East India Hotels (EIH) 114

Result Update Rating matrix Rating : Hold Target : 124 Target Period : 12-15 months Potential Upside : 8% What s Changed? Target Changed from 133 to 124 EPS FY16E Unchanged EPS FY17E Changed from 2.8 to 2.3 Rating Changed from Buy to Hold Quarterly Performance Q3FY16 Q3FY15 YoY (%) Q2FY16 QoQ (%) Revenue 4.1 378.2 5.8 298.1 34.2 EBITDA 13. 17.1-3.8 38.1 17.7 EBITDA (%) 25.7 28.3-257 bps 12.8 1298 bps PAT 47.4 43.6 8.6 1.9 336.1 Key Financials Crore FY14 FY15 FY16E FY17E Net Sales 1,539.1 1,668.3 1,738.3 1,78.8 EBITDA 326. 33.1 48.5 388.8 Net Profit 17.1 63.1 146.9 129.7 EPS (Rs) 1.9 1.1 2.6 2.3 Valuation summary FY14 FY15 FY16E FY17E P/E 6.8 13.2 44.3 5.2 Target P/E 66.2 112.3 48.3 54.6 EV / EBITDA 2.8 2.3 16.1 16.9 P/BV 2.5 2.5 2.4 2.4 RoNW 4.1 2.4 5.5 4.7 RoCE 6.2 5.3 7.5 6.9 Stock data Particulars Amount Market Capitalization 6513 crore Total Debt (FY15) 375 crore Cash and Investments (FY15) 198 crore EV 6689 crore 52 week H/L 138/96 Equity capital 114.3 Face value 2 Price performance (%) 1M 3M 6M 12M Indian Hotels -3.6 18.5 17.2-5.6 Taj GVK -5.8 14.3 33.2 5.3 Hotel Leela -1. -2.3-1. -17.1 EIH -6.1 6.5 2. 4.2 Research Analyst Rashesh Shah rashes.shah@icicisecurities.com Devang Bhatt devang.bhatt@icicisecurities.com February 1, 216 East India Hotels (EIH) 114 Closure of Oberoi Delhi to impact revenues EIH reported a mixed set of Q3FY16 numbers. While revenues were in line with our estimate, EBITDA was below our estimate. However, PAT was in line with our estimates due to lower-than-expected tax expenses Revenues increased 5.8% YoY to 42.6 crore (in line with I-direct estimate of 398 crore) led by higher occupancy On the margin front, the EBITDA margin declined 257.5 bps YoY to 25.7% (vs. I-direct estimate of 29.4%) led by an increase in employee expenses (up 12.8% YoY) and other expenses (up 8.6% YoY) PAT increased 8.6% YoY to 47.4 crore led by 24.1% YoY decline in interest expenses and higher other income of 5.9 crore vs. 19 lakh in Q3FY15 Expect recovery in domestic demand with rebound in economy With the redefined role of the new government (i.e. from regulator to a catalyst), we expect integrated development of enabling infrastructure to boost overall growth of the hotel industry. Growth in room demand has consistently remained subdued in the past four years due to challenging macroeconomic conditions with average margins touching as low as 15% in FY14 from a peak of 31% in FY8 while it witnessed a dream run in FY2-8 (coinciding with the economic boom). However, with improved tourism measures, we expect the sector to get back on the growth trajectory in the next three to four years. Near term revenues, profitability to be hit by hotel closure EIH will close The Oberoi, New Delhi from 1 April 216 for renovation. The hotel is expected to be ready for commercial operation by April 1, 218. The hotel generated revenue of 186.9 crore (contributed 13.7% of total revenues of the company). Hence, the closure of Oberoi, Delhi will lead to lower revenues and profitability over the next two years. Sound balance sheet remains