Indian Hotels reports strong Q2 as demand continues to grow

Tata Group’s Indian Hotels Company Limited (IHCL), India’s largest hospitality company, announced strong financial results for the second quarter ending September 30th, 2023, marking the sixth consecutive quarter of record performance. IHCL’s revenue grew 18% year-on-year to Rs 1,481 crores, EBITDA jumped 26% to Rs 402 crores with margin expansion of 180 basis points, and profit after tax rose 37% to Rs 167 crores.

This stellar performance comes on the back of a turbulent few years for the hospitality industry in India. The COVID-19 pandemic and subsequent lockdowns brought the sector to its knees as demand evaporated overnight. Hotels saw occupancies plunge to single digits for months as travel came to a standstill. IHCL itself reported an unprecedented net loss of Rs 286 crores in Q1 FY21 at the peak of the first wave. The pain was prolonged by the devastating second wave in early 2021.

But the industry has scripted a remarkable comeback over the past year, riding on pent-up leisure travel demand and a revival in business travel. Domestic tourism is firing on all cylinders as Indians make up for lost holidays. International travel too is returning as cross-border restrictions ease. Hotel chains like IHCL have seen demand surge back to pre-pandemic levels and even higher in some segments.

Riding this wave, IHCL delivered a strong Q2 performance. Consolidated revenue rose 18% year-on-year to Rs 1,481 crores, driven by a 23% growth in standalone revenue to Rs 949 crores. This was enabled by robust demand across IHCL’s portfolio, resulting in higher room rates and food & beverage income.

The company said it outperformed competition by a huge margin, with 63% premium over rivals in domestic RevPAR (revenue per available room). International RevPAR grew 8% as occupancy hit 64%, up 800 basis points over last year. These reflect the buoyant demand environment and IHCL’s pricing power.

All key metrics showed handsome growth. EBITDA jumped 26% to Rs 402 crores with margin expanding 180 basis points to 27.2%. Profit after tax grew even faster at 37% to Rs 167 crores, demonstrating operating leverage. For the first half, revenue rose 17% to Rs 2,997 crores while EBITDA and PAT grew 19% and 34% respectively.

IHCL MD and CEO Puneet Chhatwal attributed the stellar Q2 performance to successful execution of the company’s twin strategy – building a balance between owned/leased and managed hotels, and leveraging its diversified brand portfolio.

He noted that IHCL’s system-wide revenue stood at Rs 2,687 crores, nearly 1.8 times the consolidated revenue. This validates its asset-light strategy of growing the management contract portfolio. Management fee income increased 14% year-on-year in Q2, powered by new contracts.

Chhatwal said IHCL is well positioned to capitalize on India’s economic momentum and higher consumer spends that bode well for the sector. With a strong pipeline, momentum in new signings, and robust demand, he expects continued momentum in the seasonally stronger second half.

IHCL’s expansion spree continued in Q2 with 6 new signings across brands and geographies. This included three international Taj hotels, two SeleQtions hotels in Goa and Himachal Pradesh, and one Ginger in Assam. The company also opened three hotels, taking the operating count to 192 across brands.

The new openings and demand tailwinds are driving performance across IHCL’s business verticals. TajSATS, the market-leading airline catering JV with Singapore Airlines, clocked Rs 213 crore revenue, up 48% over last year with industry-leading 24% EBITDA margin.

Ginger, the lean luxury brand, exceeded Rs 100 crore enterprise revenue with 24% growth over last year. It sustained EBITDA margins at a healthy 34%. Qmin, IHCL’s food delivery platform, expanded to 38 outlets while ama Stays & Trails crossed 75 operational luxury bungalows.

IHCL, which runs the Taj chain of hotels in India, is able to command premium pricing as demand surges, thus boosting revenues and profitability.

It has also put in place cost saving and sustainability measures. For example, IHCL now utilises 37% renewable energy and has installed 335 EV charging stations across its hotels. It achieved 47% recycling of water usage by installing 27 bottling plants. The company is also aggressively eliminating single-use plastic usage.

The Q2 results mark the sixth straight quarter of record performance by IHCL, underscoring the transformation under MD & CEO Chhatwal. The company has successfully navigated industry crises like demonetization, GST rollout.

With travel demand still below pre-pandemic levels, industry analysts expect the hospitality upcycle to continue as IHCL and peers ride structural tailwinds. These include rising disposable incomes, increasing corporate travel, massive pent-up demand and heavy wedding season bookings. IHCL with its strong brand portfolio, expansion momentum and customer loyalty is well placed to capitalize.

The Q2 performance sets the stage for a stronger second half of FY24. IHCL has reiterated its full-year industry-leading guidance of nearly 50% growth in consolidated EBITDA. The company seems firmly set to continue its growth sprint and achieve global Indian hospitality leadership.