Indian Hotels Co Ltd Q2 FY2024 Concall Summary

Key Takeaways

• Record quarter, structural demand story intact: Q2 was the best ever Q2, the sixth consecutive record quarter, driven by India's hotel demand growing at 8-10% CAGR against supply growth of just 5-6%.
• EBITDA margin guidance raised sharply: Management lifted its margin target from 25% to 33%, arguing the asset-light pivot and new businesses make the model far more resilient to cyclical downturns.
• Ginger is a coiled spring: RevPAR growth was muted at 14% because 70% of the portfolio was under renovation; management expects that number to "easily cross 20" as refurbished inventory reopens over the next 9-12 months.
• International is a drag with hidden upside: EBITDA fell YoY internationally, with San Francisco needing 3-5 quarters to recover; management frames London and New York as upside potential it expects to show in Q3 and Q4 results.
• What to watch next quarter: The pace of Ginger's RevPAR acceleration as renovated rooms reopen, whether the international turnaround materialises as promised, and the trajectory toward that new 33% margin target.

India Demand & Pricing Power

• Structural supply-demand gap: Hotel demand is expected to grow at a CAGR of 8-10% over the next 5 years, while supply grows at only 5-6% annually, with roughly 75% of new supply coming in tier 2/3 cities and predominantly in the non-luxury segment. This protects existing micro-markets in key metros.
• Occupancy has room to run: Occupancy could still rise a little; in key metros globally, hotels tend to do occupancy in excess of 75%.
• Rate-led RevPAR growth: RevPAR growth numbers are in high double digits, driven mainly by rates, which should help domestic profitability. Management expects overall double-digit RevPAR growth for the current year.
• Transient mix is a structural margin lever: The transient mix has risen to 59% from roughly 52% pre-pandemic and will keep increasing due to loyalty programme investments. Corporate is deliberately held at 12%: small corporates have been discouraged from long-term contracts and asked to book on the web, effectively treated as transient. Corporate contracts were changed from fixed rate to partially linked to ARR, at 25% of bar rate.
• Events are not the story: The impact of G20 and the Cricket World Cup on a year-on-year basis is only 0.5% to 1%, so events are not a major factor in performance.
• October momentum confirms the trend: The first 26 days of October were very strong, and management expects the trend to continue. Q3 normally sees a 30% jump from Q2 and business is strong.

Chhatwal: "Achal, on the lighter notify answer, it seems that if you are always looking for reasons to reduce the rates and we are hoteliers, we are always looking at reasons to increase the rate."

Ginger & New Businesses Reorganisation

• Renovation masked the real run-rate: Ginger's ARR was up only 1% and RevPAR up 14% because 70% of the portfolio was under renovation or repositioning; when inventory is unavailable, rate changes are not visible. The Qmin rebranding also caused disruption. As renovated inventory reopens in Q3, Q4 and Q1 over the next 9-12 months, significant rate increases are expected.
• Ginger Santacruz is the trophy asset: The 371-room flagship near Mumbai Airport is expected to open within weeks, not months, pending licences and facade work. Management believes it should reach ₹100 crore in revenue within 3 years of operation, with a stabilised rate north of ₹6,500-₹7,000.
• The brand has been rebuilt from the ground up: Ginger now provides all possible services except a swimming pool, including an all-day dine-in restaurant; F&B, which was outsourced when the brand launched, is now in-house. Management says "just the name is old, everything else is just new about Ginger."
• Dedicated vertical created: Ginger, Qmin and Ama have been reorganised under a dedicated vertical headed by Ms. Deepika Rao, signalling management focus on scaling these new businesses.

Chhatwal: "Here, you are seeing 14% RevPAR growth. You could see that number easily cross 20 going forward."

International Portfolio: Drag Today, Upside Tomorrow

• EBITDA down YoY, driven by specific pockets: San Francisco faces challenges that may take 3-5 quarters to recover; the market changed due to macroeconomic factors, though the asset is owned, profitable pre-COVID and carries zero debt. New York is not back to pre-COVID levels, partly because the strong dollar has dampened travel. London is doing well but could do better.
• Rest of the portfolio is fine: Cape Town and Dubai are doing fine; Lusaka is doing very well; Sri Lanka is on the way up; Maldives is a bit soft.
• No strategic intent to deploy own capital internationally: The company will be very selective, focused on the Taj brand, doing 1 or maximum 2 hotels per annum, preferably on management contracts. In the Western Hemisphere, it will use other people's institutional capital on an operating lease basis. The Frankfurt hotel announced this quarter follows exactly that model: investment comes from someone else, IHCL signs an operating lease, pays rent and spends some money on the Taj brand and Chambers.
• Being in top lodging markets is non-negotiable: Management believes you have to be in the top lodging markets of the world; New York and London fit that thesis, and the current underperformance is seen as hidden upside potential expected to show when Q3 and Q4 results are presented.

