EIH Ltd – Leaders in luxury hospitality
Established in 1949, EIH Ltd. is one of the largest luxury hotel chains in India. A flagship company of The Oberoi Group, the company owns and operates 30 hotels, resorts, and luxury cruisers across 7 countries and 22 cities under the brand names Oberoi, Trident and Maiden. In addition to own properties, the company is also following an asset light model by signing operations and management contracts with third parties. As of FY24, the company owns a portfolio of 4,269 keys (owned and managed) across all categories. The company’s services also include flight catering, airport lounge, travel planning, corporate air charters etc.
Products and Services
The company’s business activities comprise of:
- Hotel services – Accommodation, food & beverage and other services provided by hotel, inns, resorts, holiday homes, restaurants, caterers, etc.
- Real Estate Activities – Renting of investment properties.
Subsidiaries: As of FY24, the company has 9 subsidiaries, 3 associate companies and 3 joint ventures.
Investment Rationale
- Expansion plans – EIH plans to open 20 new properties, totalling 1,350 keys, by 2029. The portfolio will include a mix of hotels, boats, and cruises across both domestic and international markets, either owned outright or developed through joint ventures and partnerships. The expansion also involves the creation of mixed-use developments with commercial, retail, and F&B spaces. In the domestic market, three hotels are set to open in 2025 and 2026. Internationally, the company aims to launch two hotels, two luxury boats, and a cruiser during the same timeframe. Notably, EIH is entering the London market with a luxury hotel in Mayfair, exploring partnership opportunities to reduce its exposure. This 21-key hotel is slated to open in 2028. These expansion efforts are expected to drive profitability, strengthen the brand, and support a diverse and sustainable business model for the company.
- Strong operational performance – The company saw notable growth in RevPAR (Revenue per Available Room) across all its business segments. In Q2FY25, compared to the same period last year, Oberoi Metro saw a 10% increase, Oberoi Leisure improved by 7%, and both Trident Metro and Trident Leisure rose by 22% each. Occupancy rates grew from 69% to 72%, while the Average Room Rate (ARR) rose to Rs.14,973 in the last quarter, compared to the Rs.13,732 during the same period in the previous year. Overall, these performance gains reflect the company’s operational success, market strength, and financial stability, setting the stage for continued growth and profitability.
- Q2FY25 – EIH reported its highest ever quarterly revenue and profit during the period. The company generated revenue of Rs.589 crore marking an increase of 11% compared to the Rs.531 crore revenue of Q2FY24. EBITDA stood at Rs.208 crore against the Rs.165 crore of Q2FY24, a growth of 26% YoY. Net profit stood at Rs.133 crore which is a growth of 41% as compared to the Rs.94 crore of the same period in the previous year. The company is cash positive with ~Rs.711 crore.
- FY24 – The company generated revenue of Rs.2,317 crore, an increase of 26% compared to FY23 revenue. Operating profit is at Rs.911 crore, up by 46% YoY. The company posted a net profit of Rs.521 crore, an increase of 63% YoY. FY24 operating profit margin is at 39% and net profit margin is at 22%.
- Financial Performance – EIH has generated revenue and net profit CAGR of 72% and 56% over the period of 3 years (FY21-24). The average 3-year ROE & ROCE is around 9% and 12% for the FY21-24 period. The company has a strong balance sheet with a robust debt-to-equity ratio of 0.05.
Industry
Tourism and Hospitality is one the largest service industries in India, playing a crucial role in driving the nation’s growth and prosperity. With its diverse geography and rich cultural heritage, India offers a wide range of unique experiences, positioning it as one of the top destinations for international tourism spending. By 2028, the sector is projected to generate over US$ 59 billion in revenue, with Foreign Tourist Arrivals (FTAs) expected to reach 30.5 million. According to the World Travel and Tourism Council (WTTC), India’s Travel & Tourism GDP is anticipated to grow at an average rate of 7.1% annually over the next decade. The nation is eyeing for further expansion in the sector through initiatives such as wellness tourism, culinary tourism, and eco-tourism.
Growth Drivers
- Government initiatives like Swadesh Darshan 2.0, e-visa facilities, RCS-UDAN Scheme that were launched to power the sustainable imperatives in the tourism sector.
- 100% Foreign Direct Investment (FDI) allowed in the tourism industry under automatic route.
- In the Interim Budget 2024, Rs.2,449.62 crore (US$ 294.8 million) was allocated to the tourism sector.
Peer Analysis
Competitors: Chalet Hotels Ltd, Lemon Tree Hotels Ltd, etc.
Compared to the above competitors, EIH is the most undervalued stock with robust returns on the capital invested and healthy growth in sales.
Outlook
The company’s expansion strategy, which includes 20 properties across key global and domestic markets, shows strong potential. These efforts are anticipated to drive revenue growth, broaden geographic reach, and diversify the company’s market presence. The company plans to expand its portfolio of mixed-use development projects, incorporating both residential and commercial spaces, which is expected to boost returns and profitability. It anticipates improved revenue and profitability in the second half of FY25. Additionally, the company aims to add approximately 216 keys in 2025 and 2026.
Valuation
The company’s stable operational performance and upcoming expansion plans are expected to sustain its growth momentum. We recommend a BUY rating in the stock with the target price (TP) of Rs.488, 39x FY26E EPS.
Risk
- Macroeconomic factors – Any economic slowdown in the country may impact the demand for the travel industry thereby impacting the company turnover.
- Launch of new hotels – Any delay in the launch of new hotels/cruises will impact profitability.
Note: Please note that this is not a recommendation and is intended only for educational purposes. So, kindly consult your financial advisor before investing.
Recap of our previous recommendations (As on 10 January 2024)
BLS International Services Ltd
Other articles you may like
Post Views:
28
