Result Update

November 7, 2012
Rating matrix
Rating Target Target Period Potential Upside : : : : Sell | 57 9-12 months -11%

Indian Hotels (INDHOT)

WHATS CHANGED

| 64

PRICE TARGET........................................................................... Changed from | 63 to | 57 EPS (FY13E)............................................................................. Changed from | 0.8 to | 0.7 EPS (FY14E)............................................................................. Changed from | 1.8 to | 1.7 RATING........................................................................................Changed from Hold to Sell

Key Financials
| Crore Net Sales EBITDA Net Profit EPS FY11 2862.5 452.4 -87.1 -1.1 FY12 3432.7 545.7 3.4 0.0 FY13E 3723.9 537.5 59.5 0.7 FY14E 4124.2 691.4 129.3 1.6

Disappoints again
Indian Hotels (IHCL) Q2FY13 results remained below our estimates on all parameters. IHCL reported standalone revenues of | 379 crore (up ~6% YoY) that remained below our estimates on account of flat revenue per available room (RevPAR) across all major destinations. The growth for this quarter mainly came in from F&B segment and new room additions at Yashwantpur, Bangalore. Operating margins for the quarter declined 550 bps YoY largely due to higher fixed overhead costs related to opening of new hotel at Yashwantpur, Bangalore and flat RevPAR. As a result, the company reported a net loss of | 6.4 crore for the quarter. On a consolidated basis, companys revenue grew 14.4% in H1FY13 due to consolidation of Piem Hotels while net loss stood at | 90.8 crore during the same period on account of low demand & higher operating costs. Topline driven by new room additions, RevPAR remains flat YoY IHCLs standalone topline grew ~6% YoY supported by additional revenue from new room additions (in Yashwantpur) and flat RevPAR. Baring few cities like North Mumbai, Kolkata, Goa, Pune and Agra, all other major cities reported marginal fall in average occupancy. Profitability of subsidiaries remains a concern Profitability of subsidiary companies continues to remain a concern due to the slowdown. The topline growth of 14.4% YoY on a consolidated basis is mainly attributable to consolidation of Piem Hotels Ltd (a subsidiary company) and a stable standalone performance. Improvement still in nascent stage, OEH takeover also remains overhang At the CMP of | 64, the stock trades at 16.9x and 13.2x FY13E and FY14E EV/EBITDA, respectively. We continue to remain conservative on the earnings growth front till we see some sign of recovery in its international operations. Also, the proposed acquisition of Orient Express, if it succeeds would also put further pressure on its profitability, going forward. Given the weak H1FY13 performance and subdued business environment, we further revise our price target downwards to | 57 with SELL rating (i.e. at 12.5x FY14E EV/EBITDA).
Exhibit 1: Financial Summary
| Crore Net Sales EBITDA EBITDA Margin (%) Depreciation Interest Net Profit EPS | Q2FY13 379.0 20.2 5.3 32.1 23.3 -6.4 -0.1 Q2FY13E 386.2 67.6 17.5 31.2 29.6 11.6 0.2 Q2FY12 357.6 38.7 10.8 27.9 24.7 8.1 0.1 Q1FY13 396.5 66.0 16.7 31.0 29.9 4.0 0.1 YoY Gr .(%) 6.0 -47.9 -550 bps 15.1 -5.6 -179.2 -179.2 QoQ Gr. (%) -4.4 -69.5 -1134 bps 3.8 -21.9 -259.6 -259.6

Valuation summary
FY11 PE (x) Target PE (x) EV to EBITDA (x) Price to book (x) RoNW (%) RoCE (%) NM NM 20.3 1.7 -3.0 3.0 FY12P NM NM 16.1 1.7 0.1 4.0 FY13E 86.4 77.0 16.9 1.8 2.1 3.4 FY14E 39.8 35.5 13.2 1.7 4.4 5.3

Stock data
Market Capitalisation Debt Cash & Equivalents EV (FY12) 52 week H/L Equity capital Face value MF Holding (%) FII Holding (%) | 5146 crore | 3852 crore | 192 crore | 8807crore | 80/50 | 80.7 crore | 1.0 23.9 13.2