key positive for future expansion The company has reduced its debt drastically through asset sale and better working capital management. As a result, its D-E has come down to.1x in FY15 from.4x in FY11. With an improved economic environment, we expect debt to decline gradually. This will place the company in a better position on the balance sheet front, which can be useful in further expansion. The company also has a strategic partner, Reliance Industries, with an 18.5% stake in the company. This, we believe, would help the company in growing faster with the rebound in the macro environment. Long term fundamentals intact; near term concern prompts downgrade With the high focus of the government on improving the sector along with an economic revival, we expect the sector to return to a growth trajectory over the next three years. Further, the company is in a better position on the balance sheet front, which can be useful in further expansion with the rebound in the macro environment. Despite long term fundamentals being intact, we expect revenue and profits to be adversely impacted led by closure of Oberoi Delhi. As a result, we have downgraded the stock from BUY to HOLD. We have valued the stock at 18.3x FY17E EBITDA (i.e. at 3.5 crore/room and 2.6x FY17E book value) and arrived at a target price of 124/share. ICICI Securities Ltd Retail Equity Research

Variance analysis Q3FY16 Q3FY16E Q3FY15 YoY (%) Q2FY16 QoQ (%) Comments Total Operating Income 4.1 393.6 378.2 5.8 298.1 34.2 Revenues increased 5.8% YoY led by better demand Other Operating Income 2.5 4.4 2.1 16.4 4.4-44.1 Raw Material Expenses 55.2 54.3 51.7 6.8 46.8 18.1 Employee Expenses 12.4 94.5 9.8 12.8 97. 5.5 Other Exp 142. 133.3 13.7 8.6 12.7 17.7 EBITDA 13. 115.8 17.1-3.8 38.1 17.7 EBITDA Margin (%) 25.7 29.4 28.3-257.5 12.8 1,297.8 Higher employee cost during the quarter led to a decline in margins Other Income 5.9 5..2 2,989.5 9.8-39.8 Interest 6.3 6.1 8.3-24.1 6.1 3.4 Depreciation 3.7 29.3 32.8-6.3 29.3 4.8 PBT 71.9 85.4 66.2 8.6 12.4 479.9 Total Tax 24.5 38.8 22.6 8.6 1.5 1,5.7 PAT 47.4 46.6 43.6 8.6 1.9 336.1 Lower interest expenses and higher other income led to 8.6% YoY increase in PAT EPS.8.81.76 9.2.2 336.8 Change in estimates FY16E FY17E ( Crore) Old New % Change Old New % Change Comments Revenue 1,738.3 1,738.3. 1,894.8 1,78.8-9.8 We have revised our FY17E revenue estimates downwards due to closure of Oberoi, Delhi for renovation EBITDA 48.5 48.5. 445.3 388.8-12.7 EBITDA Margin (%) 23.5 23.5 bps 23.5 22.8-75 bps We have revised our margin estimates downwards led by increase in operating expenses PAT 146.9 146.9. 157.2 129.7-17.5 EPS ( ) 2.6 2.6. 2.8 2.3-17.5 ICICI Securities Ltd Retail Equity Research Page 2

