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Indian Hotels Co Ltd: Expanding with Demand rise

Indian Hotels Company Ltd (IHCL) is the largest hotel chain in India and the company is owned by the Tata group.

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(A) About The Indian Hotels Company Limited

The Indian Hotels Company Limited (IHCL) along with its subsidiaries bring together a group of brands and businesses that offer a fusion of warm Indian hospitality and world-class service.

Furthermore, These include

  • Taj – the hallmark of iconic hospitality
  • SeleQtions, a named collection of hotels
  • Vivanta, sophisticated upscale hotels and
  • Ginger which is revolutionizing the lean luxe segment.
Brands of Indian Hotels stock update with detail

Jamsetji Tata found IHCL in 1868. It has a portfolio of 196 hotels including 40 under development globally across 4 continents, 12 countries, and in over 80 locations. 

(B) Journey Since Inception

(C) Management of the Indian Hotels Co Ltd

(i) Mr. Natarajan Chandrasekaran - Chairman

He joined the Board of Tata Sons in October 2016 and was appointed Chairman in January 2017.

Natarajan Chandrasekaran is Chairman of the Board of Tata Sons. It is the holding company and promoter of more than 100 Tata operating companies. Their aggregate annual revenues amount to more than US $100 billion. 

Moreover, he also chairs the boards of several group operating companies, including Tata Steel, Tata Motors, Tata Power, and Tata Consultancy Services (TCS) – of which he was Chief Executive Officer from 2009 to 2017.

Above all his appointment as Chairman followed a 30-year business career at TCS, which he joined from university.

Mr. Natarajan Chandrasekaran received Remuneration (only sitting fees) in the FY21 Rs. 2.7 Lakhs 

(ii) Mr. Puneet Chhatwal - Managing Director and CEO

Mr. Puneet Chhatwal joined The Indian Hotels Company Limited (IHCL) as the Managing Director and Chief Executive Officer on November 6, 2017. 

Moreover, he is a global professional with close to four decades of leadership experience at highly acclaimed hotel groups in Europe and North America.

furthermore, Under his leadership, IHCL has embarked on a journey of re-imagination to achieve sustainable profitable growth. 

Prior to this, Mr. Chhatwal was the Chief Executive Officer and Member of the Executive Board of Steigenberger Hotels AG – Deutsche Hospitality.

Mr. Puneet Chhatwal received Remuneration in the FY21 of Rs. 7.23 Crores i.e. ~0.45% of Net Sales

(D) Shareholding Pattern of Indian Hotels Co Ltd

Indian Hotels stock update with detail of Shareholding Pattern in detail
Indian Hotels stock update with detail of key shareholders

(E) Brands of Indian Hotels Co Ltd

Hospitality Brands

Indian Hotels stock update with detail of its Hotels portfolio

(i) Taj

The Taj Brand of portfolio comprised Luxury hotels with 89 hotels in 55 locations. In addition, Its portfolio consists of luxury hotels, resorts, jungle safaris and palaces.

(ii) SeleQtions

Its SeleQtions Brand includes Upper scale hotels such as The Gateway Savoy in Ooty, Vivanta by Taj President in Mumbai, Vivanta by Taj-Blue Diamond in Pune and Vivanta by Taj-Ambassador in Delhi.

(iii) Vivanta

Vivanta has a portfolio of Upscale hotels, however its portfolio consist 35 hotels in 33 locations.

(iv) Ginger

in Addition, Ginger brand consists Midscale or economy class of hotels with 84 hotels in 50 locations

(v) amã Stays & Trails

The first such stay experience, amã Stays & Trails, is a group of bungalows situated in the verdant hills of Coorg and Chikamagalur,

Moreover, It offers authenticity and a strong connection with the destination, tranquillity in the midst of nature. Moreover, experiences such as bean to cup tours, inviting guests to savor the distinct hints of India’s coffee

(vi) TajSATS

It is a collaborative venture of IHCL and SATS (formerly Singapore Airport Terminal Services). TajSATS combines expertise and warmth that delights customers through every interaction.

Its state-of-the-art kitchens ensure hygienic food production and handling, while meticulously serving an assortment of cuisines.