Chhatwal: "we look at it as an upside potential that we have... I think it is just really New York, San Francisco and a upside potential in London, which we are looking forward to and that will hopefully change when we present Q3 and Q4 results in the next quarters."

Margins & The New 33% Target

• The 33% EBITDA margin guidance is a resilience statement: Management previously guided to 25% EBITDA margin; the new 33% target is framed as a buffer against cyclicality. The argument: when the company was last hit, it was at 17% EBITDA and guided to 25%; now, if hit at 33% and margins drop by half, the company would still be at 17-18%, which is where it was before.
• New businesses and asset-light model are the structural defence: Management believes cyclicality will always remain, but the impact domestically should be lower than in the past, or the cycle length will change. The new businesses (Ginger, Qmin, Ama, Taj SATS) and the shift toward management contracts should help mitigate cyclicality.
• Finance cost is effectively zero: An analyst observed that finance costs did not reduce despite significant debt reduction in H1. Management clarified that the finance cost on the P&L includes interest on lease capitalisation under IndAS; the company has no debt, and the actual finance cost is negative.

Chhatwal: "Today, when we were last time hit, we were at 17% EBITDA and we gave a guidance of 25% EBITDA margin. Today, we are giving a guidance of 33 and if you are hit at 33 and your EBITDA margin drops by half, you are at what we would have been in 17%-18%. That is the change in the business model..."

Portfolio Expansion: Signings, Openings & Pipeline

• Opening pace is accelerating: The company is well placed to open a minimum of 20 hotels this financial year, a run-rate of roughly 1.8 hotels per month. The pipeline stands at 80 hotels, supporting 20 hotels every 12 months for the next 36 months, with a target of 3,000 rooms per year.
• International signings this quarter: Signed 3 Taj hotels internationally: one operating lease in Frankfurt, and two management contracts in Bhutan. Also signed a management contract in Riyadh (the 250th hotel) and two management contracts in Dhaka.
• Domestic openings: Opened Taj the Trees in Vikhroli (Mumbai), Taj Guras Kutir in Gangtok, and Wow Crest IHCL SeleQtions in Indore.
• Greenfield projects continue on lease: The company is doing Greenfield projects in Lakshadweep, Gujarat and other locations, all on lease rather than buying land. Greenfields remain an important part of organic capacity expansion, though they take 3-4 years. Inorganic growth through conversions or management contracts, like Cidade Goa, gives immediate capacity.
• Piem Hotels stake increased: The board approved a buyout of an additional roughly 7% shareholding in Piem Hotels via share swap and cash, increasing IHCL's stake from 51.6% to 58.6%. The opportunity arose because those partners wanted an exit, and the company used it to consolidate.
• Cash available for inorganic moves: Cash of roughly ₹1,400 crore can be used for inorganic growth, simplification, consolidation, share swaps or buying. The business development team is looking at opportunities; NCLT has been difficult for hotel properties, so bilateral transactions are needed.

Chhatwal: "If you are not aggressive you will not go to these places."

Taj SATS: A Quiet Growth Engine

• Multiple structural tailwinds: Growth is driven by an increase in the number of airports, reverse catering (food for the return leg catered from one city), smaller vendors exiting on some routes, and synergy with Air India and Vistara.
• Noida Airport concession signed: Taj SATS signed a new concession agreement for a service and outlet at Noida International Airport, expected to start operations by the end of next year. It also started operations at MOPA airport in Goa.
• Revenue trajectory: The business, currently at roughly ₹800-900 crore, could easily grow another 30% to 40%, dependent on airline traffic and non-aviation business in a new kitchen outside the airport zone. Management expects it to cross ₹1,000 crore in the next financial year and go far beyond that in the following year.
• Non-aviation share ambition: The aspiration is to grow the non-aviation share of Taj SATS to more than 20% over the next 3 to 5 years.

Guidance & Commitments

Key Metrics