Company Analysis Business segment contributes more to topline Majority of the company s owned hotels are in the business segment. Out of the total room inventory of 4752 with the company, EIH owns around 44% of rooms, of which, ~95% are at business locations. We expect revenues from these business destinations to drive growth of the company, going ahead, led by a revival in the economic environment. Other than business segment properties, EIH has properties at leisure destinations as well through JVs. JVs form ~29% of total rooms. Further, international properties at Bali, Lambok, Mauritius and Egypt constitute ~2% of the total capacity of the company, which has increased sharply from 8% in FY9. Exhibit 1: Revenue CAGR of 9.6% during FY9-15 2 4. 1668.3 147.2 1468.5 1539.1 3. 15 1126.3 2. 962.4 1 845.1 1.. 5-1. -2. FY9 FY1 FY11 FY12 FY13 FY14 FY15 Revenue ( crore) - LHS Growth (%) - RHS Exhibit 2: Hotel details Location Number of Hotels Rooms Owned Mumbai 3 1278 Delhi 2 338 Bengaluru 1 16 Kolkata 1 29 Udaipur 1 87 Ranthambhore 1 25 Total Owned 9 297 JV 1376 Total Domestic 3473 International 941 Management Contract 338 All Total 4752 Exhibit 3: Trend of ARR, occupancies at business destinations ARRs of business destinations declined 4.1% YoY while occupancy levels improved 391 bps to 72% during the same period ( ) 1 8 6 4 2 8417 867 7577 7393 8867 8933 76 7557 854 8 6 4 2 Q3FY14 (%) Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 ARR (LHS) Occupancy (RHS) Source: Crisil, ICICIdirect.com Research Exhibit 4: Trend of ARR, occupancies at leisure destinations Leisure destinations witnessed an increase of 2.4% YoY in ARR while occupancy declined from 71% in Q3FY15 to 7% in Q3FY16 1 8 6 4 2 676 6794 4656 4412 8172 6489 4717 4644 8372 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 ( ) Q2FY16 Q3FY16 8 6 4 2 (%) ARR (LHS) Occupancy (RHS) Source: Crisil, ICICIdirect.com Research ICICI Securities Ltd Retail Equity Research Page 3

Exhibit 5: Q3FY16 revenue up 5.8% YoY with marginal pick-up in demand Expect revenue CAGR of 1.2% during FY15-17E For FY15, revenues grew 8.4% YoY compared to historical high growth of ~3% in FY11. With the rebound in the economy coupled with strong presence in business destinations, we expect growth to pick up from here on. However, we expect revenue growth to be impacted by closure of Oberoi Delhi. Hence, we expect revenues to grow at a modest CAGR of 1.2% during FY15-17E. Exhibit 6: Expect revenue CAGR of 1.2% during FY15-17E 5. 4. 3. 2. 1.. 355.6 378.2 384.1 4.1 28.9 287.8 299.4 298.1 1.3 8. 5.2 8.5 5.8 6.6 3.7 3.6 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 15. 1. 5.. 165 125 85 45 5 962 FY9 845 FY1 1126 FY11 147 1468 1539 1668 1738 179 FY12 FY13 FY14 FY15 FY16E FY17E 35 25 15 5-5 -15-25 Quarterly sales ( crore) - LHS YoY Growth (%) - RHS Revenue ( crore) - LHS Growth (%) - RHS FY17E margins to decline led by higher operating expenses EBITDA margins are expected to increase from 19.8% in FY15 to 23.5% in FY16E led by an improvement in occupancies and ARRs. However, we expect FY17E margins to decline to 22.8% led by higher operating expenses and closure of Oberoi, Delhi. Exhibit 7: Quarterly trend in margins Exhibit 8: Annual trend in margins (%) 4. 3. 2. 1.. 28.4 11.6 22.1 1.1 14.4 2.3 9.6 -.5 28.6 27.6 11.5 12.2 13.4 12.8 2.9 3.6 25.7 11.8 (%) 3. 2. 1.. 2.8 17.4 28.4 6.4 23.4 23.5 22.8 22.4 21.2 18.9 19.8 8.7 7. 8.4 7.6 2.8 3.8 -.4-1. Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16-1. FY9 FY1 FY11 FY12 FY13 FY14 FY15 FY16E FY17E Operating margin (%) PAT margin (%) Operating margin PAT margin ICICI Securities Ltd Retail Equity Research Page 4

