The Indian Hotels Company Limited (500850) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Indian Hotels Company Limited Q2 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. On the call, we have with us Mr. Puneet Chhatwal, Managing Director and CEO, IHCL; and Mr. Ankur Dalwani, EVP and CFO, IHCL. I now hand the conference over to Mr. Puneet Chhatwal. Thank you, and over to you, Mr. Chhatwal.

Good evening, everyone, and thank you for joining our global conference call for Q2 '25-'26. We are pleased to inform you that we have continued our record performance for the 14th consecutive quarter, driven by sustained growth and strategic execution despite short-term industry headwinds. Kindly allow me to outline the 10 key highlights of the quarter. Starting at number one is this was a quarter of key milestones. To begin with, we are delighted to share that this has been a quarter marked by significant milestones like Taj Bandstand has received all requisite regulatory approvals to commence construction and more importantly, excavation work has already started 5 days ago. Number two, we inaugurated 2 new greenfield hotels in Ekta Nagar, which are company-owned assets, the 127 key Vivanta and the 151 key Ginger, both on our balance sheet. The inauguration took place on the momentous occasion of Rashtriya Ekta Diwas, commemorating the 150th birth anniversary of Sardar Vallabhbhai Patel. We are happy to share that the hotels are off to a good start. Number three, during the quarter, we achieved the milestone of opening our 250th hotel, which is the Gateway in Goa, Palolem. Number four, we also completed a comprehensive renovation of the chambers at our flagship Taj Mahal Palace Mumbai, marking its soft opening a week ago and reinforcing its legacy as India's most exclusive business club. So those were the key summary of key milestones. Number two is accelerated signings and openings. IHCL continues to demonstrate industry-leading growth with 46 hotels signed and 26 hotels opened in H1 '25-'26. This includes 14 hotels onboarded on our sales and distribution platform with the Clarks and Brij groups. With 268 operating hotels, 167 in pipeline, IHCL today is India's largest hospitality ecosystem, spanning 200-plus unique locations across 33 states and union territories of India. We are well on track to achieve our target of opening 30-plus new hotels in the current fiscal year. Number three, strategic partnerships. The Clarks transaction is progressing well. We expect to close it within this quarter and have already begun integration activities. Once completed, it will add another 135 hotels to our portfolio. This transaction will make IHCL the clear leader in the mid-scale segment in India with a portfolio of over 240 hotels, giving the Ginger brand significant scale. During the quarter, we also entered into multi-hotel framework agreements with the Ambuja Neotia Group for 15 hotels across the Taj SeleQtions and Tree of Life brands and with Madison Group for 10 Ginger hotels in South India. These arrangements follow a capital-light model through management contracts and revenue sharing leases. Number four, asset management of the portfolio, significant renovations, which have been completed. We used the first half of the financial year, typically considered as a slower period of -- for our industry to focus on renovations and upgradations across our key hotels. Major upgrades were completed by October across multiple properties, including Taj Palace Hotel in New Delhi, President Hotel in Mumbai and Taj Fort Aguada. Others that saw renovation include Taj West End and also Taj Bengal in Kolkata. We expect to see the positive impact partially in Q3 and fully in Q4, both in terms of improved guest experiences and higher yields due to the upgraded product. Number five, resilient performance in Q2 despite short-term headwinds. Our consolidated revenue grew 12% year-on-year to INR 2,124 crores. EBITDA grew 16% year-on-year to INR 653 crores, yielding EBITDA margin of 30.8%, an expansion of 90 basis points despite the full consolidation of TajSATS in the financials as well as asset management initiatives, which I just outlined. Our profit after tax grew by 15% to INR 285 crores. Hotel segment revenue and EBITDA grew by 7% and 12%, respectively, driven by our tight cost management, leading to a margin expansion of 140 basis points over last year. On a stand-alone basis, revenue grew by 4%, impacted by hotels under renovation and a high base of last year. We continued to deliver strong performance at stand-alone EBITDA level with margin