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Initiation
Indian Hotels
Turning around: Initiate with Overweight, PT of Rs130
Initiate with OW, Mar-11 PT of Rs130: Indian Hotels (IHCL), is the largest play on the hospitality sector in India, with an inventory of close to 12,200 rooms. Following a muted FY09/10, which saw the company report the biggest loss in its history, we now expect a turnaround in operating performance in FY11 driven by improving occupancy/ARR trends in domestic operations and stabilization of its international portfolio post the re-opening of its marquee property Pierre (US). Our PT of Rs130 is based on 13.5x FY12E EV/EBITDA, in line with the historical average. A fundamental improvement in business trends and high EBITDA/earnings growth will support valuations, in our view. Turnaround story is playing out nicely as the occupancy rates for the domestic business picked up to 70-76% in 2H FY10. An improving economy (FY11E GDP of 8.3%) and strong volume growth should drive standalone revenue/EBITDA growth of 22%/36% over FY10E-12E. The companys international portfolio should also now start stabilizing. Recent launch of Pierre (New York property) received an encouraging initial response (occupancy at 71% in May). Further our US lodging analysts (Joseph Greff) believes that we are in the early stages of a multi-year lodging upturn and expects 2010 to be a year of robust lodging demand. Management commentary coming out of key US hoteliers (Marriott/ Hyatt) in the recent 1Q10 results seems to reinforce this positive view. Share price catalysts: IHCLs share price correlation with USD/INR is striking and seems to hold for both short (three-month) to long-term (15year) periods. Our estimate of 7% rupee appreciation by end CY10 is a positive. Further quarterly improvement in revenue/EBITDA trends in the domestic business and incremental data points on US portfolio performance are likely to be the key share price drivers in the near term. Key risks to our view: Leverage concerns still persist: IHCLs net D/E at 1.5x is fairly elevated and will likely remain so as the company is still in an investment mode in the domestic business. However a Rs7.6B cash balance makes it well funded to meet capex/interest commitments. The main funding gap for IHCL primarily comes from the potential acquisition of Sea Rock (likely 2013/14) which on our estimates will require additional capital of Rs12B. Other risks: 1) a slowdown in economic growth; 2) longer-thanexpected turnaround period for the international business; 3) any negative incidents (e.g. terrorist attack, swine flue).
Bloomberg: IH IN; Reuters: IHTL.BO
Rs MM, year-end March Sales EBITDA Net profit P/E (x) EV/EBITDA ROE (%) Net debt/Equity P/B FY09 26,861 5,121 125 562.8 20.9 0% 133% 2.1 FY10 25,210 3,981 (1,369) -51.3 26.9 -5% 145% 2.8 FY11E 31,891 6,595 1,919 36.6 16.3 7% 145% 2.6 FY12E 39,894 9,805 4,337 16.2 10.9 15% 127% 2.3
Overweight
IHTL.BO, IH IN Price: Rs97.10 Price Target: Rs130.00
Gunjan Prithyani
(91-22) 6157-3593 gunjan.x.prithyani@jpmorgan.com J.P. Morgan India Private Limited
Company data
52-wk range (Rs) Mkt cap. (Rs MM) Mkt cap. (US$ MM) Avg. daily volume (MM) Avg daily value (US$ MM) Shares O/S (MM) Index (BSE Sensex) Exchange rate
Source: Bloomberg
See page 22 for analyst certification and important disclosures, including non-US analyst disclosures.
J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
This document is being provided for the exclusive use of NGUYEN VO at VIET CAPITAL SEC JOINT STOCK COMPAN
Saurabh Kumar (91-22) 6157-3590 saurabh.s.kumar@jpmorgan.com Asia Pacific Equity Research 07 June 2010
Company Description Indian Hotels Company Ltd (IHCL) is the largest hotel operator in South Asia with an inventory of ~12,200 rooms (103 hotels) across India and international markets (USA, Australia, Maldives, Malaysia, UK, Sri Lanka). IHCL has presence across luxury, premium, mid-market and value segments of the market via its various brands i.e. Taj, Vivanta, Gateway and Ginger.
We are setting a Mar-11 PT of Rs130 based on 13.5x FY12E EV/EBITDA for the consolidated which is inline with its historical average. We believe improving fundamental trends can well propel the stock to above historical averages.