Outlook and valuations With the high focus of the government on improving the sector along with an economic revival, we expect the sector to return to a growth trajectory over the next three years. Further, the company is in a better position on the balance sheet front, which can be useful in further expansion with the rebound in the macro environment. Despite long term fundamental being intact, near term concern due to closure of Oberoi Delhi prompts us to downgrade the stock from BUY to HOLD. We have valued the stock at 18.3x FY17E EBITDA (i.e. at 3.5 crore/room and 2.6x FY17E book value) and arrived at a target price of 124/share. Exhibit 9: One year forward EV/EBITDA 14. 12. 1. 8. 6. 4. 2.. Jan-7 Jul-7 Jan-8 Jul-8 Jan-9 Jul-9 Jan-1 Jul-1 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Exhibit 1: Valuation Sales Growth EPS Growth PE EV/EBITDA RoNW RoCE (Rs cr) (%) (Rs) (%) (x) (x) (%) (%) FY14 1539.1 4.8 1.9 156. 6.8 2.8 4.1 6.2 FY15 1668.3 8.4 1.1-41.1 13.2 2.3 2.4 5.3 FY16E 1738.3 4.2 2.6 132.7 44.3 16.1 5.5 7.5 FY17E 178.8-1.7 2.3-11.7 5.2 16.9 4.7 6.9 ICICI Securities Ltd Retail Equity Research Page 5

Company snapshot 2 18 16 14 12 Target Price: 124 1 8 6 4 2 Aug-8 Nov-8 Feb-9 May-9 Aug-9 Nov-9 Feb-1 May-1 Aug-1 Nov-1 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov-13 Feb-14 May-14 Aug-14 Nov-14 Feb-15 May-15 Aug-15 Nov-15 Feb-16 May-16 Aug-16 Nov-16 Source: Bloomberg, Company, ICICIdirect.com Research Key events Date Event Jul-7 EIH announces it has decided to terminate its strategic alliance for marketing and co-branding with Hilton International Co (Hilton) for the 'Trident Hilton' brand in India May-1 Board of Directors of the company approves the acquisition of the 45.85% equity interest of Amex Investment Ltd, Hongkong (Amex) in its international hotel joint venture company. EIH Holdings Ltd British Virgin Islands for $45 million Jul-1 EIH International, the wholly-owned subsidiary of the company. Completes the acquisition of the 49% equity interest of Amex Investment Ltd (Amex) in its international hotels joint venture company EIH Holdings for US$45 million as approved by the EIH Board. With this acquisition EIH Holdings becomes a wholly-owned subsidiary of EIH International. The acquisition includes equity investments in existing Oberoi Hotels in Mauritius, Bali Indonesia, Lombok Indonesia and Sal Hasheesh Egypt and hotel management contracts Aug-1 Reliance Industries announces that it has acquired through its wholly-owned subsidiary Reliance Industries Investment and Holding Pvt Ltd, from Oberoi Hotels Pvt Ltd and certain other promoters of EIH Ltd, shares in EIH Ltd representing 14.12% of EIH Limited at a total cost of 1,21 crore Sep-12 Elephant Capital plc announces that on September 1, 212 Elephant Capital disposed of its remaining investment of 5,744, EIH Ltd shares for the US$ equivalent of 4,712,. The US$ proceeds are to be converted