expanding by 220 basis points to 40.8%. Our stand-alone PAT margin stood at a healthy 24.8%. Number six, management fee growth through capital-light strategy. Our capital-light strategy has helped grow our management fees by 21% from INR 214 crores in H1 last year to INR 259 crores in H1 '25-'26. With strong visibility on upcoming hotel openings, we expect management fees to continue growing at a healthy pace with strong flow-through to EBITDA. Number seven, new brands and reimagined businesses. IHCL's new businesses vertical comprised of Ginger, Qmin, amã Stays & Trails and Tree of Life continued to showcase strong growth at 22% year-on-year. This was driven by new additions to the Ginger portfolio and higher F&B revenues from the Qminization of the Ginger brand, which means the all-day dining inclusion of Qmin as the brand in Ginger properties. We expect these numbers to grow from 22% to 30% in the second half of this year. Qmin has now grown to 104 outlets across multiple formats. amã Stays & Trails has reached a portfolio of 330-plus bungalows with 150 in operation and Tree of Life is now a 20-plus resorts portfolio with 18 in operation. With that I move to number eight, strong balance sheet with healthy cash reserves. Our balance sheet continues to be healthy with gross cash reserves of around INR 2,850 crores. This is after investing INR 480 crores in CapEx in H1. During the year, we opened Ginger Ekta Nagar and Vivanta Ekta Nagar on our balance sheet, which I just mentioned. And this marks another step forward in our strategy of creating new destinations and building a diversified base of owned assets. We are also looking forward to the opening of Taj Frankfurt in the later part of this financial year. Work is also progressing well on the expansion of 100 keys at Taj Ganges, Varanasi, which is expected to open either at the end of December this year or at the latest in Q4 or early Q4 in January next year. Further, 95 keys at Taj Lucknow will also become operational by 2027. Both these hotels are operating already at high occupancies and strong ARR levels and are expected to be value accretive and margin enhancing. Our upcoming key projects on balance sheet at Bandstand, Lakshadweep, MOPA, which is the airport in Goa, Aguada Plateau in Goa; Shiroda, Ranchi and Agartala will further enable us to build on our competitive advantage and reinforce IHCL's leadership in both established and emerging destinations. All of this growth is expected to be funded from our internal accruals only. Number nine, industry-leading return ratios led by focused investments. Our ROCE or return on capital employed has improved by 160 basis points year-on-year to 17.3%, while return on equity has increased by 70 basis points to 15.5%. This sustained improvement demonstrates the quality of our earnings and the efficiency of our balance sheet as well as the strength of our investment decisions, which continue to deliver higher returns year after year. Finally, number 10 is looking ahead, how we see things going forward. IHCL remains confident of achieving its guidance of double-digit revenue growth for the year, driven by structural tailwinds for the industry. Supply is expected to be constrained and continue to lag demand in near future. With multiple global events and high-profile diplomatic visits planned in second half of the year, continued momentum in MICE activity and a busy wedding season, outlook for H2 remains robust. Some words on Paathya, our ESG+ program or, let's say, staying aligned with our ESG++ initiative, the journey towards our 2030 targets remains on track. IHCL now uses 41% energy from renewable sources and has installed 382 EV charging stations across 168 locations in India. Continuing our journey of eliminating single-use plastic, IHCL has installed bottling plants at 74 hotels and achieved 51% recycling of water that is being used. IHCL currently partners in operating 73 skilled centers across 21 states in India. Since 2020, we have trained over 35,000 youth and are well on track to reach our goal of skilling 100,000-plus youth by 2030. In summary, despite the transient headwinds of Q2, we feel comfortable with the revenue outlook for the rest of the year. The long-term trajectory for the sector remains intact, and we will continue to invest in our competitive advantages, including physical assets, brandscape, digitization and our people. Thank you so much for your attention, and we now open the floor for questions.

[Operator Instructions] Our first question comes from the line of Sumant Kumar from Motilal Oswal.