NAV breakdown by asset class
Key risks to target price are: 1) a slowdown in economic growth; 2) longerthan-expected turnaround period for international business; 3) any more terrorist attacks in India.
Key share price catalysts for the stock over the next 12 months in our view:
Source: Company reports
a) Positive Q/Q growth in reported revenues/EBITDA in domestic business (standalone business) driven by improving ARR and occupancy trends.
Consensus 2.0 4.0
b) Any commentary (positive/negative) from the management on the US portfolio performance (especially Pierre performance). IHCL does not report consolidated numbers on quarterly basis, therefore it is difficult to ascertain the performance of the international portfolio (held via subsidiaries). c) Rupee appreciation, given the strong correlation of the share price with the USDINR Fx rate as highlighted above. J.P. Morgan expects the rupee to appreciate by 7% by CY10 end.
MCap (US$MM) 1,561 1,012 396 12,419 8,914 1,748 4,195 5,180 8,954 995
Price/Book (x) FY11E FY12E 2.6 3.1 1.3 7.4 4.5 1.4 1.5 1.2 2.8 1.4 2.9 2.3 2.8 1.4 5.9 4.1 1.4 1.3 1.1 2.5 1.3 2.5
EV/EBITDA (x) FY11E FY12E 16.3 15.5 21.4 14.4 14.4 16.5 7.0 15.9 21.4 26.5 16.6 10.9 12.5 15.8 11.2 12.0 13.0 5.9 13.1 14.2 17.1 12.4
This document is being provided for the exclusive use of NGUYEN VO at VIET CAPITAL SEC JOINT STOCK COMPAN
Saurabh Kumar (91-22) 6157-3590 saurabh.s.kumar@jpmorgan.com Asia Pacific Equity Research 07 June 2010
Investment Positives
Expect room demand to rebound sharply on the back of improving economic growth
We believe IHCLs domestic business revenues and earnings have troughed and will incrementally see a turnaround happening over FY11/12 as an improving economy leads to higher occupancy and ARR trends. The complete opening of Mumbai property by July-11 should also aid operating parameters.
Leading indicators like tourist arrivals and air passenger traffic are showing positive trends
Improved economic outlook should aid both occupancy and ARR trends going ahead. JPM expects GDP growth of 8.3% in FY11 against 7.4% in FY10
Various economic indicators are now pointing towards an improvement in room demand. Tourist arrivals in India after witnessing a decline for over one year have now started to turn positive, registering a double digit growth in the peak season (Dec-09/Feb-10). Against FY02-09 tourist arrival CAGR of 15%, growth in FY10 was a mere 4% (impact of economic slowdown). However this should start to reverse going ahead. Various industry bodies point to a 13-15% growth in room demand over FY10-12, inline with past historical trends This should be driven by increasing corporate travel budgets, conferences /conventions, diplomatic visits and a pick-up in sporting events such as Commonwealth Games (2H10), Cricket World Cup (2011). IHCL with an industry leadership position and presence across leisure/ business/ mid market segment is well poised to benefit as demand rebounds to its pre-crisis levels driven by improvement in real GDP.
Figure 1: India room demand (mm) vs. Real GDP trends (%)
12 10 8 6 4 2 0 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11EFY12E Room Demand
Source: Bloomberg, Crisil and J.P. Morgan estimates.
This document is being provided for the exclusive use of NGUYEN VO at VIET CAPITAL SEC JOINT STOCK COMPAN
Saurabh Kumar (91-22) 6157-3590 saurabh.s.kumar@jpmorgan.com Asia Pacific Equity Research 07 June 2010
% YoY grow th
Occupancies across key markets have improved by 5-20% y-o-y over the last quarter (Jan-10-Mar-10). South Mumbai and Bangalore markets were the key out performers witnessing 15-20% increase in occupancy rates (ORs) y-o-y and both of the markets are now operating at ~75% levels. At this level of demand, we do expect some amount of pricing power to come back to hoteliers leading to a 5-7% ARR growth in 2H FY11.
