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Oriental Hotels: On the recovery path - Views on News from Equitymaster

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Oriental Hotels: On the recovery path
Jan 28, 2010

Performance summary
  • Revenue of Oriental Hotels fell by 9% during the quarter on the back of economic slowdown. However, occupancy levels were at the same level as those of the same quarter last year.
  • Operating (EBITDA) margins shrunk by 6% to stand at 30% during 3QFY10 due to increase in material costs and higher other expenditure as a percentage of sales.
  • Net profits fell by 25% on the back of lower operating profit and higher interest expense.
  • Net profit for 9mFY10 declined by 64% due to higher operating costs and a jump in interest expense.


Financial picture
Rs(m) 3QFY09 3QFY10 Change 9mFY09 9mFY10 Change
Net sales 579 529 -8.5% 1,619 1,318 -18.6%
Expenditure 370 371 0.2% 1,077 1,019 -5.3%
Operating profit (EBDITA) 209 159 -24.1% 542 298 -45.0%
Operating profit margin (%) 36.1% 30.0%   33.5% 22.6%  
Other income 3 35 1042.5% 18 44 138.6%
Interest 10 32 224.0% 13 77 491.3%
Depreciation 34 34 1.4% 97 101 4.3%
Profit before tax 168 127 -24.3% 450 163 -63.8%
Tax 59 45 -23.4% 156 58 -63.1%
Profit after tax/(loss) 110 83 -24.8% 295 106 -64.1%
Net profit margin (%) 19.0% 15.6%   18.2% 8.0%  
No. of shares (m) 18 18   18 18  
Diluted earnings per share (Rs)*         11.9  
Price to earnings ratio (x)*         18.6  
* 12 month trailing earnings

What has driven performance in 3QFY10?
  • The revenue of Oriental Hotels fell on the back of economic slowdown. However, occupancy levels were at the same level as those of the same quarter last year. On a sequential quarter basis, the revenues of the company increased by 26%.

  • Operating income fell by 24% during the quarter mainly due to rise in cost of raw material and increase in other expenditure. Raw material costs increased by 4% YoY while other expenditure increased by 7% YoY.

    Cost break-up
    As a % of net sales 3QFY09 3QFY10 9mFY09 9mFY10
    Total Cost of goods 9.2% 10.5% 10.6% 10.7%
    Staff Cost 16.8% 16.9% 17.9% 21.9%
    Power and fuel 7.2% 6.7% 7.4% 8.3%
    Other Expenditure 30.7% 35.9% 30.5% 36.5%

  • Net profit shrunk by 25% during the quarter. This was the result of lower sales, higher operating costs and interest expense which grew by Rs. 22 m during the quarter, possible due to the acquisition costs of the Trivandrum property and the building of the Coimbatore property. On a sequential basis, net profits have grown by 388%.

What to expect?
At a price of Rs. 252, the company is trading at 11 times our estimated FY12 earnings. While the company has not performed as expected, it is an improved performance on a sequential basis. We expect the company’s results to improve as the economic recovery continues.

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