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Indian Hotels: Idle assets sale drives 3QFY01 net

Jan 29, 2001

Indian Hotels Company Ltd (IHCL), India's largest hotel chain has reported a 21% growth in its net profit for 3QFY01 to Rs 402 m as compared to Rs 333 m for 3QFY00. This was driven by a 10% increase in operating profits and a large jump in other income for the quarter.

(Rs m) 3QFY00 3QFY01 Change 9m FY00 9m FY01 Change
Sales 1,712 1,946 13.7% 4,167 4,779 14.7%
Other Income 7 55 701.5% 188 159 -15.4%
Expenditure 1,187 1,369 15.3% 3,150 3,560 13.0%
Operating Profit (EBDIT) 525 577 9.9% 1,017 1,219 19.9%
Operating Profit Margin (%) 30.7% 29.7%   24.4% 25.5%  
Interest 54 67 23.2% 102 225 119.5%
Depreciation 86 113 32.2% 270 331 22.3%
Profit before Tax 392 452 15.2% 832 823 -1.1%
Other Adjustments 0 10   0 14  
Tax 59 40 -32.9% 100 47 -52.9%
Profit after Tax/(Loss) 333 402 20.7% 732 762 4.1%
Net profit margin (%) 19.4% 20.6%   17.6% 15.9%  
No. of Shares (eoy) (m) 45.1 45.1        
Diluted number of shares 45.1 45.1        
Diluted Earnings per share* 29.5 35.6        

IHCL's sales grew by 13.7% YoY during the 3QFY01 due to higher occupancy rates in its metro city hotels. The company's average room rates for this period are also likely to be up as the company had revised its room tariffs by 5%-10% at its metro based hotels in October 2000.

Its other income for the 3QFY01 includes profit on sale of idle assets to the tune of Rs 46.7 m. The company was keen to sell of a part of its 17-acre plot of vacant land in North Mumbai. The company had purchased this property around 20 years back. We assume the company has sold part of this plot in the 3QFY01.

As IHCL has no intention of opening a hotel in North Mumbai due to the oversupply gaining momentum there, the gains from the sale of this property will definitely boost the company's cash flows and help the company pump in funds for future expansions elsewhere.

On the operating level the company has not reported a large jump YoY mainly due to ongoing renovations at its hotels in Mumbai, Delhi and Calcutta in 3QFY01. This has resulted in a drop in its margins by 100 basis points to 29.7% in 3QFY01.

Though this may not seem very encouraging we feel the company's newly renovated hotel in Mumbai (which contributes to 36% of IHCL's profits) will drive its future earnings growth and is well equipped to meet the increasing competition in Mumbai city. This strategy of renovations in the current year will pay off in the long run, though it has strained its short-term profits.

On the whole IHCL's profit is slightly lower than our expectations. This is mainly due to lower numbers on the operating level in the 3QFY01. For the full year (FY01E) we have forecast a net of Rs 1,177 m.. However we will maintain our full year numbers at the same level as IHCL has gained through profit on sale of assets.

On the current price of Rs 255 it is trading at 9.8x FY01 EPS of Rs 26.1.

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