#IHCL’s Q3 revenue up 16% while net profit grew over 18%
Puneet Chhatwal decodes the company’s quarterly earnings with Tamanna Inamdar on ‘Earnings Edge’. #NDTVProfitLive
Puneet Chhatwal decodes the company’s quarterly earnings with Tamanna Inamdar on ‘Earnings Edge’. #NDTVProfitLive
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TVTranscript
00:00 Quite a bit of push and responses to events over the last couple of days, whether it's the Fed meet
00:06 Now making it clear that you will have a rate cut possibly sooner than later is the inference from what Powell has said or
00:14 You have a market that's digesting the budgets and seeing that it's positive for PSU stocks
00:19 Let's pull up some of the gainers on the PSE index NBCC having a field day today nearly 17% up
00:28 JVN about 10% up NHPC NLC all of them doing very very well
00:34 In trade even on the lower end of bel coaching shipyard coal India all having a great day
00:40 Let's see what real stocks are doing this morning, and you saw a bit of weakness earlier with real stocks
00:46 But you know there seems to be some sort of parity in
00:52 Understanding that continuity will be there in terms of capex and focus on rail Jupiter wagons
00:59 In fact about 4% up
01:01 But that's also on back of numbers to be fair text Macomb also had a good set of numbers with
01:05 Improving margins and steady margins which was key that was one concern that yes these real companies are getting order books
01:12 But are they going to be continuing to have those key numbers?
01:18 Now today, we're focusing on Indian hotels the third quarter numbers have been very good
01:23 Bit of record there in terms of a bid does revenues of the hospitality company were up 16% net profit was over 18% at
01:32 447 crores now to add more context to these numbers were joined by Puneet Chatwal managing director and chief executive officer at IHCL
01:39 Mr.. Chitwala very good morning to you great to have you back on NDTV profit and this time talking about the numbers
01:47 Would you say this is typical for a quarter three where if you've had events a great wedding season holiday season etc?
01:54 Well it is typical Q3 is obviously the best quarter for the hotel sector in India
02:01 And we also benefit from that in last year the Q3 was also very good
02:07 But we are very pleased that this has outperformed the last year Q3 numbers by
02:14 Another 70 crores on the additional net profit
02:17 And last year Q3 also had a one-off was a sale of a non-core asset
02:22 Which added 33 crores to the bottom line we did not have that this time so all in all I think
02:28 Adjusted for that almost 100 crore improvement in the profit after tax
02:34 Obviously pleases the management
02:37 So you had that one-off bump as well
02:40 But I want to understand strategically what has changed because are these numbers sustainable is the question you've had a double digit consolidated
02:47 revenue growth
02:49 your asset management
02:51 Strategy seems to be driving profitability. Can you talk to us more about that?
02:55 so
02:57 As you are aware we have a balanced portfolio
03:01 58% of our portfolio is still owned and 42% is based on management contracts
03:08 But we embarked on a journey of very aggressive growth
03:13 Across all our brands and in the last six years we signed
03:17 150 hotels that got added to the pipeline which today has around 85
03:23 70 of these have opened and almost all on a fee-based model and
03:29 That is really driving the not like for like growth every year and resulting in a margin expansion
03:36 Which traditionally stood at an average of 13.6 percent, but now we have guided around 33 percent, which means
03:43 You know 20 percentage or 2,000 basis point increase. So there is a change in the business model
03:51 That's one and by investing almost
03:53 2,500 crores in the last five years in our big machines and our key assets is driving the operating leverage
04:01 So the absolute amounts are still coming in a significant way from our trophy assets
04:07 Like Taj Mahal Palace in Kulawat, the Lands End
04:10 in in Bandra
04:13 The Taj Mahal Hotel in Delhi, the Taj Palace in Delhi, the Palace of Proposition, the Lake Palace
04:20 etc. So all these assets are really
04:23 Seeing a lot of good growth and so are our assets in places like let's say London where we have invested
04:31 Significant amount of money and there is space more space for London to grow because London has not been as strong
04:38 Economically or UK has not been as strong
04:42 Economically in the last few years as we've all read about it and so is the challenge with the US also
04:47 So I think we still have opportunities for good growth good operating leverage coming from very important destinations
04:55 like US and
04:57 UK which is doing well for us, but could do even better. So we remain