Figure 5: Occupancy trends (% ch YoY)
20 15.2 72 58 73 59 10 67 0 -10 -20 -16.2 -5.5 -7.2 -12.8 -1.5 -7.2 -1.9 -1.4 10.8 5.3 3.8
78
75
79
Jan-08-Mar-08
Source: Crisil
Source: Crisil
Ap r-0 M 9 ay -0 9 Ju n09 Ju l-0 9 Au g09 Se p09 Oc t-0 9 No v-0 9 De c-0 9 Ja n10 Fe b10 M ar -1 0
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Saurabh Kumar (91-22) 6157-3590 saurabh.s.kumar@jpmorgan.com Asia Pacific Equity Research 07 June 2010
Crisil now expects a total room addition of 7000 rooms, or a 10% CAGR over 201012. This is significantly below its initial target estimates and in line with expected demand growth. Further we note that luxury segment is not a significant contributor to the total upcoming supply. We do not see supply growth to be a big problem if tourist arrivals growth holds at 13-14% CAGR for the next two years (in line with historic trend). In addition to 14% growth in tourist arrivals, there is likely to be some growth coming in from domestic economic sectors and sporting events. This should lead to a proportional growth in room demand and should be enough to offset the room inventory growth.
Figure 6: Pan-India - Demand supply trends
50,000 40,000 30,000 20,000 10,000 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 80 60 40 20 First class 27%
Budget 19%
Of late, however, there seems to be a renewal in interest by international chains such as Mariott and Hyatt to build out their India business. However, we note that new entrants will likely take 3-4 years to scale up, leaving incumbents such as IHCL in a strong position in the medium term.
This document is being provided for the exclusive use of NGUYEN VO at VIET CAPITAL SEC JOINT STOCK COMPAN
Saurabh Kumar (91-22) 6157-3590 saurabh.s.kumar@jpmorgan.com Asia Pacific Equity Research 07 June 2010
0% -10% -20% -30% -40% Nov -08 Jan-09 Mar-09 May -09 Jul-09 Sep-09 Nov -09 Jan-10 Mar-10
17,000 15,000 13,000 11,000 9,000 7,000 5,000 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11E 7,942 8,219 9,182 9,931 10,464 FY04-10 CAGR of 8% 11,546 12,243 14,015
16,335
FY12E
This document is being provided for the exclusive use of NGUYEN VO at VIET CAPITAL SEC JOINT STOCK COMPAN
Saurabh Kumar (91-22) 6157-3590 saurabh.s.kumar@jpmorgan.com Asia Pacific Equity Research 07 June 2010
Management contracts to dominate the future expansion plans IHCL currently has approximately ~1,900 rooms under management contract which account for 15% of its total inventory. Going ahead, management contracts will dominate the majority of expansion thereby limiting the capital requirement and improving reported margins. We expect the share of MTs to increase to ~20% by the end of FY12. We note that IHCL has almost 3,800 rooms planned under its domestic and international business to come via the management contract route.
Figure 10: Rooms under management contracts over FY08-12E
4,000
Management contracts as a % total inventory is expected to increase to ~20% by FY12 end vs. 15% currently
FY2012
Rooms under MT
Source: Company, J.P. Morgan estimates
This document is being provided for the exclusive use of NGUYEN VO at VIET CAPITAL SEC JOINT STOCK COMPAN
Saurabh Kumar (91-22) 6157-3590 saurabh.s.kumar@jpmorgan.com Asia Pacific Equity Research 07 June 2010
Earnings and revenue growth should start improving from domestic business
We expect IHCL to register revenue a CAGR of 22% over FY10-12, primarily driven by volume growth of 15% pa and 5-7% ARR increase over the next two years. Further, increasing share of MTs in the total room inventory is likely to aid margins. Correspondingly, we expect an EBITDA CAGR of 36% over FY10-12E.
Figure 11: Standalone revenues (Rs MM) and YoY growth (%)
25,000 20,000 15,000 10,000 5,000 FY08 FY09 FY10 FY11E FY12E -8% -9% 15% 17% 27% 30% 20% 10% 0% -10% -20%
Figure 12: Standalone EBITDA (Rs MM) and YoY growth (%)
8,000 6,000 4,000 2,000 FY08 -29% FY09 9% -22% FY10 FY11E FY12E 19% 55% 60% 40% 20% 0% -20% -40%
YoY grow th
Stanalone EBITDA
Source: Company reports and J.P. Morgan estimates.
YoY grow th
This document is being provided for the exclusive use of NGUYEN VO at VIET CAPITAL SEC JOINT STOCK COMPAN
Saurabh Kumar (91-22) 6157-3590 saurabh.s.kumar@jpmorgan.com Asia Pacific Equity Research 07 June 2010
Management commentary coming out of key US hoteliers (Marriott/ Hyatt) also seems to be getting positive In its recent quarterly results, Marriott management commented that it is seeing rate increases in select markets such as New York, Boston and Washington. Hyatt in its 10Q filing commented that while the strength, pace and durability of a global economic recovery remains uncertain and hotels face rate pressure, we have seen an improvement in demand as evidenced by increased occupancy levels and recent stabilization of rates in certain markets.
