Indian Hotels Company Case Study

14-Sep-2021
THE INDIAN HOTELS COMPANY LIMITED

CASE STUDY
ABOUT
ABOUT THE
THE COMPANY
COMPANY Case
CASEStudy
STUDY
TheDHD
Indian Hotels Company Limited (IHCL), a Tata group company, is South Asia’s one of the largest hospitality-focussed
enterprise with Indian origins. It has businesses ranging from iconic luxury to upscale and budget stopovers as well as in-flight
catering. It has its presence in 90+ locations in India and 100+ locations globally with a portfolio of 221 hotels, including 165
operational hotels with 19,425 keys as on 31st March, 2021.
The company operates its chain of hotels and allied services on different brand names, such as Taj, SeleQtions, Vivanta, Ginger,
Expressions, and TajSATS. Taj, SeleQtions, Vivanta and Ginger are its hotel brands whereas Expressions and TajSATS are brand
0
name for its retail services and volume catering business, respectively.
It derives its revenue from products and services such as room revenue, food & beverages and banquets, shop rentals,
membership fees and management & operating fees. Typically, it derives ~75% and ~25% of its revenue from its domestic and
overseas operations, respectively. Majority of the overseas revenue is contributed by the United States and the United Kingdom.
As the hospitality sector was one of the most affected sectors due to Covid, the company’s performance in FY21 should be seen as
an aberration.
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ABOUT
ABOUT THE
THE COMPANY
COMPANY Case
CASEStudy
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DHD Number of Rooms – Brand wise

Revenue Mix (FY21)
Total: ₹1,575 cr Total: 19,425 Rooms*
5% 5% 2%
1,206
9%
3,197
45%
10,488
35%
4,534
Room Revenue Food & Beverage and Banquets

Management and Operating fees Other Operating Revenue Taj Ginger Vivanta SeleQtions
Membership fees Shop Rentals
*As on 31st March, 2021
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GROWTH
ABOUT THE COMPANY Case
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DHD SALES GROWTH

In FY21, the company’s revenue from operations was
₹1,575 cr as compared to ₹4,463 cr in FY20,
witnessing a de-growth of ~65% YoY, on account of
severe impact of Covid on the hospitality sector.
Average Room Rate (ARR) in FY21 on a standalone
basis dropped to ₹7,351 v/s ₹10,734 in FY20 due to
lower occupancy of 39% during the year as
compared to 67% in last year.
In Q1 FY22, revenue from operations increased to
₹345 cr in comparison to ₹144 cr in Q1 FY21 on
account of normalcy witnessed in the economy post
lockdown due to the second wave of Covid.
The company expects to witness revenue growth
going forward, led by its focus on managed
properties to enable an asset light growth, new
initiatives such as Ama Stays & Qmin and rebranding
its brands.
5 Year CAGR: -17.1%
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GROWTH
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DHD EBITDA GROWTH

In FY21, EBITDA was ₹-362 cr v/s ₹968 cr in FY20, a
fall of ~137% YoY, mainly on account of disruption in
business across all its properties due to lockdown in
most parts of the world. The company was able to
reduce its total expenses (excluding interest and
depreciation & amortisation cost) by ~45% YoY.
Employee benefit expenses (constituting ~57% of
total revenue from operations) reduced ~40% YoY as
staff to room ratio decreased from 1.5x in FY20 to
1.1x in FY21. Other expenses witnessed a decrease
of ~45% YoY due to reduced license fees and
advertisement & publicity expense.
In Q1 FY22, EBITDA stood at ₹-149 cr v/s ₹-266 cr in
Q1 FY21 backed by revenue recovery across key
cities in domestic as well as international markets.
5 Year CAGR: NA
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GROWTH
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DHD PAT GROWTH

In FY21, the company reported a loss of ₹694 cr as
compared to a profit of ₹351 cr in FY20 , a de-
growth of ~298% YoY, on account of lower revenue
and increase in finance cost by ~18% YoY partly
offset by increase in other income by ~24% and
exceptional gain by ~291% YoY. Depreciation &
amortisation cost in FY21 remained flat at ₹410 cr v/s
₹404 in FY20. as
Other income increased due to an exchange gain
(net) of ₹28 cr whereas exceptional gain was due to
acquisition of a IHMS (SA) Hotels Pty Ltd. which was
previously a joint venture. However, IHCL through its
wholly owned subsidiary, IHOCO BV acquired
remaining 50% stake in IHMS.
In Q1 FY22, loss was ₹270 cr v/s ₹267 cr in Q1 FY21,
due to reduction in exceptional gain and increase in
finance cost.
5 Year CAGR: NA
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GROWTH EDGE METER: 3
An Edge Meter is a graded measurement of certain aspects of a company on a scale of 1 to 5, 5 denoting the highest rating. Since
judgement on equity is subjective because different people will have different expectation from their investments, it is better to study
each aspect and give an individual grading to arrive at the final evaluation of a stock.
PROFITABILITY
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DHD EBITDA MARGIN