So can you talk more about the forward booking also how is the -- the October month is already completed and how is the forward booking for November, December?

The business on the books is strong, Sumant. And there is -- despite a very high base of Q3 year-on-year, we remain confident that in the future, both Q3 and Q4 should witness double-digit growth for us on the top line.

Okay. And talking about subsidiary performance, we can see the U.K. has done extremely good in H1 FY '26, okay? And also, when you see the -- particularly in margin front, also the PM Hotel has done well. So what about the U.S. and we are hearing about the U.S. entity, what we are planning to dispose. So assuming all the international business, U.S. and U.K. U.K. is doing good. So what is the plan we have for international business?

Sumant, I think we give out the U.S. numbers also on the slide, essentially the U.S. entities. You can see that both hotels have done well, particularly Campton, which has done very well in both Q2 and H1. So as far as your other question about disposal or I think we've already clarified that, clearly that was speculation. And as of now, it is status quo as far as U.S. assets are concerned.

Our next question comes from the line of Karan Khanna from AMBIT Capital.

Am I audible?

Yes, yes.

Puneet, firstly, just a clarification. So in the last call, you mentioned that when a hotel reaches the 80% occupancy mark, typically, you tend to see a lot of pricing power for that hotel. But if we look at Slide #29 of your presentation, where Mumbai H1 occupancy stood at 84%. But despite that, the RevPAR growth was only 2%. So help us reconcile this because if I look at Kolkata, again, at 83%, you'd seen about 17% growth. So what's the outlook for Mumbai, let's say, for the second half of the year? And more importantly, how should we read this data comparing it to what you said in the last call?

See, what I said last call holds true even today. Last year, we had a one-off event, which created higher rates in Mumbai because of a very famous wedding. A lot of rooms were blocked. And that really assisted. Those one-off events will always have some impact. Same thing happened in Delhi with the UAE delegation that we had at the Taj Mahal Hotel or popularly known as Taj Mansingh. So those one-offs will be there. But as long as they are positive, it is fine. And more important is that we are able to maintain both a high occupancy and a high rate despite not having any such event and having had all the possible headwinds that I spoke about -- the first half of this year has seen everything possible from a Phalgam to Operation Sindoor to Iran-Israel conflict to a flooding, landslides, airline accident, et cetera, et cetera. So I think, all in all, that shows the resilience of the sector, driven mainly by the key markets of Mumbai, Delhi, Bangalore and even Goa is coming back. So I think the outlook remains robust, and that's how you should look at it.

So just continuing on this slide, if we look at Rajasthan, Goa and Kerala and with increasing outbound travel and perhaps many international destinations that are offering cheaper stays, do you expect some pressures on RevPARs to continue, particularly for leisure destinations going ahead? Or you see the RevPAR -- the high single-digit RevPAR growth continuing for the leisure part of the portfolio as well?

I don't see anything that would suggest why that growth should slow down because there is not so much new supply coming in and demand remains strong. There is another thing which we have this in the IHCL enterprise RevPAR, going back to your previous question. As we are growing with different brands, every brand doesn't attract that kind of RevPAR growth. So I think some of that we will have to look in different markets going forward that what is the RevPAR for a Taj branded property, what is the RevPAR for a Ginger branded property. Now when we'll add after completion of the Pride and this ANK Group, we could get to 250 Ginger Hotels. So we'll have to also, as I mentioned in the previous and the quarter before that, we will give more importance and lay more stress on doing some of this growth by brands because the Ginger RevPAR will not be anywhere close to the Taj RevPAR.

Sure. This is helpful. Now my second question to you, Puneet. Now with the integration of Clarks into your portfolio, are you now seeing more inquiries or perhaps more opportunities that could emerge, let's say, other smaller brands that want to partner with Taj going forward? Are you seeing more discussions or perhaps more inquiries from these brands?