Figure 14: US room demand trends are improving
IHCLs growth in the international business has primarily been acquisition led especially in times when valuations were reasonably high and most of the acquisitions were primarily debt funded. A high-cost renovation of a marquee property (Pierre) coupled with leverage has adversely impacted companys international business over the last few years. While the overseas operations account for ~20% of revenue, IHCL has consistently been making losses here last 2-3 years. However this should incrementally start changing. The international business especially US should start moving towards a cash flow neutral situation driven by:
International portfolio has been a drag on companys performance over the last two years. Incrementally, this should start to reverse primarily on the back of Pierre re-opening
(a) Encouraging early trends from Pierre re opening in New York post its US$100MM renovation. The property was soft launched in September and has received a fairly encouraging response to its launch. The property has already reached 70% occupancy level and is commanding ARRs in the range of US$500-550. Management expects the ARRs to improve meaningfully going ahead given the asset is still in promotional mode and ARRs for similar properties in the vicinity are in the range of US$650-US-750.
This document is being provided for the exclusive use of NGUYEN VO at VIET CAPITAL SEC JOINT STOCK COMPAN
Saurabh Kumar (91-22) 6157-3590 saurabh.s.kumar@jpmorgan.com Asia Pacific Equity Research 07 June 2010
540 520 500 480 460 Jan Feb Mar ARR (US$MM)
Source: Company reports
71%
80% 60%
549
40% 20% 0%
May
US analyst forecasts for Marriott and specifically Ritz Carlton imply improvement in operating metrics. This implies positive operating trends for IHCL's US portfolio
Table 5: Marriott and Ritz Carlton (comparable hotel) operating stats show improvement in FY11/12
% Ritz Carlton Occupancy Ritz Carlton ADR Y/Y change Ritz Carlton RevPar Y/Y change Total Marriott US portfolio Rev Par change
Source: Company reports and J.P. Morgan estimates.
(b) Improvement in occupancies/ARRs across its international portfolio as global recovery gains pace. IHCL has a sizable exposure to overseas markets with international operations accounting for ~20% of the total revenues. Operating performance of key international properties such as St James Court (London), Taj Boston and San Francisco should start to improve driven by recovery in global economy.
Table 6: Key international properties
Property The Pierre, New York Taj Boston Campton Place, San Fransico Blue Sydney St. James, London
Source: Company presentation
(c ) Restructuring of international debt: IHCL recently has restructured its international debt profile by raising Rs7B of unsecured debt in India at an average yield of ~9.5% per annum (2% coupon). This has been used to pay back the high cost debt of overseas acquisitions (US properties and Samsara) thereby reducing the interest burden there.
10
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Saurabh Kumar (91-22) 6157-3590 saurabh.s.kumar@jpmorgan.com Asia Pacific Equity Research 07 June 2010
Investment risks
Debt levels to remain elevated
IHCLs current net debt stands at Rs37B. We expect the debt levels to remain at these elevated levels over the next two years despite expected improvement in operational performance. This is because the cash flows generated would just about meet companys capex and interest commitments thereby leaving limited room to de leverage the balance sheet. IHCLs gearing level increased to 1.5x in FY10 from 0.9x in FY07 and is expected to remain high in the medium term. Most of the increase in debt over 2006-10 has been on account of its acquisitions in the international business. While the overseas operations currently account for ~20% of revenue, they have been making losses for the last 2-3 years. Company recently raised Rs7B of low-cost coupon debt at an average yield of 9.5% per annum (2% coupon). Amount raised has been used to pay back the high cost debt of overseas acquisitions (US properties and Samsara) thereby reducing the average cost of debt. Average cost of debt is expected to come down to around 7% (from 910%).
Table 7: Indian Hotels: Debt profile
Net debt at 1.5x is high. However, liquidity of Rs7.6B on hand enough to fund capex and meet commitments Gross Debt Non Committed Liability Net Debt Share holders funds Net Debt/Equity
Source: Company
1.4
1.3
1.5
1.4
0.9
FY07
FY08
FY09
FY10
FY11E
11
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Saurabh Kumar (91-22) 6157-3590 saurabh.s.kumar@jpmorgan.com Asia Pacific Equity Research 07 June 2010
70 60 50 40 30 20 10 0
Current hoding stands at 7.9% on account of dilution post the rights issues.
