EIH Associated Hotels Q2 FY26: Seasonal Weakness Drags Profits Down 33% Despite Strong Year-on-Year Growth

The September quarter results highlight the pronounced seasonality inherent in the hotel business, with the monsoon period traditionally representing the lean season for leisure-focused properties. Revenue declined 15.14% quarter-on-quarter to ₹58.33 crores from ₹68.74 crores in Q1 FY26, whilst also registering a 17.66% year-on-year contraction from ₹70.84 crores in Q2 FY25. This dual decline reflects both seasonal headwinds and broader challenges facing India's hospitality sector, including increased competition and moderating domestic travel demand.

What stands out particularly is the compression in operating margins. The operating profit excluding other income plummeted to just ₹2.68 crores in Q2 FY26 from ₹8.98 crores in the previous quarter, translating to an operating margin of merely 4.59% compared to 13.06% in Q1 FY26. This margin erosion indicates significant operating deleverage during the lean season, as fixed costs remain elevated whilst revenues decline. Employee costs remained relatively stable at ₹18.03 crores, but represented a disproportionately higher 30.91% of revenue compared to 25.40% in Q1 FY26.

Financial Performance: Seasonal Headwinds Dominate

A detailed examination of Q2 FY26 financials reveals the extent of seasonal pressure on the company's operations. Net sales of ₹58.33 crores declined 15.14% sequentially and 17.66% year-on-year, reflecting the traditional monsoon slowdown that affects leisure-oriented hotel properties. The operating profit before depreciation, interest, tax and other income (PBDIT excluding OI) stood at just ₹2.68 crores, representing a margin of 4.59% – the lowest amongst the trailing seven quarters and a stark contrast to the robust 43.28% margin achieved in Q4 FY25.

Other income provided some cushion, contributing ₹4.46 crores in Q2 FY26, though this declined from ₹4.94 crores in the previous quarter. This non-operating income helped lift total operating profit (PBDIT) to ₹7.14 crores. After accounting for minimal interest costs of ₹0.11 crores and depreciation of ₹4.21 crores, profit before tax stood at ₹3.66 crores. With tax provisioned at 24.32%, net profit came in at ₹2.77 crores, translating to a PAT margin of 4.75%.

The year-on-year comparison offers a more nuanced perspective. Whilst revenue declined 17.66% from ₹70.84 crores in Q2 FY25, net profit actually improved 33.17% from ₹2.08 crores, suggesting marginally better cost management compared to the same period last year. The PAT margin of 4.75% in Q2 FY26 compares favourably to 2.94% in Q2 FY25, indicating some operational efficiency gains despite the top-line pressure.

Profitability Dynamics: The Challenge of Operating Leverage

EIH Associated Hotels' profitability profile is characterised by extreme volatility tied directly to occupancy levels and seasonal demand patterns. The company's return on equity (ROE) averaged 12.43% over recent years, which is reasonable but not exceptional for the hospitality sector. More impressively, the return on capital employed (ROCE) averaged 21.23%, reflecting efficient asset utilisation during peak periods. The latest ROCE stands at 38.13%, suggesting strong capital productivity when properties operate at higher occupancy levels.

The balance sheet reveals a virtually debt-free structure, with net debt to equity at -0.45, indicating the company is a net cash position. This financial conservatism provides resilience during lean periods but also means the company may not be fully leveraging its capital structure to maximise returns. The EBIT to interest coverage ratio averaged an impressive 61.20 times, though this metric is less meaningful given the minimal debt levels.

Industry Context: Navigating a Challenging Hospitality Landscape

The Indian hospitality sector has faced headwinds in recent quarters, with moderating domestic travel demand and increased competitive intensity. EIH Associated Hotels operates in the premium segment through its Oberoi and Trident brands, positioning itself at the higher end of the market. This positioning provides pricing power during peak seasons but also makes the company vulnerable to discretionary spending cuts during economic uncertainty.

The company's portfolio mix – including leisure destinations like Shimla, Jaipur, Udaipur and Agra – makes it particularly susceptible to seasonal variations. Unlike business hotels that maintain steadier occupancy throughout the year, leisure properties experience pronounced peaks during winter months (October to March) and troughs during monsoon (July to September). This explains the dramatic performance differential between Q2 and the preceding Q4.

Looking at the five-year sales growth of 18.28% and EBIT growth of 138.68%, the company has demonstrated strong long-term growth trajectory. However, this growth has been uneven, reflecting both the recovery from pandemic disruptions and the inherent cyclicality of the business. The debt-to-EBITDA ratio is negligible given the net cash position, providing financial flexibility for future expansion or weathering downturns.

Within the peer group, EIH Associated Hotels trades at a P/E ratio of 22.46x, which appears reasonable compared to peers like ITDC (64.58x) and Brigade Hotel (140.28x), though slightly higher than TajGVK Hotels (18.01x). The company's ROE of 12.43% is competitive, trailing only Brigade Hotel's 14.96% and TajGVK's 13.41%. Importantly, the price-to-book ratio of 4.10x is moderate relative to ITDC's 13.85x, suggesting the market is not pricing in excessive growth expectations.

