Indian Hotels Fundamental Analysis: Is the 25% Discount Coupon Worth it?

Indian Hotels Fundamental Analysis.

Have you ever been to the Hotel Taj or the magnificent Vivanta? We have all heard their names since childhood, and many of us dream of indulging in the regal experience these hotels offer. It’s no secret that being pampered by the unparalleled services and soulful moments at these luxurious hotel chains is on many of our bucket lists. Imagine rejuvenating in royal suites and opulent rooms with sea views after long work weeks—it provides an exquisite experience like no other.

To add a cherry on top, Indian Hotels Co Ltd honours its shareholders during their sojourns at these luxurious hotel brands. It offers a 25% discount on stays, dining, spa, and salon services to IHCL shareholders. Now, from an investor’s perspective, is this 25% discount coupon a compelling reason to invest in the company’s shares? Let’s delve into the Indian Hotels Fundamental Analysis to find the answer.

About the Company: Indian Hotels Fundamental Analysis

Company Background:

IHCL: South Asia’s largest hospitality company with over 120 years of industry leadership.
Brand Identity: Includes the iconic Taj brand, ranked as the ‘World’s Strongest Hotel Brand’ and ‘India’s Strongest Brand’ by Brand Finance Hotels 50 and India 100 reports 2024.

Expansion Strategy – Ahvaan 2025

Goal: To expand its brand and enhance experiences.
Targets:
-Operate 300+ hotels.
-Achieve 33% EBITDA margin.
-Generate 35% of EBITDA from new businesses and management fees by FY 2025-26.
-Key Drivers: Taj brand, ESG+ framework (Paathya), and digital initiatives.

Competitive Advantages

-Presence: Over 130 cities.
–Recognition: Taj named India’s strongest brand across sectors.
–Customer Loyalty: High satisfaction and loyalty.
–Financial Health: Strong balance sheet and investment flexibility.

Portfolio Overview

Operational Hotels: 220
Hotels in Pipeline: 91
Total Hotels: 311

Recent Achievements

2022: Taj was rated as the World’s Strongest Hotel Brand for the second year. Launched Ahvaan 2025 and Paathya ESG+ framework.
2023: Taj recognized as India’s Strongest Brand for the third year. Launched J Wellness Circle.
2024: Exceeded Ahvaan 2025 targets with 300+ hotels and relaunch of Gateway brand. Added Tree of Life to the portfolio.

Milestones

-Celebrated 120 years of the Taj Mahal Palace, Mumbai, a symbol of the brand’s history and impact on India’s hospitality landscape.

ESG Initiatives:

Energy: 37% from renewable sources.
EV Charging: 343 stations at 142 locations.
Wastewater Recycling: 48%.
EarthCheck Certification: 88 hotels, with 10 new additions this year.

Data as of April 30, 2024. Source of Information: IHCL Integrated Annual Report 2023-24.

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Fundamentals & Financials- Indian Hotels Fundamental Analysis

1. Market Cap

-The company is a large-cap with a market capitalisation of ₹87,441 Crores.

-For FY24, capex spending stands at ₹637 Crores, with a planned investment of approximately ₹2,500 Crores for the period FY25-27.

Profitability Ratios

1. Return on Equity (ROE)

-Indian Hotels maintains a decent ROE of 13.31%.
-ROE indicates how effectively a business allocates its capital to generate returns. A high ROE suggests efficient capital allocation.

2. Return on Capital Employed (ROCE)

-The company’s ROCE stands at a modest 14.66%.
-ROCE measures how effectively a company generates profit from its capital. A higher ROCE indicates a more efficient use of capital.

Valuation Ratios

1. Price-to-Earnings Ratio (P/E)

-The company’s P/E ratio is 67.83, higher than its sector P/E ratio of 67.6 suggesting overvaluation of the stock.
-A lower P/E compared to peers and the market suggests undervaluation, presenting a potential buying opportunity. Conversely, a high P/E indicates that investors are willing to pay a premium for perceived growth potential.

