Indian Hotels (Q4 FY12)

CMP Rs55, Target Rs59, Upside 7.3% 

• Indian Hotels posted disappointing Q4 results as topline grew a subdued 5.5% yoy weighed down by weak demand; both ARRs and occupancy rates remain sluggish though F&B growth continues to be encouraging
  

• EBIDTA margin was down 640bps yoy to 28.4% and is actually lower than the 30-35% range maintained for the busy season in H2 FY10/11; margin was also affected by higher staff costs and opex due to opening of Vivanta by Taj at Bangalore
  

• PAT declined ~31% yoy on weak operating performance, higher tax rate and lower other income
  

• Analyst meet highlights: 1) Mgmt remains committed to turn around of Pierre property in US and would look to bridge the US$200 gap in room rates that exists between Pierre and other comparable hotels in NY 2) focus would be on cost rationalization as a margin driver given that topline growth has remained sluggish 3) no fresh incremental debt for ongoing expansion and funding needs to be met from internal accruals-FY13 capex seen at Rs1bn for Taj Dwarka (owned property); overall company to add 18 hotels and ~2,000 rooms (some spill over from FY12) in 2012-13 with majority of additions either through mgmt contract or via JVs/subsidiaries; FY12 net debt stood at Rs35.7bn vs ~Rs34bn last year   
  

• Given the weak demand scenario, we see little likelihood of buoyancy in ARRs or occupancies; international operations too remain hinged on performance of US operations especially that of Pierre; based on FY12 results, we lower our EBIDTA/PAT estimates for FY13/14 and retain Market Performer with revised 9-mth TP of Rs59 (earlier Rs69)