Premium valuations likely to cap upsides for Indian Hotels' stock

Indian Hotels (IH) has an ambitious strategy of doubling its hotel portfolio and is aiming for a 14 per cent annual revenue growth. The goals are achievable, given financial discipline and agility. Over FY24-27, IH may deliver an annual growth of 18 per cent in revenue with higher growth in operating profit and adjusted net profit. IH projects revenues to more than double by FY30 to Rs 15,000 crore from Rs 7,000 crore in FY24.

 

The portfolio is expected to surpass 700 hotels (up from 350 currently) and operational hotels are projected to exceed 500 (current 232). The company expects revenue per available room (RevPAR) growth to remain strong, with like-for-like RevPAR to grow in high single digits. Return on capital employed is projected to improve by 500 basis points (bps), reaching 20 per cent by FY30.

 

Traditional businesses (Taj, Vivanta, SeleQtions & Gateway Brand) will see RevPAR growth of high single digits amid ongoing expansion. New businesses (Ginger, Qmin, Amã, Tree of Life) will grow at 30 per cent. Management fee will register 15-18 per cent annual growth due to net unit growth. TajSATS & Chambers will sustain momentum. 

 

 

IH will invest Rs 5,000 crore over the next five years across existing properties and expansion projects. Management fee may cross Rs 1,000 crore by 2030 led by like-for-like growth and increasing managed inventory. IH expects net unit growth of managed hotel rooms at 13-15 per cent annually till FY30.

 

It also expects TajSATS’ turnover to more than double by 2030. Management plans to add over 750 bungalows (227 as of Q2FY25), and to grow the Tree of Life portfolio to 100 properties by 2030 (19 as of Q2FY25). Additionally, IH is enhancing its F&B business.

 

IH anticipates industry tailwinds to remain driven by higher demand (9-11 per cent annual growth), and limited supply (7-8 per cent growth).

 

It is eyeing growth in the MICE (Meetings, Incentives, Conferences and Exhibitions) segment at 18 per cent annually. Emerging trends like wellness, sustainable tourism, and digital nomad-friendly stays offer growth. Like-for-like revenue growth is expected to clock a growth of 7-9 per cent over FY24-30.

 

The capital allocation is a mix of growth capex (brownfield/improvements — 20-25 per cent of operating profit, and greenfield at 15-20 per cent) dividends (12-15 per cent) and inorganic opportunities (10-20 per cent). IH targets over 20 per cent RoCE (return on capital employed) by FY30 versus 15 per cent in FY24. 

Management says average room rates must grow at 7-10 per cent for greenfield projects to be viable. Expansions will focus on Tier-2/3/4 cities. International expansion is concentrated on West Asia, South Asia, and western markets via capital-light models.

 

New businesses — such as Ginger, Qmin, Ama, and Tree of Life — are expected to clock an annual growth of over 30 per cent. Ginger has 100 operational hotels as of October 2024, and plans to expand to 200+ by 2030. Expansion of Qmin includes delivery services, standalone QSR (quick-service restaurant) outlets, and in-hotel restaurants, and synergy with TajSATS kitchens. The Amã Stays & Trails portfolio will be run by management contracts.

 

IH has a portfolio of 227 bungalows (October 31, 2024), which it expects to increase to over 750 bungalows by CY30. The Tree of Life boutique brand will grow via capital-light leases & management contracts.

 

TajSATS has 60 per cent market share, with revenue expected to more than double by CY30. It will expand capacity in existing kitchens and put up new kitchens in Noida, Mopa, Goa, and Gurugram. IH has launched a new brand in Taj SATS, called Nekta, and this is to generate 20-25 per cent of TajSATS’ business.

 

The Chambers (exclusive business club) is expanding into premium markets like New Delhi, Dubai, Frankfurt, and London.

 

Expected revenue mix by FY30 would be 60-65 per cent from traditional businesses, 15-18 per cent from new businesses, 12-14 per cent from reimagined businesses, and 7-10 per cent from management fees.

 

At 50 per cent premium to its peers, valuations are expensive.