2. Price to Book Value (P/B)

-The TTM P/B value of 9.22 is high.
-Companies with lower P/B ratios than the industry’s ratio are considered attractively valued.

Leverage Ratios

1. Debt to Equity Ratio

-With a Debt-to-Equity Ratio of 0.03, significantly below 1, the company demonstrates strong financial health and minimal reliance on debt. This suggests that its assets are predominantly financed through equity.

2. Interest Coverage Ratio

The Interest Coverage Ratio is 10.63. This is significantly higher than the 1.5 benchmark. It indicates that the company comfortably covers its interest expenses with its earnings (EBIT).

Dividend

1. Dividend per Share

The current year dividend for Indian Hotels is ₹1.75, with a yield of 0.28% and a dividend payout ratio of 19.8%.
This indicates the portion of profit shared with shareholders. Consistent dividend payments are a positive indicator.

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Shareholding Pattern

Promoter holdings have remained steady at 38.12% for the June 2024 quarter, with no change in promoter pledges remaining at zero. However, it’s noteworthy that promoters have significantly reduced their holdings from 40.75% in March 2020 to 38.12% in June 2024.

Foreign Institutional Investors (FII/FPI) increased their holdings from 24.47% to 27.19%, marking a rise of 2.72%. This growth reflects strong confidence from foreign investors, who have raised their stake from 11.61% in March 2020 to 27.19% in June 2024.

Mutual Funds reduced their holdings from 15.92% to 13.71%, a decline of 2.21%. Domestic Institutional Investors (DIIs) also decreased their stake significantly, from 33.30% in March 2020 to 18.29% in June 2024.

Institutional Investors increased their holdings slightly, from 45.27% to 45.63%, which is a rise of 0.36%.

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Evaluating Financial Statements

1. Income Statement

Consistent growth in revenues and net profit, along with a decline in costs, indicates a healthy income statement or profit and loss statement.

Profit and Loss statements Indian Hotels

*All financials are in Rs Crores. Data Source: Annual Reports FY 2024

Revenue from Sales:
-In the last 5 years (March 2020- March 2024): Revenue Increased from 4,595.56 crores to 6,951.67 crores (a rise of approximately 51.26%).
-TTM Revenue (March 2024 to TTM): Revenue increased from 6,951.67 crores to 7,032.2 crores (a rise of 1.16% over the period).

Net Profit:
-In the last 5 years (March 2020- March 2024): Net profit Increased from 354.42 crores to 1,259.07 crores (a rise of approximately 255.23%).
-TTM Net Profit (March 2024 to TTM): Net profit increased from 1,259.07 crores to 1,285 crores ( a rise of approximately 2.06% over the period).

EPS:
-In the last 5 years (March 2020- March 2024): Increased from Rs 3.00 per share to Rs 9.00 per share (a rise of approximately 200%).
-TTM EPS (March 2024 to TTM): increase from Rs 9.00 per share to Rs 9.05 per share (a rise of approximately 0.56% over the period).

Indian Hotels has shown impressive growth in revenue, net profit, and EPS over the past five years, reflecting robust financial health. However, the modest increases in these metrics during the TTM period suggest a potential stabilization or slower growth phase, which investors should keep an eye on.

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2. Balance Sheet

The balance sheet includes assets, which are the company’s possessions used to generate returns; liabilities, which are the company’s debts; and shareholders’ equity, representing the portion of assets owned by shareholders.

Thus, Total Assets = Liabilities + Equity or Liabilities = Total Assets – Equity

Indian Hotels Balance Sheet

*All financials are in Rs Crores. Data Source: Annual Reports FY 2024

Assets: Increasing assets signal that a company is expanding, investing in new projects, or acquiring resources, indicating potential growth and revenue increases. Indian Hotels has consistently grown its assets.

Liabilities: Declining liabilities suggest improved financial stability by reducing debt and obligations. Indian Hotels has seen a steady decrease in its liabilities.

Shareholders’ Equity: Rising shareholders’ equity reflects a growing net worth, driven by higher profits and effective asset and liability management. Indian Hotels has shown consistent growth in this area.