6/1/2007
8/1/2007
2/1/2008
4/1/2008
6/1/2008
8/1/2008
2/1/2009
4/1/2009
10/1/2007
12/1/2007
10/1/2008
Source: Bloomberg
12
12/1/2008
6/1/2009
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Saurabh Kumar (91-22) 6157-3590 saurabh.s.kumar@jpmorgan.com Asia Pacific Equity Research 07 June 2010
OEHs recent 1Q results were bad largely as a result of one-time, weather/floodrelated events in Peru and Madeira. With that said, our US team is upbeat on a seasonally strong 2Q and 3Q outlook. Forward booking trends continue to improve, and this should help occupancy levels and room revenues to increase in 2010. JPMs 2010 PT on OEH is US$14 (current share price US$9), based on ~15.6x 2011EV/ EBITDA. A higher multiple is given to justify a high asset quality.
13
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Saurabh Kumar (91-22) 6157-3590 saurabh.s.kumar@jpmorgan.com Asia Pacific Equity Research 07 June 2010
Average - 1.8x
Average - 13.5x
05
06
05
03
02
03
04
04
06
07
07
Oc t-
08
Oc t-
Oc t-
Oc t-
Oc t-
Oc t-
Oc t-
Oc t-
Oc t-
Oc t-
Oc t-
Oc t-
Oc t-
08 Oc t-
P/B
Source: Company reports, Bloomberg and J.P. Morgan estimates.
Av g
EV/EBITDA
Av g
stdev +1
Figure 20: Long term EV/EBITDA charts of key US hotels- Most have traded at 12-14x long term average. Our target 13.5x EV/EBITDA multiple is inline with long term averages of key large hoteliers
14
Oc tsdev -1
Oc t-
Oc t-
Oc t-
09
01
02
09
01
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Saurabh Kumar (91-22) 6157-3590 saurabh.s.kumar@jpmorgan.com Asia Pacific Equity Research 07 June 2010
Looking at global peer group we find that most of them are trading at 16.6x /12.5x CY10/11 EV/EBITDA. A higher multiple for next year is mostly on account of a view that current EBITDA levels are depressed but may quickly gather steam as growth recovers. Indian Hotels which has a high growth domestic business and a recovering international portfolio is trading at a 10-15% discount to global peer group.
Table 9: Peer valuations
Name Indian Peers Indian Hotels EIH Hotel Leela Global Peers Marriott International-Cl A Starwood Hotels & Resorts Hyatt Hotels Corp - Cl A Wyndham Worldwide Corp Shangri-La Asia Ltd Genting Singapore Plc Mandarin Oriental Intl Ltd Average
Source: Bloomberg, J.P. Morgan estimates. Price as of Jun-06, 2010
MCap (US$MM) 1,561 1,012 396 12,419 8,914 1,748 4,195 5,180 8,954 995
FY11E 37 26 19 33 52 NM 14 28 47 29 33.7
FY11E 2.6 3.1 1.3 7.4 4.5 1.4 1.5 1.2 2.8 1.4 2.9
Price/Book FY12E 2.3 2.8 1.4 5.9 4.1 1.4 1.3 1.1 2.5 1.3 2.5
FY11E 16.3 15.5 21.4 14.4 14.4 16.5 7.0 15.9 21.4 26.5 16.6
EV/EBITDA FY12E 10.9 12.5 15.8 11.2 12.0 13.0 5.9 13.1 14.2 17.1 12.5
Looking at EV/IC and Return on invested capital (ROIC) trends, we find that Indian Hotels is better placed than some of its peer group. Further given heavy capex nature of Indian Hotels (asset ownership model), the return ratios are relatively under stated vs. peer group. Also IHCL has carries a mark-to-market loss on OEH investment (EV discounts it but still considered part of invested capital). Adjusting for this, Indian Hotels relative valuation becomes even more attractive.
