EBITDA misses our estimate; inventory pipeline strong
Revenue grew 5% YoY to INR76cr in Q4FY24 on room additions (up 19.9%) and higher ARR (up 6.5% to INR6,024). It missed our revenue estimate of INR87cr on lower occupancy (down ~5pp YoY to 72%) as ~30 rooms were refurbished in Q4FY24. EBITDA was impacted by higher repairs and maintenance cost and manpower addition for the upcoming expansion. EBITDA fell 18.4% YoY to INR18cr (est. INR26cr), with margin contracting 672bp to 23.3%. PAT grew 31.3% YoY to INR17cr (est. INR16cr) on a one-time tax adjustment. To capitalise on favourable industry dynamics, it added 985 rooms (JLO/managed: 113/872) in FY24, taking the total inventory to 5,926 (JLO/managed: 1,279/4,647). In FY25-end, it plans to add ~1,925 rooms (JLO/managed: 424/1,500) across 27–30 hotels. Given healthy domestic demand, with constrained supply in the industry, and likely improvement in the product mix, we see a 5% growth in ARR in FY25. We see ROHL as one of the key beneficiaries of sectoral tailwinds. We expect a revenue/EBITDA/PAT CAGR of 16.3%/18.7%/17.7% over FY24–26. We revise our TP to INR477 (earlier INR535, 12x FY26E EV/EBITDA) to account for near-term margin pressure. Maintain ‘BUY’.
Higher staff and repair costs impacts EBITDA, PAT in line on lower tax expense
Revenue grew 5% YoY to INR76cr on room additions, better ARR, and higher income from F&B and other services. Revenue from room rent/F&B/other services grew 1.3%/6.9%/14.6% YoY to INR39cr/INR26cr/INR12cr. ARR for JLO rooms grew 6.5% YoY to INR6,024. Occupancy fell by ~5pp YoY to 72% as ~30 rooms were closed for refurbishment for a part of Q4FY24. EBITDA fell 18.4% YoY to INR18cr on front-loading of staff cost and higher repair cost (refurbishment). PAT grew 31.3% YoY to INR17cr on reversal of deferred tax assets. In FY24, revenue grew 11% YoY to INR294cr (est. INR305cr) on higher inventory; EBITDA fell 7% to INR76cr (est. INR84cr) on greater staff cost and lower fixed cost absorption; and PAT grew 1% to INR47cr.
Strong inventory addition pipeline with a tilt towards management contracts
In FY25, it plans to add 1,924 rooms across 27–30 hotels (1,900 signed), which will take its room inventory to ~7,850. It will add ~1,500/424 rooms under management contracts/ revenue sharing leases. We conservatively estimate 6,954 rooms by FY25-end. The strong front ended room addition pipeline will place ROHL ahead of the curve and will be a key growth driver.
Expect revenue/EBITDA/PAT CAGR of 16.3%/18.7%/17.7% over FY24–26
We expect 16.3% revenue CAGR over FY24–26 on: i) 5% ARR CAGR, with better occupancy on favourable demand-supply dynamics; ii) addition of over 1,833 rooms; iii) strong growth in F&B income due to expansion in its restaurant and banquet portfolio, improving MICE activity, and a revival in large-scale weddings; and iv) higher in-resort spends by offering value-add services. While margin will be under pressure in FY25 (23.8%) on: i) higher fixed costs, to aid the quick-paced expansion (new properties require three-to-four quarters to ramp up); and ii) occupancy loss (refurbishment of 100 rooms), we see it settling at a sustainable 27% from FY26. Over FY24 –26, we expect 18.7% EBITDA CAGR with PAT CAGR of 17.7% on higher tax and depreciation.
Higher EBITDA to drive cash flows and deleveraging
With a stable working capital cycle (~23 days), we expect the lion’s share of EBITDA to flow to OCF (23% CAGR over FY24–26). We expect a cumulative OCF of INR175cr in FY25 and FY26, of which ~INR135cr will be used for room additions and maintenance capex. The balance will aid deleveraging. We expect net D/E ratio to improve to -0.16x in FY26 from 0.08x in FY24. With a large part of the room additions under the asset light model, we expect RoCE to improve to 27.9% in FY26 from 21.8% in FY24.
Maintain ‘BUY’ with a revised TP of INR477
We are positive on the sector due to the favourable industry dynamics in the near-to-medium term. A lower base, an extensive room addition pipeline, and better brand recognition will help narrow the valuation gap with its peers. However, we downgrade our FY26 EBITDA/EPS estimate by 16%/22% to account for near term margin pressure on front loading of operating cost and lower fixed cost absorption given the rapid scale up in room inventory and higher repair cost. We revise our TP to INR477 from INR535 earlier, valuing ROHL at 12x FY26E EV/EBITDA. Maintain ‘BUY’.
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