05:02 fairly optimistic of this journey being not only sustainable
05:07 I believe that the best is yet to come and we can expect even
05:12 Better performance in absolute amounts in the years to come. Let's get your take on what your ref power is going to improve to Mr. Jatwal
05:21 Because there's been quite a big bump up
05:23 Year on year at least you see these as sustainable and any guidance there that you can offer
05:27 we are
05:30 Looking at definitely a double-digit increase in ref power. The occupancy levels are increasing a lot
05:36 But you know all the changes we have done specially to our ginger brand
05:41 Are beginning to show results and they'll be very strong the growth in our new
05:47 businesses and newly
05:50 Reimagined where we say ginger is reimagined. So ginger will grow at 30%
05:55 So the total of the portfolio will have a double-digit growth
05:59 But I see no reason why ginger next year will not grow 30% of its top line
06:05 versus the current financial year
06:08 Just a last take we're speaking with you a day after the budget not anything
06:14 Specific mentioned for tourism in terms of allocation, but definitely a vision that laid out by finance minister
06:20 We've spoken about how this is going to be the next leg of growth
06:23 You know any comments there? Mr. Jatwal on how you expect a policy push to tourism to benefit you
06:31 Well, I think
06:35 History is a proof for this sector for its resilience of
06:40 100 plus years and its resurgence post covid is
06:44 like
06:46 Really a hallmark of this sector the way it is contributing to GDP the way it is contributing to jobs
06:52 Direct and indirect. I think that will continue to happen
06:56 But tourism is also a beneficiary of the government's allocation of infrastructure
07:02 Spend all the new airports the new highways the new high-speed trains coming the Bharat Mandapam the Yashoghumi
07:10 All these convention centers that have been developed should positively assist
07:16 travel tourism
07:18 Hospitality and aviation sector with 50 new airports coming, you know, the number of airports getting doubled
07:24 So I think there is a indirect benefit and a direct benefit. I have been very
07:30 Constantly advocating for a full infrastructure status at the central level that has been our one point agenda
07:38 Only we have said no money or anything, but to position the sector as a full infrastructure status so that
07:46 both the sector as well as government spend are aligned and help in the growth of
07:54 All the tourism destinations in India, and I am quite hopeful that
07:58 This coming financial year. We will get that status
08:04 from the government
08:07 given their stance on tourism and the way it caught mentioned in the
08:12 speech of the Honorable FM
08:15 All right
08:16 Good outlook there. Remember you have a demand supply mismatch as far as rooms are concerned or you know in in this country right now
08:24 More demand and less supply so we need quality and maybe better price supply coming in. Thank you so much
08:31 Mr. Jadhwal for speaking with us today. That was the management of IHCL on their numbers
08:36 Let's quickly pull up the stock before we hit a small break
08:39 It's been a good quarter of for them and for the industry on a whole so in positive territory about 2% up
08:45 We're coming right back with a very special conversation with Neelkanth Mishra. Stay tuned
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11:46 - There are budget conversations
11:57 and then there are budget conversations
11:59 and this is the latter.
12:00 Neelkanth Mishra, Chief Economist at Axis Bank
12:02 as well as Head of Global Research at Axis Capital
12:05 joins us right now on the show.
12:06 Neelkanth, always a pleasure talking to you,
12:08 especially post-budget.
12:09 Thanks for taking the time out.
12:11 - Likewise, Neel, always a pleasure talking to you too.
12:14 - What stood out for you, Neelkanth?
12:16 The headlines are known,
12:17 but I'm sure you've looked beyond them.
12:19 Tell us what stood out for you.
12:21 - No, what stood out for me was that the government
12:24 is now for the first time,
12:26 at least I can see,
12:27 embarked on a medium-term fiscal roadmap.
12:31 And the fact that they are sticking
12:33 to a four and a half percent number
12:35 that they gave in the years after COVID
12:37 and are actually doing what is textbook macroeconomics
12:43 in the sense that as the private sector demand
12:47 has started to pick up,
12:48 they're voluntarily doing much more
12:52 than what the market expected them to do
12:54 in terms of fiscal consolidation
12:56 is actually quite phenomenal.
12:57 And I don't think the market has yet priced in
13:02 the implications of that,
13:03 the value of the predictability
13:06 of the government footprint in the economy.
