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Hotel Leelaventures: Hit by rising costs
Jan 29, 2010

Performance summary
  • Revenue of Hotel Leelaventure grew by 6% during the quarter. This growth comes on the back of higher buoyancy seen in the hotel sector marked by increase influx of foreign tourists.
  • Operating (EBITDA) margins shrunk by 0.7% to stand at 40% during the year. This drop in margins has been due to higher costs of material and higher staff costs as a percentage of sales. This drop was partly offset by costs saving measures taken up by the company
  • Net profits increased by 41% YoY on the back of growth in operating income and no extraordinary loss recorded for the quarter, partly offset by lower other income and higher tax expense. When adjusted for one time loss, net profits fell by 10% YoY.
  • Net profit for 9mFY10 declined by 59% YoY. This fall was due to a decline in operating income and lower other income. When adjusted for one time loss, the fall in net profits is sharper at 69% YoY.


Financial picture
Rs(m) 3QFY09 3QFY10 Change 9mFY09 9mFY10 Change
Net sales 1,211 1,277 5.5% 3,546 3,036 -14.4%
Expenditure 718 766 6.7% 2,093 2,137 2.1%
Operating profit (EBDITA) 493 511 3.6% 1,452 899 -38.1%
Operating profit margin (%) 40.7% 40.0%   41.0% 29.6%  
Other income 65 44 -32.0% 266 128 -51.9%
Interest 49 48 -2.5% 188 169 -10.2%
Depreciation 124 140 12.9% 356 463 30.3%
Profit before tax 386 369 -4.5% 1,174 394 -66.4%
Extraordinary items (116) -   (209) 7  
Tax 65 80 23.1% 185 85 -54.3%
Profit after tax/(loss) 205 289 40.8% 780 317 -59.4%
Net profit margin (%) 16.9% 22.6%   22.0% 10.4%  
No. of shares (m) 378 378   378 378  
Diluted earnings per share (Rs)*         2.6  
Price to earnings ratio (x)*         18.0  
* 12 month trailing earnings

What has driven performance in 3QFY10?
  • Growth in sales of Hotel Leelaventures is early signs of recovery in the sector. The company operates in the Luxury segment. As a result, it is the first to get affected in a down turn and the first to recover when the business picks up. This growth has been the result of a 21% YoY increase in foreign tourists during the quarter over the corresponding quarter last year.

    Cost break-up
    As a % of net sales 3QFY09 3QFY10 9mFY09 9mFY10
    Total Cost of goods 6.0% 7.0% 6.2% 7.3%
    Staff Cost 18.2% 19.9% 17.9% 23.0%
    Power and fuel 9.3% 8.5% 9.5% 10.7%
    Other Expenditure 25.9% 24.5% 25.5% 29.5%

  • While there was a fall in operating margins, it was marginal. The reason was an increase in material costs and staff costs. Material costs increased by 23% YoY while staff costs increased by 16% YoY. This increase was partly offset by fall in fuel, power and light costs and lower other expenditure. This fall was a result of cost saving measures taken by the company.

  • The company bought back and cancelled US$ 25 m of foreign currency convertible bonds which included zero coupon bond as well as 1% coupon bond. For this reason, we see a fall in other income as well as lower interest costs.

  • Net profit margin was higher during the quarter as a result of the absence of a onetime forex loss suffered during the corresponding quarter last year.

What to expect?
At a price of Rs. 47, the company is trading at 18 times its trailing twelve month earnings. As a result of an economic recovery, we are witnessing higher sales growth. The company is taking advantage of its positioning in the luxury segment and position in the metro benefiting from increase in foreigner and leisure traffic. Hotel Leelaventures has a property coming up in Delhi which will be operational before the Commonwealth games and other property in Chennai which is coming up. These two properties will take the room inventory of the company to 2,250 rooms. Given the economic recovery, and the buoyancy in the hospitality sector, we will take a relook at our assumptions for this company.

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