Price movement (IHCL v/s Nifty)

6,000 5,500 5,000 4,500 4,000 Nov-11 Feb-12 May-12 Aug-12 Nifty (L.H.S) Price (R.H.S) 60 80

70

50 Nov-12

Analysts name
Rashesh Shah rashes.shah@icicisecurities.com

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Exhibit 2: Trend in foreign tourist arrivals

800 700 600 500 400 300 200 100 0 50 40 30 20 10 0 -10 -20 -30 -40 606 655 538 692 507 417 369 396 498 402 401 563 637 715 681 677 623 452 372 432 525 456 415 Nov-10 Nov-11 Mar-11 Mar-12 Jul-11 Jan-11 Jan-12 Jul-12 Sep-11 FTA (LHS) May-11 YoY Growth (RHS)
78 70 58 54 60 55 61 60 66 59 63 75 74 67 83 71 72 66 66 60

FTA growth for the quarter ended September 2012 remained moderate at 7.2% YoY on account of lean season and low business activities

'000s

452 382 369 487

Jul-10

Source: Company, ICICIdirect.com Research

Exhibit 3: Industry occupancy trend across companys main operating regions

85 75
During Q2FY13, only North Mumbai and Delhi reported a marginal improvement in average occupancy levels vs. last year. Other major cities reported a downward trend

65 % 55 45 35

May-12

Sep-10

Sep-12
53 53 59 55 Aug-12

57 49

56 45

58 44 Jul-12

Aug-11

Nov-11

Oct-11

Dec-11

Mar-12

Jun-12

Jan-12

Apr-12

Jul-11

Business destinations*

Leisure destinations**

* covers 9 metro cities, ** Covers 4 major destinations Source: ICICIdirect.com Research

Exhibit 4: Industry ARR trends across companys main operating regions

12000 10000
During Q2FY12, ARR across business destination declined marginally except North Mumbai and Chennai, that saw marginal recovery in Q2FY13. Among leisure destinations ARR improved marginally in Goa and Agra due to low base effect of last year

8000 6000 4000 2000 0 Nov-11 Aug-11 Aug-12 Oct-11 Dec-11 Mar-12 Jun-12 Apr-12 Jul-11 Jan-12 Jul-12 Sep-11 May-12 Sep-12 Feb-12 |

Business destinations

leisure destinations

* covers 9 metro cities, ** Covers 4 major destinations Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

May-12

Sep-11

Page 2

Sep-12

Feb-12

(%)

Exhibit 5: Quarterly trends in sales and net profit

650 531 485 550 522 560

370

|. crore

due to increase in inventory. ARRs and occupancy remained more or less flat compared to last year

350 250 150 50

329

-40

358

58

51

65

379 4 16.7 Q2FY13 5.3 Q2FY13 -6

Standalone sales for Q2FY13 have grown 6% YoY mainly

20

20

Q2FY12

Q3FY11

Q4FY11

Q1FY12

Q2FY12

Q3FY12

Q4FY12

-150

Sales

Net Profit

Source: Company, ICICIdirect.com Research

Exhibit 6: Trends in operating margin

40 35.0

Standalone operating margins for the quarter dipped further to 5.3% on higher operating costs. The rise in operating cost is mainly attributable to the opening of the new property in Yashwantpur (Bangalore)
(%)

30

29.7 27.0

28.4

20

18.4 11.2 10.8

10

0 Q2FY12 Q3FY11 Q4FY11 Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1FY13

OPM (%)

Source: Company, ICICIdirect.com Research

Exhibit 7: Upcoming development in 2012/13

Hotel Taj Taj Palace Marrakech, Morocco Imperial Club by Taj, Tardeo, Mumbai Vivanta by Taj Vivanta by Taj, Dwarka Vivanta by Taj, Coorg Vivanta by Taj, Gurgaon
The company is planning to add nearly 2,040 rooms in 2012/13. Of the total room additions, most rooms would be added under management contracts

