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EIH: Turnaround benefits growth - Views on News from Equitymaster

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EIH: Turnaround benefits growth
Jan 25, 2011

EIH Limited has announced its 3QFY11 results. The company has reported a 26.5% YoY increase in sales and 27.7% YoY increase in net profit. Here is our analysis of the results.

Performance summary
  • Sales of EIH Ltd. grew by 26.5% YoY in 3QFY11 as a result of strong demand and the reopening of The Oberoi property in Mumbai.
  • Operating (EBITDA) margins increased by 2% to stand at 34.7% during the quarter. This increase comes on the back of lower cost of goods sold, fall in power and fuel charges and decrease in other expenditure partly offset by increase in staff costs (all as a percentage of sales)
  • Net profit increased by 27.7% YoY on the back of higher operating and lower effective tax rate, partly offset by higher interest costs and higher depreciation.
  • The company registered a loss of Rs 25 m for 9mFY11. This was a result of fall in operating income, higher interest costs and higher depreciation during this period.


Financial picture
Rs(m) 3QFY10 3QFY11 Change 9mFY10 9mFY11 Change
Net sales 2,381 3,011 26.5% 6,253 7,224 15.5%
Expenditure 1,602 1,966 22.7% 4,586 5,804 26.6%
Operating profit (EBDITA) 779 1,046 34.2% 1,667 1,419 -14.9%
Operating profit margin (%) 32.7% 34.7%   26.7% 19.6%  
Other income 10 9 -11.9% 53 50 -4.9%
Interest 267 403 51.1% 724 1,140 57.5%
Depreciation 170 222 30.6% 470 652 38.7%
Profit before tax 353 430 21.9% 526 (323)  
Extraordinary items - -   - 187  
Tax 130 146 12.0% 209 (111)  
Profit after tax/(loss) 222 284 27.7% 317 (25)  
Net profit margin (%) 9.3% 9.4%   5.1% -0.3%  
No. of shares (m) 393 393   393 393  
Diluted earnings per share (Rs)*         0.6  
Price to earnings ratio (x)*         182.9  
* 12 month trailing earnings

What has driven performance in 3QFY11?
  • EIH's top line increased by 26.5% YoY during the quarter. The hotel segment witnessed a 26.8% YoY growth in sales, while sales of the others segment increased by 19.9% YoY. The growth in sales has been due to increase in demand and the reopening of the company's Mumbai property after the Mumbai attacks.

    Cost break-up
    As a % of net sales 3QFY10 3QFY11 9mFY10 9mFY11
    Total Cost of goods 13.7% 12.1% 13.5% 13.7%
    Staff Cost 25.1% 26.0% 28.1% 32.9%
    Power and fuel 6.3% 5.9% 6.8% 9.0%
    Other Expenditure 22.2% 21.2% 24.9% 25.9%

  • Operating income increased by 34.2% YoY as a result of slower growth in cost of goods sold, power and fuel costs and other expenditure. Cost of goods sold increased by 11% YoY while power and fuel costs and other expenditure increased by 20% YoY and 21% YoY respectively. However, staff costs increased sharply (up 31% YoY) capping the growth in operating income. The reason for increase in staff costs is that sales at the company's Bandra-Kurla property is still to ramp up resulting in higher fixed costs compared to sales.

  • EIH's bottom line grew by 27.7% YoY during the quarter. This was a result of higher operating income partly offset by higher interest costs and higher depreciation costs incurred. Depreciation costs were higher as the company's Bandra Kurla property became operational. Since this property is new, it will take some time to reach its full potential in sales.

What to expect?
At a price of Rs. 107, the company is trading at 183 times its trailing twelve month earnings. The company's business is returning to normal now. Going forward we expect to see higher sales as The Oberoi property and the new Bandra Kurla property achieve their full potential in sales.

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