TajSATS is India’s leading airline caterer and a leading institutional player.

(F) Activities performed by IHCL

(i) Air Catering

A joint venture between Indian Hotels Company Limited (IHCL) and SATS Limited. furthermore, the Taj SATS has over 42 years of expertise as India's largest airline catering company and is a proud member of India's largest conglomerate — the Tata Group. Therefore, At present it is the market leader in Airline catering in India.

(ii) Salons and spa

IHCL introduced Taj Wellness Retreats, allowing travelers to embark on a soulful journey to revitalize the mind, body, and spirit. As a result, Thoughtfully its designed by Jiva Spa’s wellness experts.

(iii) Food and beverages

IHCL has some of the most distinguished fine-dining and multi-cuisine restaurants and lounge bars in its portfolio.

With more than 380 restaurants and bars around the world, it offers a multitude of specialty cuisines flavored with tradition and innovation through its signature brands such as Bombay Brasserie, Golden Dragon, Wasabi, Thai Pavilion, and House of Ming.

(iv) Trails and stays

IHCL enable community livelihoods through homestays; excursions/tourist trails in rural, interior, and under-served tribal belts through tourism-linked training and capability building initiatives by their volunteers; and community immersion stints for management trainees.

(G) Revenue Segmentation of Indian Hotels Co Ltd

IHCL - Revenue Segmentation

(i) Rooms, Food and Beverage & Banquets:

Revenue is recognized at the transaction price that is allocated to the performance obligation. Revenue includes room revenue, food, and beverage sale, and banquet services which are recognized once the rooms are occupied, food and beverages are sold and banquet services have been provided as per the contract with the customer.

(ii) Space and shop rentals:

Rentals basically consists of rental revenue earned from letting of spaces for retails and office at the properties. These contracts for rentals are generally of short term in nature. Revenue is recognised in the period in which services are being rendered.

(iii) Other Allied services:

In relation to the laundry income, communication income, health club income, airport transfers income, and other allied services, the revenue has been recognized by reference to the time of service rendered.

(iv) Management and Operating fees:

Management fees earned from hotels managed by the Group are usually under long-term contracts with the hotel owner.

However, Under Management and Operating Agreements, the Company’s performance obligation is to provide hotel management services and a license to use the Company’s trademark and other intellectual property.

(v) Membership Fees:

Membership fee income majorly consists of membership fees received from the loyalty program and Chamber membership fees.

Income is earned when the customer enrolls in membership programs. In respect of performance obligations satisfied over a period of time, revenue is recognized at the allocated transaction price on a time-proportion basis.

(vi) Loyalty program:

The Group operates a loyalty program, which provides a material right to customers that the company would not exercise without entering into a contract and the eligible customers earn points based on their spending at the hotels.

The points so earned by such customers are accumulated. Furthermore, The revenues related to award points is deferred and a contract liability is created and on redemption/ expiry of such award points, revenue is recognized at pre-determined rates.

(H) Inventory details of Indian Hotels Company Limited

(i) Inventory by Geography

As of 31st December 2021, IHCL has 171 hotels operational with 19,920 Rooms (including international and domestic)

(ii) Inventory by Contract - Indian Hotels Co Ltd

As of 31st December 2021, IHCL has 171 hotels operational with 19,920 Rooms (including group companies, Holding companies, and Management contracts)

(I) Operational Parameters - Indian Hotels Co Ltd

Indian Hotels stock update with detail of operating parameters

Over the Years, Company's Average Rate per room i.e., ARR has increased significantly but in year 2021 ARR adversely impacted due to covid-19 and lockdown.

(J) Cost Structure

Indian Hotels stock update with detail of Cost Structure

For FY21, Employee benefit expenses at ₹538.64 crores were lower than the previous year by ₹186.43 crores.

Moreover, in response to the COVID-19 pandemic, the Company has been compelled to take many steps to control employee and contractual staff costs, many of which were fixed and contractual in nature.