The average EBITDA margin earned by the company
from FY16 to FY20 was 19.2%. However, in FY21,
EBITDA margin was negative due to negative EBITDA.
Revenue from operations decreased by 65% YoY
whereas total expenses (excluding interest and
depreciation) decreased by ~45%.
However, FY21 could be seen as an aberration
because the company had been able to steadily
increase its EBITDA margin in the past years. EBITDA
margins are expected to recover once normalcy
returns and occupancy improves.
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PROFITABILITY
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DHD PAT MARGIN

PAT margin in FY21 was down due to reduced
business and profitability on account of Covid.
The company strived to contain the downside by

reining its total expenses and adopting the R.E.S.E.T.
strategy to not only survive the crisis but also revive
at a faster pace in the post pandemic times.
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PROFITABILITY
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DHD ROCE
The company delivered a negative ROCE in FY21 due
to the pandemic which severely affected its business
operations.
Management’s focus on asset light growth shall
improve the metric going forward.
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PROFITABILITY
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DHD ROE
The company has delivered an average ROE of 5.2%
from FY18 to FY20. Due to the disruption caused due
to Covid, ROE in FY21 was negative. Its performance
in FY21 should be evaluated in the light of the severe
impact of Covid on the hospitality sector.
In FY21, other equity decreased by ₹708 cr on
account of loss in the current year and stood at
₹3,530 cr as on 31st March, 2021.
It has considered to raise capital by way of issue of
right shares to the tune of ₹3,000 cr. The objective of
the issue is to meet the company's financing needs
for capital expenditure, growth plans and debt
repayment.
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PROFITABILITY EDGE METER: 2
EFFICIENCY
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DHD CASH FLOWS

In FY21, net cash outflow from operations (CFO) was
₹319 cr as compared to an inflow of ₹823 cr in FY20
due to reduced cash generation from operations.
Outflow from investing activity of ₹120 cr was
towards net purchase of property, plant &
equipment of ₹187 cr and non-current investments
of ₹62 cr. Additionally, inflows were on account of
redemption of current investments of ₹67 cr, sale of
hotel properties of ₹32 cr and interest income of ₹18
cr.
Cash inflow from financing activities in FY21 was
₹280 cr, constituting proceeds from net borrowings
of ₹712 cr. Outflows were on account of interest &
other borrowing cost of ₹232 cr, lease liability of
₹139 cr and dividend of ₹60 cr.
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EFFICIENCY
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WORKING
DHD CAPITAL CYCLE
Over the years, the company had a negative working
capital cycle indicating efficient management.
However, this trend reversed in FY21 where working
capital cycle increased to 13 days.
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EFFICIENCY
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DHD FREE CASH FLOW

In FY21, free cash flow per share was negative ₹4.9
due to negative operating cash flow to the tune of
₹319 crore.
During FY21, the company’s outlay on capital
expenditure was ₹141 cr, a majority of which was
for The Connaught (New Delhi), Taj Mahal (Delhi)
and Taj Exotica (Andamans).
The company adopted a policy of deferring capital
0
expenditure and renovations, unless absolutely
required, such as essential hotel maintenance or
where a project was nearing completion, in order to
reduce cash outflows and maintain liquidity.
Further, it continued to monetise certain non-core
assets.
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EFFICIENCY
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ASSET
DHD TURNOVER RATIO
In FY21, this metric dropped significantly to 0.14x
due to the decrease in revenue from operations by
~65% YoY.
In FY21, non-current asset, constituted ~90% of the
total assets. It majorly comprised of property, plant
& equipment and right of use asset.
0
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EFFICIENCY EDGE METER: 4
SOLVENCY
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DHD DEBT TO EQUITY

Debt to equity ratio increased to 1x in FY21 because
of increase in total debt and reduction in the net
worth.
In absolute terms, total debt increased by ₹1,031 cr
and net worth decreased by ₹708 cr.
As on 31st March, 2021, the company had long-term
borrowings of ₹2,224 cr (which comprised of non-
0
convertible debentures & term loans) and short-term
borrowings of ₹243 cr.
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SOLVENCY
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INTEREST
DHD COVERAGE RATIO
Due to loss in FY21, the company’s interest coverage
ratio was negative.
In FY21, the company recorded ₹403 cr as finance
cost which majorly comprised of interest expense of
₹242 cr on borrowing and ₹154 cr interest on lease
liability.
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SOLVENCY
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DHD CURRENT RATIO

