Kamat Hotels (India) Ltd- A Possible Turnaround Story!

[Agni]

Few clarifications from my end:

1. Why only NCD redemption cost is there in Q1FY25. What about the interest cost of debt from Axis bank, it should be spread out over the whole year?

2. They had posted 91 Cr EBITDA in FY24. 140 Cr is ~54% jump which is not possible without adding a lot of keys. Also, they have shown 0 key progress from Q4FY24 to Q1FY25. They haven’t mentioned any other keys in pipeline other than the ones being shown from last 1 year.

3. ARR halving was mentioned during the concall by CFO
   

   

4. I think FY26, it’s possible but guidance is for FY25. Or is it a typo from your end?

[Ram_M]

1. I don’t have any idea about payment schedule, else assuming just int cost of 13.98cr per annum, I think they have the discretion to show it in any qtr of that year. Generally they spread it even, but here also they are trying to do the same. They considered NCD int which is paid already but the other amount they might not have paid. So its natural to show NCD int cost only now, as the other int amount is also not much big but int cost becomes big for the revenue they are making if its included in the 1st qtr.

2. If the keys increased to 2200 from 1500 its 47% increase, if its 2000 its 33% increase. Then there is a scope to increase ARR as well as occupancy by another 10%. So its possible if the boom in hotel sector continues.

3. Yes, ARR halving was mentioned, but she could not able to answer int cost it self properly. She took the concall as chitchat and gave yes to all questions. Moreover she was comparing peak rates in q3/q4 to q1/q2. I just took q1fy24 and q1fy25 for comparison.

4. No its not typo, I too think its difficult for fy25. My be 350 cr revenue for fy25.

5. I wish they send the notice for investors vote on mergers at the earliest.

6. Also I wish they send the information to exchanges about the pledge release, so that investors don’t see warning messages while buying.

[Ram_M]

All warrants got converted

[Pratik_Sahu]

Yesterday’s interview - https://www.youtube.com/watch?v=IzXC-_aIUzM , CEO mentions Q2 has been “quite good” .

[Ram_M]

24.11 % Promoters shares released while 23.66% still pledged out of 47.77.
So now only 23.66% pledge pending out of total 57.88% promoters share.

[Agni]

Interview by the Chairman:

Zee Business (@ZeeBusiness) on X

Notes:

1. Mentions that EBITDA margin is expected to be around 27-35% for FY25
2. Dip in EBITDA due to property tax and new rules alongside low occupancy
3. Q2 occupancy between 80-85% which has also contributed to 5-7% ARR increase
4. Signed 3 new hotels with 1 in Delhi (I think he meant the Noida one?). 4-5 in pipeline
5. Roundabout answer on 400 Cr revenue and 140 Cr EBITDA target
6. Some talks ongoing for overseas hotels but nothing clear. His son in previous interview said that they don’t have any current plans (conflict?)

[praky]

How to speak without giving any information. One should really watch the interview.

Very very primitive answers given about debt reduction, low revenue and low ebitda margins. “Log responsible ho gye h, election me”. Also not sure if banquet halls are newly added or he is just saying that there is trend to do marriages in hotels now. (Which I would say is not a new trend).

Also mentioned that they are opening their pure veg restaurant in every hotel. Again unsure if this is new or the restaurants already exist. Also mentioned that their restaurants are famous. And also made a weird point about people want to eat in clean restaurants after covid.

If the stock wasn’t at a good support zone technically, I would have made a full exit in loss.

Edit: I saw the interview by Vishal Kamath which was pretty informational and he answered each question though the question related to the FY guidance was not asked.

[Ram_M]

Out of 23.66% pledged shares 22.58% is released as of 8th Oct 24. Now only 1.08% remains pledged out of 57.88% promoters shares. https://www.bseindia.com/xml-data/corpfiling/AttachLive/CF337EE4_ABC8_4FFE_9721_42540F2F8D5D_081309.pdf

[Sankar]

Kamat hotels is deeply corrected with no sign of recovery. Not sure whether to hold.