13:10 And it'll be interesting to see
13:11 what rating agencies think about it
13:13 in terms of a government which is now pretty much drawn down
13:18 and by FY26 will have drawn down
13:20 nearly all of the pandemic stimulus,
13:22 which is I think quite phenomenal.
13:24 So it was a vote on account,
13:27 therefore not too many new policies,
13:31 not too many tweaks to tax rates,
13:32 but I think the fiscal message that the government gave
13:37 was a very strong one.
13:39 - Could you explain that both the parts,
13:40 one, that the market not pricing in it,
13:43 because I'm sure you think at the first level
13:45 and the second level as well,
13:46 so the impact thereof.
13:48 And that interesting point that you made
13:49 about rating agencies,
13:51 because it seemed like a budget
13:52 which is also aimed to please that gallery
13:54 or not please that gallery,
13:55 but send a message to that gallery.
13:57 - Well, absolutely.
13:59 So let me start with the second one.
14:00 See, the reason why India got included
14:02 in the JP Morgan Emerging Market Bond Index this time
14:07 was not because the government pushed for it
14:09 or gave some concessions,
14:10 it was because the global bond investors
14:12 wanted India to be included.
14:15 And this is where, if you give a strong signal,
14:18 you show commitment,
14:19 you show that you're disciplined,
14:21 the market starts to respond.
14:23 And I think that given where the fiscal trajectory
14:27 in the developed world is,
14:29 and given where the fiscal trajectory
14:31 as per what the government has announced yesterday,
14:34 India's is,
14:35 I think the rating agency should not be waiting
14:39 for the debt to GDP to fall to 70%, 80 years later,
14:44 before they start making a rating upgrades.
14:46 So this definitely does warrant a relook in a very serious.
14:51 In terms of what is not priced in,
14:54 I would think about it on two fronts.
14:57 The first is the 10-year bond yield.
14:59 The yields have fallen.
15:02 In fact, they have come off.
15:04 So the market has responded to lower borrowing targets,
15:07 but for some reason,
15:10 the bond market does not think beyond,
15:14 the next six months or one year.
15:18 And what the government has promised
15:21 and is trying to deliver is,
15:23 suggest that the 10-year bond yields should be even lower
15:27 than what the price declined,
15:29 other than yield decline yesterday was.
15:32 And because, see,
15:34 what happens for any economy,
15:37 when the government says that we are going to reduce
15:41 our footprint voluntarily,
15:43 even if the market didn't want us to,
15:45 is that there's going to be medium term consolidation
15:50 and the absolute level of borrowing is not going to change.
15:54 In fact, very likely it'll come down in the next year,
15:58 because of inflows into small savings schemes.
16:01 And that means that,
16:02 the bond yields will ease off even more
16:05 from what we have seen so far.
16:07 The second implication of this aspect of this
16:09 is for the private sector.
16:10 And that's where I think we need to see
16:14 some more response.
16:16 I think the government has, in a way,
16:18 responded to positive KFX intentions,
16:23 the rebound in the real estate market,
16:25 by saying that, okay, fine,
16:28 now we're going to give you more space
16:32 and allow more funds for you to borrow
16:35 and use more of the domestic savings.
16:38 So this is something that,
16:40 again, from a growth perspective is medium term positive.
16:43 So I was quite surprised that some of this
16:46 was not showing up in the markets today.
16:48 Perhaps some of the bullishness we are seeing today
16:51 in the Indian markets reflects that though.
16:53 Of course, the US market rewounded last night as well.
16:55 So it's very hard to say that is the reason.
16:57 - And point, in some sense, Neelkanth,
17:00 yesterday, the message that we drove,
17:02 I wrote a piece about it on LinkedIn as well,
17:04 about it, at least to my mind, looking like a bond budget.
17:08 But I didn't want to dwarf the impact
17:10 that that has on equities as well.
17:11 I'm just trying to understand
17:12 because you made this point.
17:13 The resultant impact of all that the government
17:18 fiscal measures have done yesterday,
17:20 is that a very strong positive for equities
17:25 as well over the course of the next 12 to 24 months?
17:29 - Well, the near term answer is no, right?
17:34 Because, so as you can imagine,
17:37 if the government pulls back on the fiscal deficit,
17:39 so if say we expected 5.3,
17:41 there were some people at 5.5 as well for FY25,
17:45 and the government does 5.1,
17:47 that's 0.2% of extra spending in the economy
17:50 which is not going to happen.