to GBP after the trade settlement date of September 17, 212 Jan-16 Closure of Oberoi Delhi for renovation from 1April 216 till 1 April 218 Top 1 Shareholders Rank Name Latest Filing Date % O/S Position (m) Change (m) 1 Oberoi Group 3-Sep-15 29.62 169.27 2.34 2 Reliance Industries Ltd 3-Sep-15 18.53 15.91 3 ITC Ltd 3-Sep-15 16.13 92.18 6.56 4 Life Insurance Corporation of India 3-Sep-15 5.62 32.11 -.33 5 Reliance Capital Asset Management Ltd. 3-Sep-15 2.73 15.61 1.71 6 The New India Assurance Co. Ltd. 3-Sep-15 1.85 1.59 7 General Insurance Corporation of India 3-Sep-15 1.75 1.2 8 Mukherji (Shib Sanker) 3-Sep-15 1.59 9.9 1.82 9 Madhok (Deepak) 3-Sep-15 1.58 9.1 1.82 1 Russell Credit, Ltd. 3-Jun-15 1.15 6.56 6.56 Shareholding Pattern (in %) Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Promoter 35.24 35.25 35.25 35.25 35.27 FII 2.5 3. 3.3 3.1 3.95 DII 12.9 12.93 13.14 13.42 12.95 Others 49.81 48.82 48.58 48.23 47.83 Source: Reuters, ICICIdirect.com Research Recent Activity Investor name Investor name Investor name Value Shares Investor name Value Shares Russell Credit, Ltd. 1.15m 6.56m Life Insurance Corporation of India -.49m -.33m ITC Ltd 9.79m 6.56m Royce & Associates, LLC -.13m -.7m Oberoi Group 3.5m 2.34m Madhok (Deepak) 2.72m 1.82m Mukherji (Shib Sanker) 2.72m 1.82m Source: Reuters, ICICIdirect.com Research ICICI Securities Ltd Retail Equity Research Page 6

Financial summary Profit and loss statement Crore (Year-end March) FY14 FY15 FY16E FY17E Total operating Income 1,539.1 1,668.3 1,738.3 1,78.8 Growth (%) 36.7 8.4 4.2-1.7 Raw Material Expenses 218 221 226 222 Employee Expenses 41 426 443 436 Other Exp 585 691 661 662 Total Operating Expenditure 1,213.1 1,338.1 1,329.8 1,32. EBITDA 326. 33.1 48.5 388.8 Growth (%) 8.2 1.3 23.7-4.8 Depreciation 134.9 167.8 174.9 174.3 Interest 52.7 46.2 39.9 33.8 Other Income 38.7 28.9 29.8 3.7 PBT 177.1 145.1 223.5 211.4 Others -8. 3.9 2.9 11.3 Total Tax 71.45 78. 73.8 7.4 PAT 17.1 63.1 146.9 129.7 Growth (%) LP -41.1 132.7-11.7 EPS ( ) 1.9 1.1 2.6 2.3 Cash flow statement Crore (Year-end March) FY14 FY15 FY16E FY17E Profit after Tax 17.1 63.1 146.9 129.7 Add: Depreciation 134.9 167.8 174.9 174.3 (Inc)/dec in Current Assets 7.6-26. 18.3 39.4 Inc/(dec) in CL and Provisions 16.3 55.5 21.7-19.6 CF from operating activities 266. 26.4 361.7 323.9 (Inc)/dec in Investments 1.7. -5. -5. (Inc)/dec in Fixed Assets 135.7-18.6-2. -225. Others 27.7 16.4 12. 11.3 CF from investing activities 174.1-92.2-193. -218.7 Issue/(Buy back) of Equity.... Inc/(dec) in loan funds -279.9-63.1-5. -5. Dividend paid & dividend tax -74. -74. -74. -74. Inc/(dec) in Sec. premium.... Others -19.2 11.6.. CF from financing activities -373. -125.5-124. -124. Net Cash flow 12.5 34. 44.7-18.9 Opening Cash 151.6 164.1 198.1 242.9 Closing Cash 164.1 198.1 242.9 224. Source: ICICIdirect.com Research Balance sheet Crore (Year-end March) FY14 FY15 FY16E FY17E Liabilities Equity Capital 114.3 114.3 114.3 114.3 Reserve and Surplus 2,495. 2,495.7 2,568.6 2,624.3 Total Shareholders funds 2,69.3 2,61. 2,682.9 2,738.6 Total Debt 437.7 374.6 324.6 274.6 Deferred Tax Liability 194. 