Indian Hotels: No recovery yet

Steps to improve revenue and growth in tourist arrivals positives but are yet to reflect in financials

Indian Hotels’ stock has been on a downtrend, shedding 25 per cent since the start of the year due to high debt and weak operational metrics.

The company is looking at ways of bringing down the debt and has announced organisational restructuring. It is also using technology across businesses for front-end bookings to improve financials. It has adopted a geography-led model instead of a brand-led one, with business heads having the flexibility to price and promote their hotels.

However, on the operations front, demand continues to be muted, with domestic revenues in the March quarter growing only five-six per cent year-on-year, while earnings before interest, taxes, depreciation and amortisation growth was a mere one per cent due to start-up losses at its Delhi property.

Analysts at IIFL say the  domestic portfolio continues to be impacted by  lack of adequate demand from leisure and business travellers. Top line growth remains sluggish and margins are impacted by negative operating leverage headwinds, they add.

Things could change if the trend of tourist arrivals, up 10 per cent year-on-year in FY15, improve further and steps like e-visa gain  traction. Moreover, supply growth at 4.4 per cent has lagged demand growth of eight per cent, which should boost revenue per available room, say analysts at JPMorgan.



The key trigger for the stock, thus, would be positive revenue and Ebitda growth on a sequential basis, driven by improving average room rates and occupancies. Revenue growth was two per cent on a sequential basis in the March quarter.

While the firm has taken steps to reduce its debt through a rights issue and preferential allotment (Rs 1,000 crore) and bring down the net debt to Rs 3,625 crore as of March, it is also looking to reduce this further by selling non-strategic assets, such as Sydney Blue.

It is also looking to restructure its international operations over the next three months to bring all international properties under one holding company, expected to lead to some divestments. The Street will look at possible sale of the firm’s seven per cent stake in Orient Express Hotels, which should fetch Rs 400 crore.



Though it will undertake Rs 300 crore refurbishment capex over the next two years, the company expects net debt to remain at current levels.

At the current price of Rs 94.20 a share, the stock is trading at 18 times its FY17 enterprise value/Ebitda. Investors should look for consistent performance by the company before investing.