Company Management Contract Management Contract IHCL Kaveri Resorts Management Contract Management Contract Management Contract Benares Hotels Ltd Management Contract Management Contract Roots Corporation Ltd 18 Hotels

Q1FY13

-50

396

450

Rooms 161 9 250 62 200 200 119 34 92 193 720 2040 Rooms

Gateway Gateway Kolkata Gateway Raipur Gateway Gondia Gateway Hubli Gateway OMR, Chennai Ginger Hotels (8) New Development in pipeline 2012/13

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

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Financial summary
Profit and loss statement
(| Crore) (Year-end March) Total operating Income Growth (%) Raw Material Expenses Employee Expenses Power & Fuel Exp Other Exp Total Operating Exp EBITDA Growth (%) Depreciation Interest Other Income PBT Others/Minority Int Total Tax PAT Growth (%) EPS (|) FY11 2,862.5 13.5 297 967 196 950 2,410.1 452.4 13.6 228.8 251.2 52.4 24.8 76.8 93.66 -87.1 NM -1.1 FY12 3,432.7 19.9 363 1149 242 1133 2,887.0 545.7 20.6 254.7 193.4 50.8 148.4 54.5 121.8 3.4 LP 0.04 FY13E 3,723.9 8.5 368 1249 296 1274 3,186.4 537.5 -1.5 284.5 207.3 62.1 107.7 26.6 35.5 59.5 NM 0.7 FY14E 4,124.2 10.7 396 1359 286 1392 3,432.8 691.4 28.6 288.3 232.6 45.5 215.9 15.4 71.3 129.3 117.1 1.6 (Year-end March) Profit after Tax Add: Depreciation (Inc)/dec in Current Assets Inc/(dec) in CL and Provisions CF from operating activities (Inc)/dec in Investments (Inc)/dec in Fixed Assets Others CF from investing activities Issue/(Buy back) of Equity Inc/(dec) in loan funds Dividend paid & dividend tax Inc/(dec) in Sec. premium Others CF from financing activities Net Cash flow Opening Cash Closing Cash FY11 -87.1 228.8 58.8 42.5 242.9 0.0 -366.5 -466.5 -833.0 3.6 -215.5 -88.3 369.2 168.3 237.3 -352.8 547.9 195.1 FY12P 3.4 254.7 49.9 58.6 366.6 0.0 -913.8 732.7 -181.1 -0.3 -392.7 0.0 0.0 204.0 -189.0 -3.5 195.1 191.6 FY13E 59.5 284.5 -122.0 19.1 241.1 0.0 -200.0 19.6 -180.4 4.8 300.0 0.0 0.0 -345.2 -40.4 20.3 191.6 211.9

Cash flow statement

(| Crore) FY14E 129.3 288.3 -237.7 -254.3 -74.5 0.0 0.0 15.5 15.5 0.0 100.0 0.0 0.0 0.0 100.0 41.0 211.9 252.9

