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Indian Hotels: Occupancies take a blow
Jan 29, 2009

Performance summary
  • Sales decline by 12% YoY during the quarter on account of terror attacks and slowdown in the global economy.

  • Operating profits decline by 32% YoY, resulting into an EBITDA margin contraction of 11% during 3QFY09.

  • Net profits (excluding extraordinary items) suffer a fall of 28% YoY, led by fall in operating margins.



Standalone financials
Rs m 3QFY08 3QFY09 Change 9MFY08 9MFY09 Change
Net sales 5,206 4,566 -12.3% 12,069 12,014 -0.5%
Expenditure 2,759 2,911 5.5% 7,536 8,293 10.0%
Operating profit (EBDITA) 2,447 1,655 -32.4% 4,533 3,721 -17.9%
Operating profit margin (%) 47.0% 36.3% 37.6% 31.0%
Other income 44 220 403.2% 278 747 168.4%
Interest (net) 239 215 -10.0% 723 675 -6.6%
Depreciation 211 229 8.7% 631 658 4.4%
Profit before tax 2,041 1,431 -29.9% 3,457 3,135 -9.3%
Extraordinary item 21 (119) 217 (273)
Tax 716 474 -33.8% 1,248 904 -27.5%
Profit after tax/(loss) 1,346 838 -37.7% 2,426 1,958 -19.3%
Net profit margin (%) 28.8% 18.4% 20.1% 16.3%
No. of shares (m) 602.9 723.4 603 723.4
Diluted earnings per share (Rs)* 4.6
Price to earnings ratio (x)* 8.5
*trailing twelve month earnings

What has driven performance in 3QFY09?
  • Indian Hotels reported a topline decline of 12% YoY during 3QFY09. The sales were marginally down by 0.5% YoY during 9mFY09. Upto November 25, 2008, the company was witnessing higher growth as compared to last year. PevPAR (Revenue per available room) was higher by 5% YoY during April to November. However 26/11 changed the scenario. The table below shows the impact of terror attacks. IHCL witnessed a 2% YoY decline in RevPAR during April to December period. While Mumbai was severely affected, Delhi, Chennai and Kerala properties witnessed stable times.

    Terror attack impact
    Occpancy Rates (%) 2007 2008 change
    April - November 70 67 -4.3%
    December 74 50 -32.4%
    April - December 71 65 -8.5%
    ARR's (Rs)      
    April - November 9548 10474 9.7%
    December 12554 10617 -15.4%
    April - December 9907 10487 5.9%
    RevPAR (Rs)      
    April - November 6686 7066 5.7%
    December 9352 5270 -43.6%
    April - December 6987 6854 -1.9%


  • In case of international properties, while the US is facing lower occupancies, the room rates have marginally declined. The company has delayed the opening of ‘The Pierre’ to June, 2009 on account of construction delays. The properties in UK are witnessing stable times. In case of Ginger, the company has 15 properties. The company wants to make this portfolio profitable before adding on more properties. ‘The Gateway’ chain is performing as per expectations. Regarding management contracts, except for 2 in the domestic region and 1 in international region, all are on track.

  • Operating profits declined by 32% YoY, resulting into an EBITDA margin contraction of 11% during 3QFY09. Higher staff, fuel and other expenses led to the decline. During 9mFY09, the margins stood at 31%, declining by 6.6% YoY. Except total costs of goods, all expenses were on the higher side as a percent of sales.

  • Excluding the extraordinary items (Rs 58.7 m for annuity for pension payments to the employees affected in terror attacks and forex loss) the profits declined by 28% YoY during the quarter. During 9mFY09, the profits marginally improved by 1% YoY. Higher other income restricted the fall to some extent during both the period under consideration.

  • The company raised Rs 3 bn through issuance of NCD at the rate of 11.8%. The fund raising happened on account of failure of conversion of warrants. It has funded the investments in Oriental Express Hotels (equity purchase) through off shore debt and would decide in the coming fiscal on repaying it. While the consolidated debt stood at Rs 43 bn, the cash on books was at Rs 8 bn.

  • While the amount was not mentioned, the management indicated that the Mumbai property is fully insured for the damage and loss of profit. The decision would be made in February for the amount given. While the restaurants and rooms in the new wing have opened, the heritage wing would open in parts during FY09.

What to expect?
At Rs 39, the stock is trading at a price to earnings multiple of 10.8 times our FY11 estimates. While the company saw the worst quarter in recent times, the bookings are picking up in this quarter. Room rates are flattening out. Though it has underperformed our estimates, we expect the coming quarter to be better. However, the management has indicated some changes in terms of breakeven of certain properties. Also, it has freezed the capex plans on uncommitted projects and routine replacement plans. While it added 1,210 rooms till December 2008, another 558 rooms will come up this quarter. For FY10, another 2,000 rooms would also come in to the pipeline. Though the coming quarter would be difficult on account of delay/ cancellation of new constructions by other players, Indian Hotels would stand to gain on account of its huge room inventory across segments.

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