Pace of recovery key trigger for Indian Hotels, firm puts up strong Q1 show

Impact of second wave on operations was lower than what street had estimated

Indian Hotels’s June quarter (Q1FY22) results were better than expectations as the impact of the second wave on operations was lower than what the street had estimated. While sales were 44 per cent lower on a sequential basis, they were up 140 per cent over the year quarter which saw a higher impact of the complete lockdown. May was the worst impacted and contributed just over a fifth to overall sales while April and June contributed to the rest.

Aided by staycations in metros and leisure demand, the company managed to improve the revenue per available room (RevPar) in the standalone operations to twice that of the year ago quarter. The growth in RevPar was on account of a 44 per cent YoY rise in average room rates to Rs 7,044 as well as a nearly 800 basis points increase in occupancies to 28.4 per cent. The company’s RevPar performance in most key cities has been better than the sector.

A comparison with Q1FY20 performance which was a normal base indicates that revenues are down 66 per cent. While the recovery as compared to Q1FY20 was at 36 per cent, analysts at Edelweiss Research had pegged the recovery number at 25 per cent.

Tight cost control helped the company lower the impact at the operating level; losses came in at Rs 148 crore as compared to Rs 266 crore in year ago quarter. Analysts at Motilal Oswal Research had pegged the operating loss at just under Rs 160 crore. Higher staff utilisation (reduction in staff to room ratio) and lower corporate overheads led to a reduction in monthly fixed costs.

The losses, coupled with capex and interest cost, however led to an increase in consolidated net debt by Rs 500 crore to over Rs 3,600 crore. The company is looking to raise funds of up to Rs 250 crore going ahead which will push up the overall debt. The pace of recovery, however, will be a bigger trigger for the stock with most analysts expecting it to be in the second half of FY22.

Analysts at Antique Stock Broking expect Indian Hotels to recover faster as consumer confidence in terms of  safety/hygiene would be better in branded names. A sharp bounceback coupled with a lack of supply will lead to an increase in room rents and occupancies, they add.

While valuations are undemanding, investors should await a clear recovery trend in the coming months before considering the stock.