IHCL Fundamental Analysis: The Taj Mahal Palace Mumbai was the first five-star hotel in India with modern elevators and Russian carpets. It held out there through pre-independence and post-independence, and the 2008 Mumbai terrorist attacks. The iconic building was a symbol of India’s strength, resilience and prosperity.
Did you know it is owned by Tatas? And the company (IHCL) that runs it is listed! As an investor, wouldn’t it be interesting to do a fundamental analysis of IHCL?
IHCL Fundamental Analysis
In this article, we will perform a basic analysis of IHCL. We’ll start by introducing ourselves to the company’s history and business, followed by an overview of the industry. Later, a few sections are devoted to revenue growth, return ratios and debt analysis. Highlighting future plans and a summary concludes the article at the end.
Without further ado, let’s jump in.
Indian Hotels Company Limited (IHCL) was established in the year 1899 by Mr. Jamsetji Tata, founder of the Tata Group. The company opened its first hotel in Bombay (now Mumbai) named The Taj Mahal Palace. Fast forward to the present day, IHCL is South Asia’s largest hospitality company with Indian roots.
The company operates hotels, resorts, and home accommodations under its various brands: Taj, SeleQtions, Vivanta, Ginger, and amã Stays & Trails. It has an extensive portfolio of more than 28,650 rooms in 240 hotels across various sectors.
IHCL has a pan India presence with international footprints in UAE, South Africa, Bhutan, Sri Lanka, Maldives, US and a few other countries.
IHCL also operates TajSATS, a joint venture with SATS, a Singaporean airport services company. TajSATS is the leading airline catering company in India with a market share of 42% across 6 cities in India and serves 88,000 meals daily.
In addition to hotels and air catering services, this Tata company also operates 43 spas, 15 stores, 34 salons and 380 restaurants and bars around the world. Not only this, but Tata also operates a cooking and food delivery platform and an exclusive global business club ‘The Chambers’.
Having known the history and business of IHCL, let us now proceed to understand the hospitality industry landscape as part of our fundamental analysis of Indian Hotels Company Limited.
India’s hospitality and tourism industry continued its strong recovery after being hit hard by Covid-19-led restrictions in the past two years. According to the Horwath HTL Market: India Hotel Market Review 2021, the calendar year 2021 saw an occupancy rate of 43.5%. The figures were 32.0% in 2020 and 24.9% during the initial pandemic months from March to December 2020.
Recently, occupancy levels have peaked at 90% below international travel and business travel is low. This revival was largely due to pent-up demand, domestic travel, entertainment, extended stays, weddings, and social events.
The world has now adjusted to the new normal. The rising number of vaccinated population, low death rate and rapid recovery rate of the Omicron variant, and increased healthcare preparedness have kept the hospitality industry on the right track in India.
According to IBEF data, the country’s hotel market is expected to reach $52 billion by FY27 from $32 billion in FY2020. Going forward, the rise in leisure travel, business travel, corporate events and weddings, and increased disposable income will drive the growth of the industry. hospitality in India.
IHCL – Finance
Revenue growth and profitability
Indian Hotels Corporation reported a loss of Rs. 265 crores in FY 22 for a comparison of Rs. 796 crores in FY21. Looking at the results of the last two years may give a very bleak picture of the company.
However, a closer look tells us that a lot has been happening in the famous company lately.
Throughout the pandemic, management has maintained a strong focus on cutting costs. He’s been on the right track with debt reduction through fundraising and profitability.
Besides, it continued its expansion: both organic and inorganic. For example, IHCL acquired the remaining 40% stake in Ginger, a budget hotel chain in April 2022 for Rs. 500 crores.
The table below shows IHCL’s quarterly revenue and net profit for the past three quarters. The data clearly shows that the hospitality company is slowly turning into a strong brand ownership powerhouse and highly profitable with increasing profits.
|The numbers are in Rs. Commercial Record.||December 21||March 22||June 22nd|
In the next section of our fundamental analysis of the Indian hotel company, we look at how it has reduced its debt over the years.
Debt/equity coverage ratio and interest
The Indian Hotels Corporation accumulated debt in fiscal 20 and 21 as the company struggled with pandemic-led restrictions. However, its debt has decreased over the past few quarters.
IHCL’s management has placed particular emphasis on reducing costs and making it a debt-free company. This is in line with the other debt-free companies of the hugely reputable Tata Group.
The table below highlights how the debt-to-equity ratio increased in fiscal 2020 and ’21. It fell sharply in fiscal ’22 impressively as the company paid off loans. At the current leverage level, the hospitality company also achieved a net debt-free status in fiscal ’22.
Talking about Indian Hotels Corporation’s ratios of return: Return on Working Capital (RoCE) and Return on Equity (RoE), both of them hit hard in FY21. However, the company cut its losses in FY22 and posted better numbers with RoCE turning positive in fiscal year ’22 at 1.38%.
Going forward, with increased profits and lower interest charges, the company is expected to offer positive rates of return to its investors.
The table displays the return ratios: RoE and RoCE, for the past five fiscal years.
|year||RoE (%)||RoCE (%)|
So far we’ve only looked at the company’s prior years’ results as part of our fundamental analysis for IHCL. In this section, we take a look at what awaits the company’s investors.
- As part of its ‘Ahavan 2025’ vision, the company has planned to grow its hotel portfolio by 20% and homestay by a whopping 455% to 300 hotels and 500 accommodation locations respectively by 2025.
- For the 2022-23 financial year outlook, Indian Hotels has planned an inventory release of 1,280 rooms in the current financial 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 22% of EBITDA in the first quarter of fiscal year ’23. Going forward, the share of newcomers to the traditional hotel business is expected to increase further and drive additional margin expansion.
- When combined with management fees, together the EBIDTA of new brands and mgmt. Fees were 35% in the first quarter of fiscal year ’23. This highlights management’s focus on diversifying IHCL’s operations from its core hotel business.
IHCL Fundamental Analysis – Key Metrics
We’ve almost come to the end of our fundamental analysis of IHCL. Let’s take a quick look at the key metrics for the stock.
|CMP||344 rupees||Market value (Cr)||50,000 Indian Rupees|
|EPS||Rs 1.38||P/E arrow.||240|
|face value||1.00 Indian Rupees||Book value||50 rupees|
|Al-Morouj Holding||38.2%||Price to book value||6.91|
|debt to equity||0.28||profit return||0.12%|
|net profit margin||-10.2%||operating profit margin||13.2%|
We’re almost done with our fundamental analysis of IHCL. We can conclude that the pandemic has turned the hospitality industry upside down. IHCL also suffered heavy losses. However, it came out strong. Looking at the company, we can say without a doubt that it is a strong growth engine with strong brands as part of its portfolio.
Its ‘Ahvaan 2025’ strategy appears to be holding up well at its current price giving a P/E ratio of 240. But that may be due to the twelve-month earnings decline. In your opinion, is IHCL at Rs. 344 a good buy? Or is it expensive? In your opinion, what are the catalysts that could make it more attractive?
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Vikalp Mishra is a graduate of the College of Commerce from the University of Delhi. Likes to write about finance, money and business. He is an avid reader and has a genuine interest in investing. Send him a mail at firstname.lastname@example.org.
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