Indian Hotels demonstrates strong financial health with increasing assets, declining liabilities, and growing shareholders’ equity, indicating robust growth and effective financial management.

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3. Cash Flow Statements

Let’s move on to the Cash Flow Statements in Indian Hotels fundamental analysis. The cash flow statement is crucial in stock analysis as it shows a company’s real ability to generate cash. Unlike income statements, which recognize income when earned, cash flows reflect actual cash transactions. Essentially, it reports how well a company converts its profits into usable cash for operations.

Indian Hotels Cash Flow Statements

*All financials are in Rs Crores. Data Source: Annual Reports FY 2024

Net Cash Flow from Operating Activities: Positive cash inflows indicate strong operational performance, and the consistent growth over the past 3 years is a positive sign.

Cash Used in Investing Activities: Negative cash flow suggests spending on asset expansion, which is favourable if it supports future growth.

Cash Flows from Financing Activities: Negative cash flows indicate debt repayment or share buybacks, reflecting effective management of liabilities and reduced leverage.

Indian Hotels shows robust operational cash flow growth, strategic asset investment, and effective liability management through its financing activities.

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PEER Comparison

Highlights Of Earnings and Revenue- Annual/Quarterly

Annual Performance:

Revenue: Increased by 16.86% to ₹6,951.67 Cr, exceeding the sector’s average growth rate of 12.81%.
Net Profit: Rose by 25.58% to ₹1,259.07 Cr, significantly outperforming the sector’s average growth of 7.83%.

Revenue and net profit growth are above the sector averages, indicating strong financial health and effective business strategies.

Stock Performance: Up by 58.69%, surpassing the sector average by 5.62% over the past year.
Quarterly Performance:

The significant rise in stock price shows positive market sentiment and investor confidence.

Quarterly Performance:

Revenue: Grown by 5.72% year-over-year to ₹1,596.27 Cr, trailing behind the sector’s average YoY growth of 15.39%.
Net Profit: Increased by 11.67% year-over-year to ₹248.39 Cr, in contrast to the sector’s average decline of -37.9%.

While quarterly revenue growth is slightly below the sector average, net profit growth stands out significantly, highlighting strong profitability despite sector-wide declines.

Indian Hotels Fundamental Analysis

Key Strengths:

1. Strong Revenue Growth for the past 5 years.
2. Significant Profit Increase over the last 3 years.
3. Strong Financial Stability: A low debt-to-equity ratio of 0.03 and a high-interest coverage ratio of 10.63 demonstrate effective financial management.
4. Positive Cash Flow: Consistent growth in operating cash flows and strategic investment in assets are positive indicators.

5. Increasing FII stock holdings

Key Weaknesses:

1. High Valuation: The P/E ratio of 67.83 is higher than the sector’s average, which may indicate overvaluation.
2. Quarterly Performance Lag: Quarterly revenue and profit growth are below sector averages, signalling potential short-term challenges.

Cautions to be Exercised:

1. Valuation Concerns: Monitor the high P/E ratio and ensure future growth justifies the current valuation.
2. Quarterly Trends: Watch for improvements in quarterly performance to ensure it aligns with strong annual results.

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Conclusion

Indian Hotels displays strong overall growth and financial health, with impressive annual revenue and profit increases, effective debt management, and positive cash flows. However, the high valuation and mixed quarterly performance warrant careful consideration. Given the company’s strong fundamentals and growth prospects, a buy recommendation for the long term is warranted, provided that investors remain vigilant about valuation and quarterly performance trends. The 25% coupon discount is actually a cherry on the cake for the company’s shareholders.

That’s all for today’s post. Hope you get some valuable insights from here.

Happy reading!

Disclaimer

The blog is meant for informational purposes and serves the general analysis of the stocks. The contents provided here are based on careful research and analysis utilizing the fundamental and technical indicators over some time. The post does not consist any direct recommendation about Investing or trading in the securities market. Thorough research and careful consideration are necessary for individuals to fulfil their responsibility in making financial decisions. Seeking professional advice before making any financial decisions is always advisable.