Analyzing Indian Hotels is inherently difficult even in normal times, and the pandemic has further distorted the data last three years. Here an attempt is made to compare the current fundamentals over FY20 with some back of the envelope calculations.
In the data shown above, we can see that on a TTM basis, revenue from operations is currently 1.35 times FY20 figure. Operating profits are 1.9 times with a big improvement in operating margins from 22 % to 31 %. Due to this, PBT is higher by 3.43 times and EPS by 2.77 times the FY20 figure. The company has turned cash positive from a net debt position, thanks to an equity fund raise and improved business cash flows which were double last year over FY20. I have not included operating metrics like no. of rooms, RevPAR etc. as all that is factored in the revenue and profit figures.
Looking at the macro, management says hotel demand in FY23 grew by 11.1 % and supply grew by 4.5 % Vs. FY20. In the current year, domestic airline passenger growth is flat in June 23 vs. June 19 at around 120 - 125 lac passengers per month. Overall, airline passenger traffic for August inclusive of international is still down from pre-pandemic levels. Foreign tourist arrivals are also running below the pre pandemic levels.
Thus, the improvement in company fundamentals seems largely a result of the management’s efforts at re-engineering the business model and does not factor any industry-wide / macro factors. This leaves scope for more upside on the performance.
Coming to the valuations, the Price to Book during the period has gone up from 4.40 to 7.40 and Market Cap to Sales from 3.80 to 9.80. So the stock is certainly more expensive than it was pre pandemic and is also valued more richly than others in the sector. What should be the steady state valuation of the new IHCL is not clear to me. Any views?
Disc: Have a small tracking position)