Source: Company, ICICIdirect.com Research

Source: Company, ICICIdirect.com Research

Balance sheet
(| Crore) (Year-end March) Equity Capital Reserve and Surplus Total Shareholders funds Total Debt Deferred Tax Liability Minority Interest / Others Total Liabilities Gross Block Less: Acc Depreciation Net Block Capital WIP Total Fixed Assets Net Intangible Assets Investments Goodwill on consolidation Inventory Debtors Loans and Advances Cash Other current assets Total Current Assets Creditors Provisions Total Current Liabilities Net Current Assets Others Assets Application of Funds FY11 76.0 2,570.1 2,910.4 4,245.2 44.8 310.0 7,510.3 6,019.8 1,528.6 4,491.2 411.7 4,902.9 38.7 2,505.8 325.7 58.5 202.0 511.3 195.1 0.0 966.9 617.4 749.6 1,367.0 -400.1 137.2 7,510.3 FY12P 75.6 2,917.5 3,117.5 3,852.5 130.2 736.4 7,836.5 6,913.6 1,774.4 5,139.2 431.7 5,570.9 29.9 2,255.8 489.5 86.4 283.8 262.3 191.6 89.3 913.4 1,258.4 167.1 1,425.6 -512.1 2.4 7,836.5 FY13E 80.4 2,631.9 2,836.6 4,152.5 130.2 756.0 7,875.2 7,093.6 2,050.1 5,043.6 451.7 5,495.3 21.0 2,255.8 489.5 87.0 326.5 333.5 211.9 96.9 1,055.8 1,275.3 169.4 1,444.7 -388.8 2.4 7,875.2 FY14E 80.4 2,761.1 2,965.9 4,252.5 130.2 771.4 8,119.9 7,103.6 2,329.5 4,774.2 441.7 5,215.9 12.1 2,255.8 489.5 116.4 372.9 491.4 252.9 101.0 1,334.5 1,050.8 139.5 1,190.4 144.2 2.5 8,120.0

Key ratios
(Year-end March) Per share data (|) EPS Cash EPS BV DPS Cash Per Share Operating Ratios (%) EBITDA Margin PBT / Total Operating income PAT Margin Inventory days Debtor days Creditor days Return Ratios (%) RoE RoCE RoIC Valuation Ratios (x) P/E EV / EBITDA EV / Net Sales Market Cap / Sales Price to Book Value Solvency Ratios Debt/EBITDA Debt / Equity Current Ratio Quick Ratio 9.4 1.5 0.7 0.6 7.1 1.2 0.6 0.5 7.7 1.5 0.7 0.6 6.2 1.4 1.1 0.9 -3.0 3.0 -9.0 0.0 20.3 3.2 1.8 1.7 0.1 4.0 0.7 NM 16.1 2.6 1.5 1.7 2.1 3.4 2.4 86.4 16.9 2.4 1.4 1.8 4.4 5.3 3.7 39.8 13.2 2.2 1.2 1.7 15.8 0.9 -3.0 7.5 25.8 78.7 15.9 4.3 0.1 7.7 30.2 133.8 14.4 2.9 1.6 8.5 32.0 125.0 16.8 5.2 3.1 9.0 33.0 93.0 -1.1 1.9 38.3 1.0 1.9 0.0 3.2 38.8 0.0 3.2 0.7 4.3 35.3 0.0 4.3 1.6 5.2 36.9 0.0 5.2 FY11 FY12P FY13E FY14E

Source: Company, ICICIdirect.com Research

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

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Exhibit 8: Recommendation History

100 90 80 70 60 50 40 30 20 10 0 Nov-11 Jan-12 Feb-12 Mar-12 Price May-12 Jun-12 Aug-12 Sep-12 Nov-12

Target Price

Source: Company, ICICIdirect.com Research

Exhibit 9: Recent Releases

Date 19-Oct-12 30-May-12 30-Jan-12 16-Nov-11 Event EventUpdate Q3FY12 Result Update Q3F12 Result update Q2FY12 Result Update CMP 66 54 64 60 Target Price 63 62 70 90 Rating HOLD HOLD HOLD BUY

Source: Company, ICICIdirect.com Research

Exhibit 10: Key Assumption matrix

Year No of rooms Average ARRs Average Occupancy FY11 12,795 8019 66% FY12 14,636 7946 66% FY13E 15,680 8215 67% FY14E 16,936 8439 69%

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

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RATING RATIONALE

ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction; Buy: > 10%/ 15% for large caps/midcaps, respectively; Hold: Up to +/-10%; Sell: -10% or more;

Pankaj Pandey

Head Research ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No. 7, MIDC, Andheri (East) Mumbai 400 093 research@icicidirect.com

pankaj.pandey@icicisecurities.com

ANALYST CERTIFICATION
We /I, Rashesh Shah CA, research analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our personal views about any and all of the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Analysts aren't registered as research analysts by FINRA and might not be an associated person of the ICICI Securities Inc.

Disclosures:
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