17:51 And if you assume that all of it was going to add to growth
17:54 or the fact that it's not happening
17:56 will take away from growth,
17:57 you brought down the growth number by 20 basis points
18:00 or 30, 40 basis points spending on those well.
18:02 So this is bad for near term growth.
18:06 But from the perspective of the sustainability
18:09 of medium term growth, I think this is phenomenal
18:11 because what this shows is that
18:13 the government is targeting macroeconomic stability,
18:17 the predictability of interest rates,
18:20 predictability of exchange rates,
18:21 the predictability of growth in many ways.
18:24 So if you're stuck at 80% plus debt to GDP,
18:27 the ability of the government to respond to shocks, right?
18:32 So just like what happened when the pandemic occurred,
18:34 the government was trying to go from 73% to 60%,
18:38 but in the process, because lockdowns had to be enforced,
18:42 it actually went up to 80 and 90%.
18:44 And then it had been dialed back to 80 to 83.
18:47 It has to be brought back to 70.
18:49 Now, what if there was another shock, which is unexpected?
18:52 Does the government have scope for that?
18:54 And it is, I think, very prudent of the government
18:56 that when the economy is starting to do well
18:58 to actually start to create space for that already.
19:01 And that means that your medium term growth path
19:04 is a lot more secure this way.
19:07 And that should warrant, I think,
19:09 much more bullishness on the P/E multiple side.
19:12 Though, your term, which is, we're thinking, six, 12 months,
19:16 this is obviously a headwind to growth.
19:19 And in fact, some of the questions
19:22 I got asked by investors yesterday
19:24 is that is the government doing too much?
19:26 That we already have tight liquidity,
19:29 we have elevated exchange rates,
19:30 we have a slowing export situation.
19:34 So is the government doing too much?
19:37 And my response to that is, look,
19:40 the government seems to be calibrating it.
19:42 So in FY23, they consolidated by about 50 basis points of GDP.
19:47 In FY24, they seem to be reducing the deficit
19:50 by 60 basis points.
19:52 And then there is a 70 basis point reduction
19:56 that they're targeting in FY25.
19:58 It suggests that as the economy is
20:00 showing that it can absorb a 60 basis point consolidation,
20:05 they're trying out with a 70 basis point consolidation.
20:07 So I think it's wise and prudent.
20:09 Let's see how it plays out.
20:11 Yeah, yeah, pertinent point.
20:13 Neelkanth, in some sense, do you think this predictability
20:18 is being done--
20:19 it's a nuance, but I'm just trying to understand--
20:21 in the minds of the government.
20:23 I'm asking you to kind of peek into that.
20:25 But do you think this predictability is being sought
20:27 out at the cost of growth or at the cost of growth
20:32 or with the confidence that the government has
20:34 done the heavy lifting for the last three years,
20:36 it has done what it could, it's drawing the boundaries,
20:38 and now hoping for the private sector, state CAPEX,
20:43 household CAPEX maybe, to take shape and form,
20:46 and is confident that it will come through?
20:47 What do you think is the choice?
20:51 Yeah, so it's a bit of both.
20:52 So I would say that this is--
20:55 whenever you-- suppose you can travel at 100 kilometers an hour,
21:01 but you know that there could be bumps on the way
21:03 and the car could get damaged, you
21:05 have to be forced to slow down very sharply.
21:07 Instead, you travel at, say, 80 kilometers an hour,
21:10 70 kilometers an hour, and you think that you
21:12 can sustain it for much longer.
21:15 That compounding effect and that certainty
21:18 actually triggers much more of private sector activity,
21:23 because now the private sector knows
21:25 that this is the direction of travel,
21:28 that when I'm setting up a factory,
21:30 I can reasonably think of 7% growth.
21:34 It's not that this year we are seeing it,
21:36 and the next year we start--
21:37 so I think that stability, that predictability,
21:41 over the medium term actually can be growth positive,
21:44 even if you are sacrificing it in the near term.
21:47 Nelkant, what about the implications for risk assets?
21:58 I mean, kind of the bond market seems
22:00 to be a given because of the budget,
22:02 plus the fact that flows, plus lowering rates, et cetera,
22:05 so on and so forth.