196.3 196.3 196.3 Minority Interest / Others 58.7 77.7 89.7 11. Total Liabilities 3,299.7 3,258.7 3,293.5 3,31.5 Assets Gross Block 3,88.6 3,197.2 3,397.2 3,622.2 Less: Acc Depreciation 963.3 1,131.1 1,36. 1,48.3 Net Block 2,125.3 2,66.1 2,91.2 2,141.9 Capital WIP 31. 31. 31. 31. Total Fixed Assets 2,435.3 2,376.1 2,41.2 2,451.9 Goodwill on consolidation 326.5 331.5 331.5 331.5 Investments 245.5 254.1 259.1 264.1 Inventory 5.3 48.5 46.8 42.2 Debtors 22.1 223.1 223.8 215.4 Loans and Advances 279.9 286.6 269.7 242.9 Other Current Assets.5.6.1.6 Cash 164.1 198.1 242.9 224. Total Current Assets 696.8 756.9 783.3 725. Creditors 39.8 361.2 385.8 379.2 Provisions 95.1 99.3 96.4 83.4 Total Current Liabilities 45. 46.5 482.2 462.6 Net Current Assets 291.8 296.4 31.1 262.4 Others Assets.6.6.6.6 Application of Funds 3,299.7 3,258.7 3,293.5 3,31.5 Key ratios (Year-end March) FY14 FY15 FY16E FY17E Per share data ( ) EPS 1.9 1.1 2.6 2.3 Cash EPS 4.2 4. 5.6 5.3 BV 45.7 45.7 46.9 47.9 DPS 1.1 1.1 1.1 1.1 Cash Per Share 2.9 3.5 4.2 3.9 Operating Ratios (%) EBITDA Margin 21.2 19.8 23.5 22.8 PBT / Total Operating income 7. 3.8 8.4 7.6 PAT Margin 7. 3.8 8.4 7.6 Inventory days 11.3 1.8 1. 9.5 Debtor days 47.9 48.8 47. 46. Creditor days 73.5 79. 81. 81. Return Ratios (%) RoE 4.1 2.4 5.5 4.7 RoCE 6.2 5.3 7.5 6.9 RoIC 6.8 5.9 8.5 7.8 Valuation Ratios (x) P/E 6.8 13.2 44.3 5.2 EV / EBITDA 2.8 2.3 16.1 16.9 EV / Net Sales 4.4 4. 3.8 3.8 Market Cap / Sales 4.2 3.9 3.7 3.8 Price to Book Value 2.5 2.5 2.4 2.4 Solvency Ratios Debt/EBITDA 1.3 1.1.8.7 Debt / Equity.2.1.1.1 Current Ratio 1.7 1.6 1.6 1.6 Quick Ratio 1.3 1.2 1.1 1.1 ICICI Securities Ltd Retail Equity Research Page 7

ICICIdirect.com coverage universe (Hotels) CMP M Cap EPS ( ) P/E (X) EV/EBITDA (X) RoCE (%) RoE (%) Sector/Company ( ) TP( ) Rating ( Cr) FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E Indian Hotel (INDHOT) 18 115 HOLD 8681-4.4.1 1. NA 122.6 16.7 25.1 2.8 17. 2.6 3.7 4. -15.8.3 3.6 EIH (EIH) 114 124 HOLD 6516 1.1 2.6 2.3 13.2 44.3 5.2 2.3 16.1 16.9 5.3 7.5 6.9 2.4 5.5 4.7 TajGVK Hotels (TAJGVK) 9 1 BUY 563 -.3.4 1.4 N.A 219.9 64.2 16.7 15.2 12.4 4.4 5.7 7. N.A.7 2.5 ICICI Securities Ltd Retail Equity Research Page 8

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%/2% for large caps/midcaps, respectively, with high conviction; Buy: >1%/15% for large caps/midcaps, respectively; Hold: Up to +/-1%; Sell: -1% or more; Pankaj Pandey Head Research pankaj.pandey@icicisecurities.com ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai 4 93 research@icicidirect.com ICICI Securities Ltd Retail Equity Research Page 9

ANALYST CERTIFICATION We /I, Rashesh Shah, CA, and Devang Bhat, PGDBM, 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 views about 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. Terms & conditions and other disclosures: ICICI Securities Limited (ICICI Securities) is a SEBI registered Research Analyst having registration no. INH99.ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. 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