We have not yet completed the ANK and Pride transaction. It should happen definitely by the -- before the end of this quarter. I think that's when we will start seeing that kind of traction. But very importantly, once that happens and with the other hotels that we have in pipeline, which was a part of the narrative I gave, we will see very soon over the next 12 months, 250 Ginger Hotels in operation, making it the largest mid-scale brand in India.

Sure. And my last question, when we look at some of the recent industry reports, they seem to suggest that Tier 2 and Tier 3 markets are seeing higher supply. I think FY '25 growth was about 13%, 14%. This seems like a very high number given that it would be difficult for demand to grow at perhaps a similar number. Could you share your thoughts about this considering you have a lot of opportunities and perhaps growth both on your greenfield as well as the pipeline that's coming in the Tier 2, 3 markets?

See, I'll let Ankur answer, but I'll just say one thing that if your base is small, the percentage of supply growth looks very large. If Mumbai had 12%, 14% supply growth, I would be worried. If Delhi had that kind of supply growth, I could get worried. But Tier 2, Tier 3 cities almost had nothing. So if you're coming from nothing and experiencing that kind of growth, it's very normal. This is how emerging markets grow, whether from an economic point of view or from a RevPAR point of view. That's how is the nature is. For example, if we say we'll do a top line growth of 10%, 12% and some other company, we have 268 hotels in operation and somebody else has maybe 20 hotels in operation. And they say they are growing at double digit, then it's not big. If some small company adds 1 new hotel, suddenly the revenue goes up a lot, right? So that's how one has to differentiate whether it is markets or it is portfolio at what base are you looking? The base is the decisive factor. Ankur?

Yes. I think, Karan, we have always maintained that the key business cities or the key markets, the supply growth is actually even less than 5%. And I think that's playing out even in this year. And I think even for the long-term forecast of the next 4, 5 years, typically when you report or look at the data, it will kind of substantiate that. I think that's what really matters from a demand-supply perspective. The upcoming supply or potential supply in, let's say, Tier 2 or Tier 3 markets will also pull a lot of demand from unbranded chains or which are not part of a chain affiliate. So that's sort of an underlying trend which we see. Also, as far as IHCL strategy is concerned, our focus on adding assets is more towards locations we feel where there is a sustained level of demand-supply gap. And as far as the new markets are concerned, we have also hedged that, by saying that we look at managed hotels as an option in those markets.

Our next question comes from the line of Shaleen from UBS.

So I could see your RevPAR is very strong. So it's -- is it fair to assume that because of the big wedding, F&B revenue was pretty high in the base, and that's the reason top line growth looks a little softer. And to continue the part, is it possible to give, let's say, ex of Mumbai, what kind of a growth we have seen?

No, Shaleen, as I mentioned, there is -- we had a significant number of hotels which were undergoing renovations, which had an impact, but we prefer to do that in the first half, especially, let's say, Taj Palace had an impact of 150 rooms. But to get -- although the renovated ones are 120, but the ones above and below, the disruption starts happening because of noise. So having for 7 months, 150 rooms out of operation does have an impact in a large property like Taj Palace. But the important thing is they're all back, they are in operation now with a renewed product, which is as good as absolute brand news done to the latest style and class. So it keeps you competitive and gets you a higher rate going forward. So that's a conscious call we took. That is reflected in the INR 250 crores of investment in our own business. That includes 44 rooms in Aguada. It's a lot of rooms in a single asset.

I think if you were to also take into account the high base in both Bombay, Delhi, I think if you adjusted for that, you would be in double digits on RevPAR.

Double digit on RevPAR on a like-to-like basis, right? That's...

Actually, the previous question I forgot to mention because Mumbai was questioned with a 2% growth, but we also had 76 rooms of President under renovation.

Okay. Okay. Got it. That explains. And if I can -- a bit of elaboration on this Ambuja Neotia, it will be a pure-play management contract or there's something more to it?

It's pure-play management contract or leases. Essentially, this is a partnership with an existing owner, and it fully deepens the relationship with them. So this is a framework in which we will end up doing either leases or management contracts, depending on the brand -- depending on the brand.