The current ratio of the company decreased to 0.39x
in FY21.
In FY21, current assets decreased by ₹283 cr largely
due to reduction in cash and bank balance and trade
receivables partly offset by increase in loan assets.
Current liabilities has grown to ₹2,948 cr in FY21. The
increase by ₹1,047 cr was driven by other financial
liabilities and current borrowings, partly offset by
decrease in trade payables and lease liabilities.
Other financial liabilities included debentures of
₹550 cr which are due in short-term and term loans
from bank of ₹616 cr.
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SOLVENCY EDGE METER: 4
VALUATION
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DHD PE RATIO
IHCL’s PE ratio is indeterminate because of the loss it
incurred in FY21 due to Covid induced disruptions
which badly affected the hospitality industry.
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VALUATION
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DHD DIVIDEND YIELD

The company has been regular in paying dividend to
the shareholders and has paid dividend in each of the
financial year since 2016. The average payout ratio
from FY18 to FY20 was 28%.
In FY21, the company declared a dividend of ₹0.4 per
share even as the earnings per share (EPS) was ₹-6.05.
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VALUATION
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DHDTECHNICAL ANALYSIS
IHCL was in an uptrend between 2013 and 2019
wherein it rose from a low of ₹35 to a high of ₹164.
In March 2020, the stock collapsed to a level of ₹62
and has recovered the entire decline since then.
The stock is likely to take support in the zone of
₹130-₹135, while on the upside a breakout above
₹165 is likely to propel the stock towards ₹200 mark.
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VALUATION EDGE METER: 3
QUALITY
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DHD MANAGEMENT
Management team of the company is led by its
Managing Director (MD) and Chief Executive Officer
(CEO) Mr. Puneet Chhatwal, with the Chairman of the
company being Mr. N. Chandrasekaran, who is also a
Non-Executive Director of the company. Mr. N.
Chandrasekaran is the chairman of Tata Sons, the
holding company of IHCL.
The Board of Directors (BOD) comprises of 8
directors, with 7 Non-Executive Directors, 4 amongst
whom are Independent Directors.
The management is confident that its business model
and strategy, which builds on the investments made
in recent years to expand its brand portfolio and
enhance its ways of working, puts IHCL in a strong
position to outperform the industry as it returns to
full strength.
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QUALITY
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SHAREHOLDING
DHD PATTERN
The promoter holding has remained constant at
40.75% for the last 6 quarters.
FII stake increased from 10.50% in Q2 FY21 to
12.56% in Q1 FY22.
DII stake has decreased every quarter since Q1 FY21,
with 32.86% in Q1 FY21 to 27.99% in Q1 FY22.
Top Public Shareholding:-
Nippon Life India Trustee Ltd. 4.25%
HDFC Trustee Company Ltd. 4.11%
SBI Retirement Benefit Fund 3.32%
ICICI Prudential Life Insurance Company Ltd. 2.90%
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QUALITY
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DHD SECTOR POTENTIAL

• The industry is expected to see large-scale consolidation due to the severe impact that Covid has had on the unorganised sector
which is going to beneficial for the players in the organised sector.
• Most experts see global travel returning to pre-pandemic levels only after 2022. Amongst all regions, Asia-Pacific is likely to see
the highest rebound of international tourism. United Nations World Tourism Organization (UNWTO) extended scenarios for 2021-
2024 indicate that it could take 2.5-4 years for international tourism to return to 2019 levels.
• When tourism does restart, UNWTO’s panel of experts foresee growing demand for open-air and nature-based tourism activities,
with domestic tourism and slow travel experiences gaining increasing interest (Source: UNWTO, Barometer January 2021).
• The domestic sector is expected to out-perform international sector due to increase in domestic tourism led by modern day
‘revenge’ and ‘religious’ tourism.
• Ongoing deliberation regarding a vaccination passport are encouraging which may significantly boost the inflow of international
tourists.
• The outlook of the industry will be closely tied to disciplined practices of people, ability of local health authorities to contain the
virus within small pockets, control over new strains of the virus and production, distribution and administration of vaccines.
• Going forward, guest’s preferences of accommodation and dining would steer towards reputed brands that embed hygiene and
safety in their products and services.
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QUALITY
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COMPETITIVE
DHD LANDSCAPE
IHCL is among one of the few major players in the
hospitality industry. It operates in the upscale ad
midscale hotels segment.
In the branded hotel category, the largest hotel

inventory in India is held by Marriott International.
As a result of its merger with Starwood Hotels and
Resorts, it has outpaced Taj Hotels Palaces Resorts
Safaris (including Ginger).
IHCL and ITC Hotels are the most popular operators

due to their wide presence and strong brand
connect. Chalet Hotels and Lemon Tree hotels are
scaling up rapidly post Covid.
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QUALITY
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DHD FUTURE OUTLOOK