[ranvir]

Kamat Hotels -

Q2 results and concall highlights -

Revenues - 85 vs 64 cr, up 33 pc
EBITDA - 22.5 vs 18.7 cr, up 20 pc ( margins @ 27 vs 29 pc )
PAT - 8.3 vs 0.03 cr ( due to sharp fall in interest costs - due repayment of loans )

Current portfolio of Hotels ( all hotels are leased except 02 which are owned and 01 on management contract ) -

Under Orchid brand -
Pune - 410 rooms
Mumbai - 372 rooms ( Owned )
Shimla - 96 rooms
Manali - 47 rooms
Goa - 48 rooms ( Owned )
Lonavala - 36 rooms ( management contract )
Jamnagar - 45 rooms
Toyam ( Pune ) - 21 rooms

Under IRA brand -

Mumbai - 195 rooms
Bhuvneshwar - 111 rooms
Nahsik - 31 rooms
Sambhaji Nagar - 33 rooms
Ayodhya - 49 rooms

Lotus Resort Murund - 40 rooms
Fort Jadhavgarh Pune - 58 rooms
Madhodhani Palace Puri - 33 rooms

At present - capex ( addition of rooms / facilities ) and renovation work is on at Orchid - Pune and Goa

Upcoming properties -

Under Orchid brand @ Chandigarh, Dehradun, Gwalior and Puri

Under IRA brand @ Bhavnagar, Hyderabad and Noida

Most of these properties are likely to open up in calendar year 2025

Aim to keep upgrading / renovating 2 properties each year

Current debt on books @ 120 cr with RoI of 10.5 pc

Expecting to maintain EBITDA margins in H2 - at levels similar to Q2 - due increased manpower and energy costs

Expecting to clock revenues of around 350 cr for FY 25 with full FY 25 EBITDA > 90 cr

37 pc of company’s business comes from repeat customers ( which is a very healthy number ). As the company expands its number of properties, this percentage should increase going forward

IRA Noida is opening on 07 Nov 24

Company expects their finance cost to be between 6-7 cr for Q2 - this should be a key positive and bump up the PAT in Q2

Revenue target for FY 26 stands at 400 cr

Disc: holding, biased, not SEBI registered, not a buy/sell recommendation

[Agni]

Sharing the concall notes:

• Management is expecting EBITDA margins to remain same as Q2 going forwards. Note: This is in conflict with their expected revenue and EBITDA guidance. Not sure if any of these guys have heard of Excel

• Their target is to become net debt positive by FY25 end. EBITDA + cash > debt

• Revenue growth is primarily in the room segment, F&B has not contributed much

• Their hotel in Noida is expected to give good revenue as the location has plenty of MNCs like Google, Microsoft and hotel market has a big vacuum

• Targeting EBITDA of ~100 Cr in FY25. The promoter has mentioned ~90 Cr earlier but then the CFO chimed in and said 100 Cr. Not sure why this information is not known to the promoter previously

• 7 Cr interest in next 6 months. Note: Honestly, I have given up on understanding how their interest costs are structured.

• They mentioned debt of 120 Cr @10.5% interest but they had mentioned the interest rate @10.75% in previous ppts and concall. Felt these numbers were given a little casually and makes me doubt on their other numbers

• Tax costs of 2.5-3 Cr in next 6 months to be incurred with a 2 Cr tax refund expected. The CFO was again fumbling in the background with these numbers

• Growth guidance: 400 Cr has now been reduced to 350 Cr in their ppt, they didn’t mention this in the concall by themselves.

• Reason for margins having reduced from 30% to 18% in Q1 and 26% in Q2

  • Orchid, Dehradun and Chandigarh got delayed and expected to open in late FY25 or FY26
  • Election and heat affected us too much. Earlier, he said electricity costs have increased (how?!)

• Long-term outlook:

  • Company is planning for sustainable growth without taking on too many risks or expensive lease rentals
  • Company wants to open hotels in niche location as they feel that domestic tourism is stagnating

• Rough valuation math:
  

• The stock is cheaply available and there is a reason for that but the risk-reward is still favorable as H2 is expected to be much better. Although I feel the expected margins seem unlikely

• Also, the interest and tax numbers were given by the CFO and well, my trust in her is a little lacking

[praky]

Actually they said they will do 100cr ebitda in FY25 and H2 margins will be at 30%. Haven’t seen a more confused management when it comes to numbers

[praky]

For interest cost it should be 6.3cr for H2 maybe they are rounding it off to 7cr.

For the taxes there was again a comedy.

So 2.5-3 + 2.5-3 = 6-7 (not 5-6). Also what about -2? And what was this 1.5?

At this point, I am just waiting for a strong enough reason to exit but I do think that the H2 will be good.

[Sankar]

Attended Q1 concall last time and I too felt they are not confident about their prospects. I exited partially last month but I will exit soon as I don’t see any hope unless some drastic changes in the management.