a hotel to stabilize. So the reported numbers get diluted technically.

• Margin for us is an outcome rather than a target

Gateway brand launched:

The Gateway brand rollout will commence with 15 hotels and will scale to 100 by 2030. Now is the right time to launch this brand, which will be upscale, full service and a gateway to that city. It will be a very regional brand, which will have all the important characteristics of that city. So Gateway in Nasik will represent in its art work, in its style, in its arrival experience in Nasik. A Bekal in Kerala will represent Kerala. All 15 currently planned are on asset light model. Management also gave an explanation behind positioning of various other brands like Taj, Vivanta, SeleQtions.

Coming year FY25 and beyond:

1. Target to open 25 hotels in FY ’25

2. New business will continue to grow also over 30 % in the next fiscal, which last year was at 35 %. As the base gets larger, the guidance you can expect will be in the range of 30 now and

3. going forward, maybe at 25 %. For the company as a whole, anything which is north of 10 % on an average for the year is a realistic number going forward because the base has become larger.

4. One analyst noted that the company will be generating Rs.8,000 to Rs.9,000 crore cash in the next 5 years.

5. I.T. will be a big focus for the company in the next 18 months, lot of capex is allocated to that as well.

6. There will be some temporary impacts in terms of elections in Q1

Other points:

1. India is now not anymore talking October to March destination. It’s becoming a 12-month destination

2. Management says competition is not a problem and there is no fear of oversupply. Hotels are a micro-market business. And if you look at our hotels in our micro market, there’s effectively no new supply coming. The company has 92 hotels in pipeline. In the number of hotels in pipeline, they are way ahead of anyone, feels the management. And these are signed legal binding contracts. Pipeline is not just projects under negotiations. That number is even larger.

3. The management says with our size now, we can start talking ourselves as a consumer business

4. Today, 75 % of business is still in the business segment and 25 % in leisure. The opportunity in leisure structurally is much better.

5. A new dividend policy is declared which targets a payout ratio of 20 to 40 % of PAT (Standalone or Consolidated, whichever is higher). Current year dividend is declared at 20 % of Consolidated PAT

(Disc.: Invested)