Figure 21: EV/IC and ROIC analysis
2.0 1.5 1.0 0.5 0.0% 2.0% 4.0% 6.0% 8.0% Hy att Mandarin Shangri-La Genting SGP HOT IHCL WYN
EIH Mariott
10.0%
12.0%
14.0%
Source: Company reports and J.P. Morgan estimates. Dashed line refers to adjusted IC of Indian hotels (adjusting for MTM loss on OEH)
15
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16
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Saurabh Kumar (91-22) 6157-3590 saurabh.s.kumar@jpmorgan.com Asia Pacific Equity Research 07 June 2010
Figure 26: Indian Hotels - Correlation of share price vs. currency change (monthly change)
40% 20% 0% -20% -40% -8% -6% -4% -2% 0% 2% 4% 6% 8%
y = -3.2x + 0.0
% ch in currency
Source: Bloomberg
Linear (% ch in currency )
Rationalizing the above behavior we think that on a fundamental basis the impact of FX changes on IHCL should be mixed. An appreciating currency typically caps ARR performance as costs to inbound visitors increase on a US$ basis. However, on the positive side an appreciating currency also coincides with improving economic growth (leading to higher inflows) and also helps reduce interest outflow on the foreign denominated debt.
17
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Saurabh Kumar (91-22) 6157-3590 saurabh.s.kumar@jpmorgan.com Asia Pacific Equity Research 07 June 2010
FY10 14,732 4,098 6,380 25,210 -6% 3,803 (150) 328 3,981 15.8% (2,185) 1,796 7% (3,061) 322 (943) (847) -90% (1,790) -7% (139) (46) (1,975) 606 (1,369) -1197% 723 (1.9) -5%
FY11E 17,272 5,066 9,554 31,891 27% 4,543 1,013 1,039 6,595 20.7% (2,365) 4,230 13% (1,952) 354 2,632 (790) 30% 1,843 6% (153) 229 1,919 1,919 -240% 723 2.7 6%
FY12E 21,861 6,353 11,681 39,894 25% 7,032 1,525 1,248 9,805 24.6% (2,602) 7,203 18% (1,716) 390 5,877 (1,763) 30% 4,114 10% (168) 391 4,336 4,336 126% 723 6.0 11%
16,195 4,589 6,077 26,861 -8% 4,886 (500) 735 5,121 19.1% (1,885) 3,232 12% (2,305) 705 1,633 (1,558) 95% 75 0% (158) 255 172 (48) 125 -96% 723 0.2 0%
Margins are expected to improve meaningfully given growth in domestic business and improvement in international business Depreciation charges will likely increase because of opening of new property in US
Clarity on future tax benefits still low as recently govt. of India has announced investment-linked tax benefit for hotel chains
18
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Saurabh Kumar (91-22) 6157-3590 saurabh.s.kumar@jpmorgan.com Asia Pacific Equity Research 07 June 2010
FY09 48,156 3,612 24,077 641 1,778 2,528 8,865 13,932 5,556 2,015 7,570 3,833 83,956 26,596 19,873 46,469 32,979 83,956 43,940 46 0% 3% 1.3
FY10 48,035 3,304 12,866 602 1,422 7,590 4,165 14,317 5,042 2,015 7,057 (329) 73,215 34,546 10,061 44,607 25,451 73,215 37,017 35 -5% 2% 1.5
FY11E 50,808 3,304 12,866 761 2,551 2,560 4,165 10,037 6,378 2,015 8,393 (377) 70,910 31,046 10,061 41,107 26,647 70,910 38,547 37 7% 5% 1.4
FY12E 55,053 3,304 12,866 952 3,192 2,624 4,165 10,933 7,979 2,015 9,994 (1,146) 74,451 31,046 10,061 41,107 30,187 74,451 38,483 42 15% 8% 1.3
Rs7.6B of FY10 cash balance enough to take care of all ongoing commitments and new capex
Debt levels likely to remain fairly constant over the next two years. Operational cash flows are largely used to fund ongoing capex and interest commitments
FY09 5,121 (1,558) 97 705 (4,142) 223 (10,380) (9,299) (19,456) (2,305) (1,016) 11,801 2,519 (48)
FY10 3,981 (847) (185) 322 4,163 7,434 (2,064) 11,518 16,888 (3,061) (723) (1,862) (6,161) 5,061
FY11E 6,595 (790) 76 354 48 6,283 (5,138) 1,145 (1,952) (723) (3,500) (0) (5,030)
FY12E 9,805 (1,763) 223 390 769 9,423 (6,847) 2,576 (1,716) (796) (0) 65
19
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Saurabh Kumar (91-22) 6157-3590 saurabh.s.kumar@jpmorgan.com Asia Pacific Equity Research 07 June 2010
Company brief
Indian Hotels Company Ltd (IHCL) is the largest hotel operator in South Asia with an inventory of ~12,200 rooms (103 hotels) across India and international markets (USA, Australia, Maldives, Malaysia, UK, Sri Lanka). IHCL has a presence across luxury, premium, mid-market and value segments of the market via its various brands i.e. Taj, Vivanta, Gateway and Ginger. IHCL also operates Taj Sats Air Catering Ltd which is involved in airline catering service in South Asia.