22:06 Because I have time for one more question,
22:07 I'll dwell on the equity side and not on the debt side.
22:10 And I know you mentioned that the near term challenges,
22:14 but medium term positives.
22:15 I'm trying to understand, over the next 12 to 18 months,
22:18 we are staring at a period of elections,
22:21 not just here, but in the US.
22:24 There being some bit of uncertainty,
22:26 but India is standing out at the bastion of growth
22:29 in a world which is probably grappling for one.
22:31 But we have the valuation issue.
22:34 Is that issue large enough for money not to come in
22:38 from the global side?
22:39 The domestic money is fine, but the global money,
22:41 is that issue large enough for global money to not come by?
22:44 Or in your conversations, you reckon people are sanguine
22:47 about the prospects?
22:49 I will reiterate what I've been saying for a while,
22:52 that the foreign flows that come in,
22:55 are coming in mostly through EM funds,
22:59 global funds, Asia funds, BRICS funds,
23:03 and funds like that.
23:04 India dedicated money in the mutual funds
23:07 and hedge funds flows,
23:09 is actually only about 15% of the total.
23:13 So there is one third of FII holding
23:15 is through sovereign wealth funds and endowments
23:18 and all that, and which have a very long term
23:20 strategic view on India, which I think is going on
23:23 in the public market at least.
23:25 And the rest of it, the rest of the two thirds,
23:27 nearly 85% is actually India allocations
23:31 from global funds and EM funds and Asia funds
23:33 and BRICS funds.
23:34 And when you think about that,
23:36 you realize that it is when EM funds start getting inflows,
23:41 that India will get inflows.
23:42 So December was a time when EM funds saw a gush of inflows
23:47 because the global markets realized
23:51 that the Fed was going to perhaps cut rates
23:53 and that 10-year bond yields fell
23:54 because of the right reasons,
23:56 or what market thought was bullish reasons.
24:00 And then January, when 10-year bond yields went up
24:04 from 3.8 to 4.16, that money started going out.
24:09 So I think we have to see the global cost of capital
24:15 allocation to risk assets globally,
24:18 when we are thinking about the changes
24:22 that happen to flows to India.
24:24 But by and large, I think there is acceptance
24:27 that India's growth is resilient,
24:29 and that there seems to be a lot of focus
24:33 on macroeconomic stability and predictability.
24:36 One last point I'll make is that every investor I have met
24:41 finds India to be expensive,
24:42 and which is one way of saying that the market
24:46 will likely stay expensive.
24:48 Because if people are being honest about their views
24:51 on the market, the moment India becomes
24:54 slightly less expensive, they start coming in.
24:56 So my sense is that flows are dependent
25:01 on what happens to EMs or Asia as a basket,
25:08 as well as perhaps how fast our earnings can benefit
25:13 on the road forward.
25:14 - We're completely out of time, Ilkan,
25:16 but can I just ask a follow up here?
25:17 In some sense, are you saying that the revival
25:20 of confidence in Chinese markets is important
25:23 for EM flows to come into India as well?
25:26 Because that can't happen without China
25:29 getting the confidence back.
25:30 - 100%.
25:31 And so a lot of people tend to paint it
25:34 as a China versus India thing.
25:37 Economically, there could be some such arguments
25:39 you can make, but from the financial flows,
25:42 or plumbing of financial flows,
25:44 it is China and India, not China versus India.
25:47 - Well, thank you, Neelkanth Mishra, for joining in today.
25:51 I look forward to having you in our studios.
25:52 We haven't done that, so maybe we can try
25:55 and do that in the next three months.
25:56 - I look forward to that too.
25:57 - Yeah, but lovely talking to you, thank you.
25:59 - Same to you.
26:00 - All right, that's an important view,
26:02 both from a budget perspective,
26:03 as well as the comments that Neelkanth Mishra made
26:06 on the markets.
26:07 I think the standout for me today was him saying
26:10 that India got included in the bond markets
26:12 not because India wanted it,
26:13 but because global funds wanted it,
26:15 and it's imperative now upon the rating agencies
26:17 to relook at their ratings on India.
26:20 Well, the markets in fine fettle up about a percent,
26:23 not quite at 20,000, but let's see if we do that
26:28 during the course of the day.
26:31 Thanks so much for watching this show.
26:32 Up next is the FNO show and some earnings conversations.
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