• The company’s immediate focus is to survive and protect its profitability in FY22 and then revive itself to the pre-pandemic levels
by FY22/23. From FY23/24, it expects to thrive and surge ahead.
• It sees huge potential for growth in its reimagined brands such as Ginger, TajSAT, The Chambers, Jiva & Khazana and new brands
such as Qmin, ama STAYS and TRAILS, 7RIVERS, niu & nau and anuka.
• Ginger, its lean-lux offering, is anticipated to have 100-150 hotels in the portfolio in the future, ~2x increase from 52 hotels
currently held in the portfolio.
• Currently it has 7 ‘The Chambers’ programs and 2 more such programs are in the pipeline. It has a potential to grow to 4000+
members from the current level of ~2200 members and become a ₹150 cr business.
• It has 44 bungalows under its ‘ama STAYS and TRAILS’ brand. The management plans to increase this to 500 bungalows which
could contribute ₹500 cr revenue. It has an asset light model with a high EBITDA flowthrough of 80%.
• The company plans to increase the operations of Qmin, a food delivery platform, from 15 cities currently to 25+ cities in the
future. It believes that Qmin has a potential gross merchandise value (GMV) of ₹500 cr.
• 15 brewhubs under the brand, 7RIVERS are planned to be opened by the management going forward.
• It anticipates to have a hotel portfolio of 300 hotels with a managed portfolio mix of 50% and earn management fees of ₹350 cr
from the managed hotels to support its objective of an asset light growth.
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QUALITY EDGE METER: 4
FINAL
ABOUTEDGE
THE MATRIX
COMPANY Case
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DHD
Edge Meter Aspects Grade
Growth 3
Profitability 2
Efficiency 4
Solvency 4
Valuation 3
Quality 4
TOTAL 20
The maximum grade for a company could be 30. Any company above grade 20
is worth considering. A grade below 15 is considered to be poor.
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DHD
THANK YOU
This document and the process of identifying the potential of a company has been produced only for learning purposes. Since
equity involves individual judgements, this analysis should be used for only learning enhancements and cannot be considered to
be a recommendation on any stock or sector. Our knowledge team has limited understanding and we all are learning the art and
science behind this.
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DISCLOSURES
DHD
Neither Kredent Infoedge P Ltd. nor any of its associates have any financial interest in the subject company.
Neither Kredent Infoedge P Ltd. nor any of its associates have actual/beneficial ownership of one per cent or more securities of the subject company, at the end of
the month immediately preceding the date of publication of the research report or date of the public appearance.
Neither Kredent Infoedge P Ltd. nor any of its associates has, any other material conflict of interest at the time of publication of the research report or at the time
of public appearance.
Neither Kredent Infoedge P Ltd. nor any of its associates have received any compensation from the subject company in the past twelve months.
Neither Kredent Infoedge P Ltd. nor any of its associates have managed or co-managed public offering of securities for the subject company in the past twelve
months.
Neither Kredent Infoedge P Ltd. nor any of its associates have received any compensation for investment banking or merchant banking or brokerage services from
the subject company in the past twelve months.
Neither Kredent Infoedge P Ltd. nor any of its associates have received any compensation for products or services other than investment banking or merchant
banking or brokerage services from the subject company in the past twelve months.
Neither Kredent Infoedge P Ltd. nor any of its associates have received any compensation or other benefits from the subject Company or third party in connection
with the research report.
Neither Kredent Infoedge P Ltd. nor any of its associates was a client during twelve months preceding the date of distribution of the research report.
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14-Sep-2021

THE INDIAN HOTELS COMPANY LIMITED

DHD Number of Rooms – Brand wise

Room Revenue Food & Beverage and Banquets

DHD SALES GROWTH

5 Year CAGR: -17.1%

DHD EBITDA GROWTH

DHD PAT GROWTH

DHD EBITDA MARGIN

DHD PAT MARGIN

The company strived to contain the downside by

DHD CASH FLOWS

DHD FREE CASH FLOW

DHD DEBT TO EQUITY

DHD CURRENT RATIO

DHD DIVIDEND YIELD

DHD SECTOR POTENTIAL

In the branded hotel category, the largest hotel

IHCL and ITC Hotels are the most popular operators

DHD FUTURE OUTLOOK

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