Valuation Analysis: Fair Pricing Amidst Uncertainty

At the current market price of ₹352.00, EIH Associated Hotels carries a market capitalisation of ₹2,185 crores, placing it firmly in the small-cap category. The stock trades at a P/E ratio of 22x based on trailing twelve months earnings, which represents a significant discount to the industry average P/E of 46x. This valuation gap reflects investor concerns about the company's smaller scale, pronounced seasonality, and limited institutional following.

The price-to-book value of 4.10x appears elevated at first glance but is justified by the company's asset-light model and premium brand positioning. Hotel properties, particularly those in prime locations like Shimla, Jaipur and Udaipur, carry significant embedded value not fully captured in book value. The EV/EBITDA multiple of 15.14x and EV/EBIT of 17.47x suggest reasonable valuation relative to earnings power, though investors must recognise the volatility in these metrics given seasonal fluctuations.

The dividend yield of 0.99% provides modest income support, with the company maintaining a conservative payout ratio of 23.22%. This prudent capital allocation preserves resources for potential expansion whilst rewarding shareholders. The PEG ratio of 1.56 suggests the stock is reasonably valued relative to growth prospects, though this metric must be interpreted cautiously given the uneven growth pattern.

The stock's valuation grade has oscillated between "Fair" and "Expensive" in recent months, currently settling at "Fair" as of September 15, 2025. This assessment appears appropriate given the balanced risk-reward profile. At current levels, the stock offers reasonable value for patient investors willing to look past quarterly volatility, but lacks the margin of safety that would make it compelling for more risk-averse portfolios.

Shareholding: Stable Promoter Base, Limited Institutional Interest

The shareholding pattern reveals a highly stable ownership structure dominated by promoters, who maintain a steady 75.00% stake across the last five quarters. This unwavering promoter commitment – with zero pledging of shares – provides governance comfort and aligns management interests with minority shareholders. The promoter group includes EIH Limited (36.81%), Satish B Raheja (22.27%), and Hathway Investments Private Limited (14.33%), representing established hospitality industry players with long-term vision.

Foreign institutional investors (FIIs) hold a modest 13.70% stake, which has remained virtually unchanged over the past five quarters, hovering between 13.70% and 13.76%. This stability suggests neither accumulation nor distribution by sophisticated foreign investors – a neutral signal that indicates the stock is neither attracting significant new interest nor experiencing exits.

Notably absent from the shareholder register are mutual funds and insurance companies, both showing 0.00% holdings. This lack of domestic institutional participation is concerning, as it suggests the stock lacks the liquidity and analyst coverage that typically accompanies institutional ownership. The limited free float of just 25% further constrains liquidity, potentially contributing to higher volatility and wider bid-ask spreads.

Stock Performance: Struggling Against Market Headwinds

The stock's performance across various timeframes paints a picture of sustained underperformance relative to broader market indices. Over the past year, EIH Associated Hotels declined 10.91% whilst the Sensex gained 7.97%, resulting in negative alpha of -18.88 percentage points. This underperformance has been consistent across multiple periods, with the stock generating negative alpha of -10.38% over six months and -6.83% over three months.

Interestingly, the stock's underperformance is actually less severe than the broader Hotels & Resorts sector, which declined 12.27% over the past year. EIH Associated Hotels' 10.91% decline represents a 1.36 percentage point outperformance versus the sector, suggesting company-specific factors are less problematic than broader industry headwinds.

The longer-term picture offers more encouragement. Over three years, the stock delivered 69.64% returns compared to the Sensex's 38.25%, generating positive alpha of +31.39%. The five-year performance is even more impressive, with returns of 154.52% versus the Sensex's 63.78%, translating to alpha of +90.74 percentage points. This long-term outperformance suggests the business model works well over complete economic cycles, even if near-term volatility can be challenging.

From a technical perspective, the stock currently trades below all major moving averages – the 5-day (₹342.12), 20-day (₹335.53), 50-day (₹348.92), 100-day (₹364.50), and 200-day (₹374.18) – though the stock is actually above the 5-day and 20-day averages at ₹352.00. The overall technical trend is classified as "Mildly Bearish," having changed from "Bearish" on February 6, 2026. The stock's beta of 1.35 indicates higher volatility than the broader market, with a volatility measure of 30.13% compared to the Sensex's 11.53%.

Investment Thesis: Quality Trapped in Seasonal Volatility

EIH Associated Hotels presents a complex investment proposition characterised by quality assets and brand strength offset by pronounced seasonality and limited scale. The company's quality grade of "Average" reflects long-term financial performance that is satisfactory but not exceptional. The financial trend is currently "Positive," supported by strong performance in the December quarter, though this must be balanced against the weak September quarter results.

The valuation at "Fair" levels provides neither compelling value nor obvious overvaluation. At 22x trailing earnings, the stock trades at a discount to the industry average but at a premium to select peers. The technical trend remains "Mildly Bearish," reflecting recent price weakness and positioning below key moving averages. The overall Mojo Score of 45/100 places the stock in "SELL" territory, though this recently improved from "STRONG SELL" (score below 30) on February 6, 2026.

Outlook: What to Watch

The path forward for EIH Associated Hotels depends critically on the company's ability to navigate the upcoming peak season (October to March) and demonstrate sustained improvement in operational metrics. Investors should monitor several key indicators that will determine whether the stock merits accumulation or continued caution.