Sir, any sense on what kind of revenue/profitability we can expect from this -- all these properties? Ballpark number is also good.

So as you know, management contracts are very high flow-through businesses with profitabilities north of 70%. And this will open -- I mean, this will get added as we speak. So it's part of the pipeline as we speak. Whatever is getting signed gets added to the pipeline. But I think the point, the bigger picture here is that this is -- the partnership -- preferred partnership model continues to sort of grow, not only with acquisition, but also on a nonequity investment model. I think that's the point we were trying to make here.

No, no, absolutely. Absolutely. We have seen some very successful properties from this group. I believe there are some properties in Darjeeling and each side and Kolkata as well from this group.

Absolutely.

Yes, so just -- okay. If we can get on a CapEx side, like what is your CapEx plan for next 6 months or maybe beyond, if you can tell us?

So I think we originally guided to INR 1,000 crores to INR 1,200 crores CapEx number. I think we are on track for that. As you know, H1, we have done about close to INR 480 crores and which includes CapEx spend on renovations and also on the greenfield assets, which is basically what we have spent on Bandstand in securing the FSI as well as completing Ekta Nagar, the Frankfurt asset and some of the other projects, which are sort of at the early stage. So if you look at the overall CapEx numbers for there, it will be in the -- I think it will probably be in the INR 1,000 crores, INR 1,200 crores, which is what we had originally sort of planned for. And there could be plus/minus 5% depending on when the sort of projects sort of get to completion or if there are any delay in approvals.

Got it. Got it. Just last one, Ankur, just last one. Amongst the hotels which are renovated, how many have come back in term of number of the rooms in Tier 1 market? And how many will be coming back in this quarter?

So only -- I think all of them have come back with the exception of a few rooms at Taj Palace, which is expected to come back in November. So that's why when we talked about the impact of renovations, it will be fully felt in Q4 in terms of fully sort of renovated portfolio, and there will be some minor impact in Q3 since October also had some renovations getting done.

Is it possible to summarize what have been renovated in past 6 months or 9 months?

No. So it's -- with the exception of 20 or 30 rooms out of 120 rooms in Taj Palace, everything else is in operation. And Fort Aguada, the inventory came back absolutely in time. All President, 76 rooms are also done. One presidential suite is left in Taj West End. So there's some small but that is always there, Shaleen. There's some little things always keep happening. But the major block was the Taj Palace.

Taj Palace, Shaleen. Because Taj Palace not only impacts the floor under renovation, it also impacts the floor above the floor below, and it's a very busy hotel. And therefore, the impact in H1 was quite magnified because of that.

Yes, sure. We know the P&L is huge of that hotel.

Our next question comes from the line of Achal Kumar from HSBC.

First of all, I just want to understand, Puneet, so now we have got so many listed hotels and everybody is sort of trying to sort of grow by any model. I mean some of them are sort of taking hotels on lease and subleasing, some of them are sort of owning the hotels. So in all this scenario, how -- I mean, how do you see the competition, especially when it comes to the growth, I mean, if you go to the market and you want to grow, do you think you'll get a deal at a favorable price or favorable terms? Or do you think the challenges are growing and then and you might really find difficult to get the hotels? I mean how do you see the market and overall competition, please?

See, the market is never easy. There's nothing which is easy. So the proof is in the pudding. And I think what we have done and demonstrated how when we first met Achal almost 7, 8 years ago from 130 hotels, how we have gone to a portfolio of the size that we have today, right? So I think we keep signing up properties. We have signed almost 32 without the onboarding of Clarks and Brij properties in the first half of this year. I mean that's like 5 hotels a month, more than a contract a week. We have opened 2 hotels a month without the Clarks and Brij. If we add that, we have opened almost...

One hotel a week.

