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Indian Hotels: Green shoots visible - Views on News from Equitymaster
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Indian Hotels: Green shoots visible
Jan 28, 2010

Performance summary
  • Net sales for Indian Hotels Company Ltd. (IHCL) in 3QFY10 fell by 4% YoY. However, the fall has been less than that seen in 2QFY10. This arrest in fall has been due to improved occupancy across key markets.
  • Operating profit dropped by 9% YoY during the quarter. This drop is due to higher raw material costs and higher other expenditure as a percentage of sales.
  • Net profit dropped by 23% YoY during the quarter. The fall in profits is due to lower operating profits, lower other income and higher interest expense during the quarter.
  • The bottom line for 9mFY10 was lower by 52% YoY due to lower operating income coupled with lower other income. Another reason for lower net profits was higher interest expense.


Standalone financials
Rs m 3QFY09 3QFY10 % Change 9mFY09 9mFY10 % Change
Net sales 4,566 4,379 -4.1% 12,014 10,300 -14.3%
Expenditure 2,911 2,867 -1.5% 8,293 7,932 -4.3%
Operating profit (EBDITA) 1,656 1,512 -8.7% 3,721 2,368 -36.4%
Operating profit margin (%) 36.3% 34.5%   31.0% 23.0%  
Other income 220 36 -83.4% 747 353 -52.8%
Interest (net) 215 442 105.3% 675 1,196 77.2%
Depreciation 229 260 13.3% 658 763 15.8%
Profit before tax 1,431 847 -40.8% 3,135 762 -75.7%
Extraordinary item (119) (8)   (273) 507  
Tax 474 190 -59.9% 904 337 -62.8%
Profit after tax/(loss) 839 649 -22.6% 1,958 932 -52.4%
Net profit margin (%) 18.4% 14.8%   16.3% 9.0%  
No. of shares (m) 723 724   723 724  
Diluted earnings per share (Rs)*         1.8  
Price to earnings ratio (x)*         50.6  
* On a trailing 12 months basis

What has driven performance in 3QFY10?
  • With the improvement in economic environment, the fortunes of the hospitality sector also seem to be improving. While the sales for 3QFY10 were lower than that of 3QFY09, the fall has been much subdued as compared to the previous quarter. On a sequential basis the company witnessed improvement in occupancy as well is in average room rental. This has boosted the sales of the company. As compared to 2QFY10, the company’s revenue per available room improved for regions like Mumbai (35%), Delhi (57%), Bangalore (2%), Chennai (6%), Hyderabad (24%), Kolkata (25%) and Goa (97%). The revenue growth could have improved further but for the closure of 287 rooms in Taj Mahal Palace & Tower which are undergoing renovation.

  • IHCL’s operating (EBITDA) income fell by around 9% YoY during 3QFY10. Apart from the weakness in sales, this was also owing to a less than equivalent decline in staff costs. Operating income was also depressed as a result of rise in other expenditure. Operating margins subsequently fell to 34.5% during the quarter, as compared to 36.3% in 3QFY09. These margins were however better than 16% that the company had earned in 2QFY10.

  • On the back of lower sales and weaker operating margins, IHCL’s profits declined by 23% YoY during 3QFY10. Higher interest charges (up 105% YoY) also impacted the net profit picture.

What to expect?
At a price of Rs. 92, the stock is trading at 45 times our estimated FY12 earnings. While the results look bad as compared to the corresponding quarter last year, it has improved over 2QFY10 results. However, the stock price has run up a lot recently. For this reason we are cautious on this company.

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