(K) Group Structure - Indian Hotels Co Ltd

(i) Subsidiaries

Indian Hotels stock update with detail of Subsidiaries

During the year under review, Ideal Ice & Cold Storage Company Limited has become a wholly-owned subsidiary of IHCL, earlier being a subsidiary of Taida Trading & Industries Limited, an associate of the Company

The Company has also increased its shareholding in IHMS Hotels (SA) (Proprietary) Limited and is now considered as a subsidiary of the Company, from earlier being a Joint Venture

Consequently, Goodhope Palace Hotels (Proprietary) Limited which was a subsidiary of IHMS Hotels (SA) (Proprietary) Limited has become an indirect subsidiary of the Company.

(ii) Joint Ventures and Associates

Indian Hotels stock update with detail of Joint Venture and Associates

(L) Financial Ratios

(i) Employee Cost

IHCL - Employee Cost

Over the years employee cost is stable at approximate 33% - 34%

In FY21 Employee costs has been shooting up to 56.76% because of the opening of new hotels and employees' recruitment. Moreover, The impact of high fall in the revenue of the company.

(ii) Power and Fuel Cost

Over the years Power and Fuel cost is stable between 6% to 7%

In FY21 the jump in Power and fuel costs due to the fall in revenue of Hotels.

(iii) Selling and Administration Expense

(M) Financial Performance Snapshot of Indian Hotels Co Ltd

  • IHCL has shown a loss in FY2021 due to COVID Pandemic
  • The Company has shown Poor revenue growth over the years
  • Overall the company is maintaining a decent cash flow over the years but in FY21 the cash flow worsened due to the Pandemic
  • Other Operating Income includes 13.14 crores being a grant of indirect taxes refund accrued based on approval received under Mega claim scheme for a hotel unit.

(N) Management Discussion & Concall Highlights

Management Discussion:

‘Aspiration 2022’ – and its vision to become the most iconic and profitable hospitality company while providing world-class customer service and experience, served the Company well during the past three years.

IHCL has a portfolio of 221 hotels, including 165 operational hotels, of which more than 50 hotels were signed in the past two years and 17 hotels were opened during the same period.

Moreover, Brand Finance’s Brand Value Report – India 2020 ranked IHCL’s flagship brand ‘Taj’ as the nation’s strongest brand, positioned at #1 on the list of the country’s strongest brands.

Strategy - RESET

The strategy of IHCL – R.E.S.E.T. 2020 – introduced early in the year 2020, began paying rich dividends in such a challenging environment. In the third quarter of the year, the industry started witnessing green shoots of revival with domestic leisure tourism leading the way, even as international tourism remained stagnant due to cross-border travel restrictions.

The actions of the Company under R.E.S.E.T. 2020 are:

  • Revenue Growth
  • Excellence
  • Spend Optimisation
  • Effective Asset Management
  • Thrift and Financial Prudence

Concall Highlights:

Performance in Q3

  • IHCL’s domestic Q3 RevPAR recovery stood at 89% versus pre-COVID in comparison with the 79% RevPAR recovery showcased by the industry.
  • Moreover, there is a good performance in Q3 with revenue growth of 85% and EBITDA growth of over 800% vs the previous quarter. For instance, Q3 PAT was at Rs.76 crores
  • The nine-month performance also saw improvement over the last year, with the doubling of revenues and growth in EBITDA by close to Rs.600 crores
  • As Management Committed the ARRs to grow because the occupancies grow and of course in leisure destinations is where people wanted to go to, But it will not a very big percentage of total business, but that will help drive ARR.

Outlook -

  • As Previously IHCL tried different things with AirAsia But now with the acquisition of Air India their ability to do this goes up for sure, actually. Overall, it's very, very positive for both the Indian hotels as well as Taj Sats, and IHCL will hopefully get the benefit of both stays as well as the catering business.
  • The rates in resorts are outperforming the rates of pre-COVID level. , the day company starts seeing 90-95% recovery of rooms revenue and total revenue in the key metros of Delhi, Bangalore, and Mumbai, Then the rate should bounce back.
  • The day when IHCL started its journey of Aspiration 2022, the company was at a 17% margin, and then the company got formal guidance of an 800 basis point increase. However, management said, the management will not stopped there. Actually, the company continues to focus on this journey of profitable growth. And then management think will host the next capital market,
  • Finance costs have increased quarter on quarter. That's because the borrowing was there. And with the rights issue, the company has repaid some of the debt. Yeah, it happened only the last week of December-2021

Capex -

  • Capex and renovations: It would be around Rs. 400 crores this year for consolidated and about Rs. 200 crores for a standalone.

