Fundamental Analysis of IHCL: The Taj Mahal Palace Hotel, Mumbai was India’s first five-star hotel with modern elevators and Russian carpets. It has stood there through the pre and post-independence period, and Mumbai 2008 terror attacks. The iconic building has been a symbol of India’s strength, resilience, and prosperity.
Did you know that it is owned by the Tatas? And the company (IHCL) that runs it, is listed! As an investor, wouldn’t it be an interesting activity to perform a fundamental analysis of IHCL?
Fundamental Analysis of
In this article, we shall perform a fundamental analysis of IHCL. We’ll start by getting ourselves acquainted with the history and business of the company, followed by an industry overview. Later, a few sections are devoted to revenue growth, return ratios, and debt analysis. A highlight of the future plans and a summary conclude the article at the end.
Without further ado, let us jump in.
The Indian Hotels Company Limited (IHCL) was incorporated in 1899 by Mr. Jamsetji Tata, the founder of the salt-to-software Tata Group. The company opened its first hotel in Bombay (now Mumbai) named The Taj Mahal Palace. Fast forward to the present date, IHCL is the largest hospitality enterprise in South Asia with Indian origins.
The company operates hotels, resorts, and homestays under its various brands: Taj, SeleQtions, Vivanta, Ginger, and amã Stays & Trails. It has an extensive portfolio of over 28,650 rooms in 240 hotels across different segments.
IHCL has a pan-Indian presence with international footprints in UAE, South Africa, Bhutan, Sri Lanka, Maldives, the US, and a few other countries.
IHCL also runs TajSATS, a joint venture with SATS, a Singaporean airport service company. TajSATS is India’s leading airline caterer with a 42% market share across 6 cities of India serving 88,000 meals every day.
In addition to hotels and air catering services, this Tata enterprise also operates 43 spas, 15 boutiques, 34 salons, and 380 restaurants and bars worldwide. Not only this, but the Tata company also runs a culinary & food delivery platform and an exclusive global business club ‘The Chambers’.
Having known about the history and business of IHCL, let us now move ahead to understand the hospitality industry landscape as part of our fundamental analysis of Indian Hotels Company Ltd.
Indian hospitality and tourism industry continued its strong recovery after being severely affected by Covid-19-led restrictions in the last two years. According to Horwath HTL Market Report: India Hotel Market Review 2021, the calendar year 2021 saw occupancy of 43.5%. The figures were 32.0% in 2020 and 24.9% during the initial pandemic months of March to December 2020.
Lately, the occupancy levels peaked at 90% without international travel and low business travel. This recovery was large because of pent-up demand, domestic & leisure travel, extended stays, wedding, and social events.
The world has now adjusted to the ‘new normal. A higher vaccinated population, low mortality & quick recovery rate of the Omicron variant, and increased healthcare preparedness have kept the hospitality industry on track in India.
According to the data from IBEF, the nation’s hotel market is projected to touch $52 billion by FY27 from $32 billion in FY20. Going forward, the rise in leisure travel, business travel, corporate events, weddings, and growing disposable income will lead the hospitality industry growth in India.
Revenue Growth & Profitability
Indian Hotels Company reported a loss of Rs. 265 crores in FY22 against Rs. 796 crores in FY21. Looking at the last two years’ results may give a very gloomy picture of the company.
However, a closer look tells us a lot has been happening at the iconic company recently.
Throughout the pandemic period, the management kept a strong focus on cost reduction. It has been on the track with debt reduction through fundraising and generating profits.
Along with this, it continued with its expansion: organic and inorganic both. For instance, IHCL acquired the balance 40% stake in Ginger, an economy-hotels chain in April 2022 for Rs. 500 crores.
The table below highlights the quarterly revenue and net profit of IHCL for the last three quarters. The data clearly exhibits that the hospitality company is slowly turning into a highly profitable strong brand equity powerhouse with growing earnings.
|Figures in Rs. Cr.||Dec’21||Mar’22||Jun’22|
In the next section of our fundamental analysis of Indian Hotels Company, we look at how it has reduced its debt over the years.
Debt/Equity & Interest Coverage Ratio
Indian Hotels Company piled on debt in FY20 and FY21 as the company struggled with pandemic-led restrictions. However, its debt has come down over the last few quarters.
The management of IHCL has been particularly focused on cost reduction and making it a zero-debt company. This is in line with the other debt-free companies of the reputed and vast Tata Group.
The table below highlights how the debt-to-equity ratio increased in FY20 and FY21. It came down sharply in FY22 on an impressive note as the company paid back borrowings. Along present leverage level, the hospitality company also achieved net-debt-free status in FY22.
Talking about the return ratios of Indian Hotels Company: return on capital employed (RoCE) and return on equity (RoE), they both got severely affected in FY21. However, the company reduced its losses in FY22 and posted better figures with RoCE turning positive in FY22 at 1.38%.
Going forward, as the earnings increase and interest charges come down, the company is expected to deliver positive return ratios for its investors.
The table presents return ratios: RoE and RoCE, for the last five fiscal years.
|Year||RoE (%)||RoCE (%)|
So far we looked at only the previous years’ results of the company as part of our fundamental analysis of IHCL. In this section, we look at what lies ahead for the investors of the company.
- As part of its ‘Ahavaan 2025’ vision, the company has planned to grow its hotels’ portfolio by 20% and homestays by a whopping 455% to 300 hotels and 500 homestays sites respectively by 2025.
- As for the FY 2022-23 outlook, Indian Hotels has planned an inventory launch of 1,280 rooms in the present fiscal year.
- IHCL’s new brands and initiatives include budget hospitality chain ‘Ginger’, food delivery platform ‘Qmin’, homestay chain ‘amã Stays & Trails’ and business club ‘The Chambers’. These contributed to 22% of the EBITDA in Q1FY23. In the future, new businesses share over traditional hotel business is expected to rise further and drive additional margin expansion.
- When combined with management fees, together EBIDTA from new brands and mgmt. fees stood at 35% in Q1FY23. This highlights the management’s focus on diversifying IHCL’s operations from its core hotel business.
Fundamental Analysis of– Key Metrics
We are almost at the end of our fundamental analysis of IHCL. Let us take a quick look at the key metrics of the stock.
|CMP||₹344||Market Cap (Cr.)||₹50,000|
|Face Value||₹1.00||Book Value||₹50|
|Promoter Holding||38.2%||Price to Book Value||6.91|
|Debt to Equity||0.28||Dividend Yield||0.12%|
|Net Profit Margin||-10.2%||Operating Profit Margin||13.2%|
Nearing the completion of our fundamental analysis of IHCL. we can conclude that the pandemic turned the hospitality industry upside down. IHCL also suffered considerable losses. However, it has emerged strong. Looking at the company, we can undeniably say that it is a powerful growth engine with strong brands as part of its portfolio.
Its ‘Ahvaan 2025’ strategy seems to be well consolidated in its present price giving a P/E ratio of 240. But it might be because of low trailing twelve months’ earnings. In your opinion, is IHCL at Rs. 344 a good buy? Or is it over-priced? In your opinion, what catalysts can make it more attractive?
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Vikalp Mishra is a commerce graduate from the University of Delhi. He likes to write on finance, money and business. He is a voracious reader with a genuine interest in investing. Drop him a mail at [email protected]
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