Figure 27: Indian Hotels: Room inventory breakdown
Associate/JV 28% IHCL 31% International 11% Gatew ay Subsidiaries 26%
Source: Company, J.P. Morgan
MTs 15%
FII 14%
20
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Ratio Analysis %, year-end Mar EBITDA margin EBIT margin Net profit margin FY09 19% 12% 0% FY10 16% 7% -5% FY11E 21% 13% 6% FY12E 25% 18% 11%
-8% -96%
-6% -1197%
27% -240%
25% 126%
Interest coverage (x) Net debt to total capital Net debt to equity Sales/assets Assets/equity ROE ROCE
21
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Saurabh Kumar (91-22) 6157-3590 saurabh.s.kumar@jpmorgan.com Asia Pacific Equity Research 07 June 2010
Analyst Certification: The research analyst(s) denoted by an AC on the cover of this report certifies (or, where multiple research analysts are primarily responsible for this report, the research analyst denoted by an AC on the cover or within the document individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analysts compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report.
Important Disclosures
Client of the Firm: Indian Hotels is or was in the past 12 months a client of JPMSI.
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225
90
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Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends. This chart shows J.P. Morgan's continuing coverage of this stock; the current analyst may or may not have covered it over the entire period. J.P. Morgan ratings: OW = Overweight, N = Neutral, UW = Underweight.
Explanation of Equity Research Ratings and Analyst(s) Coverage Universe: J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the average total return of the stocks in the analysts (or the analysts teams) coverage universe.] Neutral [Over the next six to twelve months, we expect this stock will perform in line with the average total return of the stocks in the analysts (or the analysts teams) coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analysts (or the analysts teams) coverage universe.] J.P. Morgan Cazenoves UK Small/Mid-Cap dedicated research analysts use the same rating categories; however, each stocks expected total return is compared to the expected total return of the FTSE All Share Index, not to those analysts coverage universe. A list of these analysts is available on request. The analyst or analysts teams coverage universe is the sector and/or country shown on the cover of each publication. See below for the specific stocks in the certifying analyst(s) coverage universe.
Coverage Universe: Saurabh Kumar: Ascendas India Trust (AINT.SI), DLF Limited (DLF.BO), Housing Development and Infrastructure Ltd. (HDIL) (HDIL.BO), Indiabulls Real Estate (INRL.BO), Ishaan Real Estate Plc (ISH.L), Puravankara Projects Ltd (PPRO.BO), Sobha Developers (SOBH.BO), Unitech Ltd (UNTE.BO)
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J.P. Morgan Equity Research Ratings Distribution, as of March 31, 2010 Overweight (buy) 45% 48% 42% 70% Neutral (hold) 42% 46% 49% 58% Underweight (sell) 13% 32% 10% 48%
JPM Global Equity Research Coverage IB clients* JPMSI Equity Research Coverage IB clients*
*Percentage of investment banking clients in each rating category. For purposes only of NASD/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold rating category; and our Underweight rating falls into a sell rating category.
Valuation and Risks: Please see the most recent company-specific research report for an analysis of valuation methodology and risks on any securities recommended herein. Research is available at http://www.morganmarkets.com , or you can contact the analyst named on the front of this note or your J.P. Morgan representative. Analysts Compensation: The equity research analysts responsible for the preparation of this report receive compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues, which include revenues from, among other business units, Institutional Equities and Investment Banking. Registration of non-US Analysts: Unless otherwise noted, the non-US analysts listed on the front of this report are employees of non-US affiliates of JPMSI, are not registered/qualified as research analysts under NASD/NYSE rules, may not be associated persons of JPMSI, and may not be subject to NASD Rule 2711 and NYSE Rule 472 restrictions on communications with covered companies, public appearances, and trading securities held by a research analyst account.
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