(O) Strengths of Indian Hotels Co Ltd

(i) Strongest Hotel Brand

The company was rated the Strongest Hotel brand in the world by Brand Finance; the world's leading brand valuation consultancy in its annual 'Hotels 50 2021' report. Moreover, This report recognizes the most valuable and strongest hotel brands across the globe.

(ii) Part of Strong Parent Group

The company enjoys strong support from its key promoter Tata Sons Private Limited (TSPL) (38.09% stake) and is also an important strategic business for the Tata group. Moreover, TSL demonstrated its continued support to IHCL in the form of investments of around Rs.1,870 crore between FY10 and FY15. The proceeds from equity infusion were mainly used to retire debt and to support the operations of IHCL’s loss-making international subsidiaries.

(iii) Sales and Marketing

The Indian Hotels Company Limited's global sales teams are located across 13 locations including India, US, UK, Dubai, and Australia. which were responsible for driving sales for all the brands of IHCL. 

Additionally, An Experienced teams with strong relationships with  Corporates, Travel Consortia,  Travel Management Companies, Meetings Incentives, Conferences, and Events organizers including Professional Conference Organizers and 3rd party sites.

Moreover, a special team focuses on Weddings and social events. Travel Industry Sales focuses on  Key wholesalers, tour operators, travel agencies, and luxury travel specialists. 

(iv) Latest Technology Services

Capable of catering to groups ranging from 10 to 10,000 guests, from leadership summits and large incentive groups their holistic approach captures the top end of the weddings and MICE segment. However, IHCL continues to remain the first choice for international conferences and meetings.

(v) Unique Experiences

Authentic Indian hospitality allows them to continuously create unique experiences for customers across city hotels, resorts, and our grand palaces.

Ranging from spectacular arrivals with a sense of place, to personalized butler service, to a warm evening turn down and up to a fond farewell, our hotels ensure every customer touchpoint is well-curated.

(P) Weakness

(i) Weak performance

IHCL witnessed deterioration of its operational parameters on account of restrictions and hesitancy to travel on account of COVID-19. The occupancy levels deteriorated to 39% in FY21 from 67% in FY20; ARRs declined to Rs.7,351 in FY21 from Rs.10,734 in FY20.

Weak Overseas Subsidiaries

The relatively weak performance of overseas subsidiaries and delay in Sea Rock asset development has constrained profitability.

IHCL’s consolidated margins and profitability have been historically weaker than the standalone margins.

IHCL’s two major operating subsidiaries – Roots Corporation Ltd. (RCL) and United Overseas Holdings Inc. (USA) (UOH, Inc.) continued to post losses in FY21 as well.

Moreover, in FY21, IHCL transferred Rs.274.41 crore to UOH and provided for impairment of Rs.179.52 crore in its standalone financials in FY21, from its investments. With regard to UOH, Inc., the company as a strategy will continue to support the operations through infusion of funds.

(ii) Moderate Debt

The company resorted to availing incremental debt in FY2021 to fund its losses.

Cash losses, along with an increase in debt, led to deterioration in its debt coverage indicators.

(iii) Cash Outflow due to rentals dispute with Mumbai Port trust

The company has an ongoing lease rental dispute with MPT, pertaining to Taj Mahal Palace & Tower,

While MPT has claimed an additional rent of Rs. 527.24 crore with effect from FY2007, IHCL has contested the same.
The outcome of the litigation has been pending for the last several years and an adverse verdict for IHCL could result in a relatively significant cash outflow.

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References: Annual Reports, News Publications, Investor Presentations, Corporate Announcements, Management Discussions, Analyst Meets & Management Interviews, Industry Publications.

Disclaimer: The report only represents the personal opinions and views of the author. No part of the report should be considered as a recommendation for buying/selling any stock. Thus, the report & references mentioned are only for the information of the readers about the industry stated.

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