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EIH: Meets its September 11

Jan 29, 2002

East India Hotels Ltd., more commonly known as Oberoi Hotels, has seen its business being clobbered in the quarter ended December '01. The resultant travel fears arising from the extraordinary events of September 11 and the attack on parliament largely affected inbound travel. Topline of the company, YoY, has reported a sharp slide. However, the performance is similar to industry peers.

(Rs m) 3QFY01 3QFY02 Change
Net Sales 1,309 836 -36.2%
Other Income 87 98 12.9%
Expenditure 974 795 -18.4%
Operating Profit (EBDIT) 334 40 -88.0%
Operating Profit Margin (%) 25.6% 4.8%  
Interest 53 41 -21.7%
Depreciation 67 68 1.7%
Profit before Tax 302 30 -90.2%
Extraordinary items - (11)  
Tax 25 (11)  
Profit after Tax/(Loss) 277 30 -89.2%
Net profit margin (%) 21.2% 3.6%  
No. of Shares 52 52  
Diluted Earnings per share* 21.2 2.3  
P/E Ratio   90.2  
* annualised      

Operating profits of the company have been massacred by drop in sales, and expenses declining at only half the rate compared to the topline. The latter has also resulted in a significant decline in OPM, which is lower by 20.8 percentage points. At the operating profit level, the company seems to have been affected more than its peers. This could largely be due to the company not being able to rope in costs, as compared to the others.

Further, commissions payable to directors will be provided for at the end of the fiscal. Accounting for the same would have reduced operating profits further. The fiscal second half tends to be more remunerative for the hospitality industry, as it is the peak tourist season. The heightened fears of terrorism led to tourists canceling/delaying their travel, which has washed out the current season for tourist dependent industries. The lower business during the quarter is likely to have resulted in lower working capital requirement. Consequently, borrowing costs have reduced sharply.

Having said that, as per industry reports, the scenario has improved in the month of December '01, as compared to the trough in the months of October and November of 2001. Industry is expecting a revival only in the next fiscal. The sector has been hit by a double whammy. Besides reduced flow of tourist traffic, to achieve higher occupancy, the industry has reduced tariffs to attract domestic traffic. This seems to be reflecting on the topline.

At Rs 206 the stock is trading on a multiple of 90.2x 3QFY02 annualised earnings. However, the sharp erosion in quarterly EPS is leading to the skewness in valuations.

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