One hotel a week because there's 26 hotels open. So there are 52 weeks and the first half is 26 weeks. I think that we have achieved not only because you go and you give favorable terms. It's also the power of your brands. It's the power of the group we belong to. It's the kind of level of ethics we maintain. I mean there are so many compelling reasons and also our ability to also use our capital. If need be, many times, we can do many things which others may not be able to do. We are also sitting on almost INR 3,000 crore cash as we speak. So there is a lot of opportunity. This is how we were able to do an M&A activity where you don't have to take on debt and all the properties that we are opening, all the renovations we are doing is all from internal accruals.

I think it's fair to say that, Achal, just to add to that, that we announced -- when we announced the ANK and Pride transaction, I think we did make a statement that in a way, it's beginning of an inorganic journey, which I don't think it's stopping at this transaction. It will sort of -- we'll go from here and hopefully do more stuff in the coming quarters. And I mean, there are opportunities even in this market, which are interesting and makes sense for us to do.

Right. No, fair enough. Okay. No, that's fine. At this point, I'm not sure if you can give any color while we are talking about the Clarks and this deal to close in this quarter. Sort of what kind of revenue and EBITDA or what kind of profitability, if you can, any line, what are you expecting for, say, for example, full year next year?

I think we did give some color when we announced the transaction. I think nothing has changed since then because since we mentioned that transaction is not yet closed, we are in the early stage of figuring out the integration plan, and we've identified the hotels, which will migrate to Ginger and then figuring out the best time to initiate the conversation with owners. I think the right year to look at this will be probably be FY '28 because next year will really go under integration. And I think also it's a function of what -- how many hotels we can migrate from management contracts to revenue share model, which is one of the things we talked about. I think medium term, we are looking at about INR 100 crores getting added from this portfolio without doing too much heavy lifting. And if we are able to swing a few of the hotels into revenue share model, then that could actually get -- that could be on top of the INR 100 crore number I mentioned.

Okay. Fair enough. And then coming back to Slide 29, I think Puneet has explained enough. But just to take a bit of deep dive here, I mean, so Mumbai, you're 84%; Kolkata you're 83%, and in most of the cities, you are at close to 78% or 80%. So now you mentioned that when hotel reached at this level, I think there is significant growth potential for the ARR. And now just now Puneet said that the last year was exceptional because we had a wedding in Mumbai. So I guess, I mean, since the rates were -- sort of since the occupancy was high, the rates must have been high. So now if your rate for last year was high, I'm assuming, then your RevPAR growth of 2%. So should that -- should we assume that since the rates were already very high, we should not expect significant growth in ARR from here on? And then secondly, because all these properties are -- all these cities in this chart showing 76%, 78%, 80%. So how should we think about it? I mean, going forward, do you think you can take these occupancies to 100%, 95%? Or do you think occupancies might not grow significantly, but we have the strong potential for ARRs to grow maybe 25% or something like that? So how should we sort of think about the economics here, please?

I mean without getting into specifics of each city, I think, Achal, if you think about the demand-supply situation, particularly in the larger cities, and you're well aware of the upcoming supply in Bombay, Delhi, Bangalore or Calcutta, Chennai, you can actually figure -- you can see the demand-supply dynamics in these markets, which will point to the fact that ARR pricing power continues to be there given the background what we have, right? So I think that's the key backdrop to think about. And even I think in this quarter, I think we made a note somewhere in the H1, which went away, it was basically the weaker MICE segment, which impacted the RevPAR. Adjusted for those, actually, it was almost a 9% to 10% growth. So I think it's also the quality of business which you sometimes get, and that does get impacted by wedding date moving from Q1 to Q2 or Q2 to Q1. And that's why looking at this on a little bit of longer time period makes sense. And in that time frame, a little bit of a longer time frame for a full year or the next 12 months, we don't think there is any pressure on ARRs coming up in these markets. They continue to be resilient. It's a question of some of the headwinds sort of getting behind us, which is already, I think we are seeing the business on books in November, et cetera, being very strong. And I mean, in the October we had Diwali and Dussehra both out of the way. So that's in a way out of the window. And then November looks very clean and looks very strong.