Indian Hotels Company Ltd (IHCL) held an analyst meet yesterday shortly after the results. The analyst meet dealt primarily with the company's results and its ongoing renovations and future planned projects.
The highlights of the meeting are:
The main drivers to the company's rise in operating profits in the 3QFY01 was higher occupancy rates and higher room rates at its luxury metro based hotels and its leisure hotels division. However, the business hotels division which consists of first class business hotels in secondary cities saw lower occupancy and average room rates during this period.
For 3QFY01, IHCL reported an occupancy rate of 70% for itís luxury hotel division an improvement of 400 basis points YoY. The encouraging factor here is that finally average room rates at its luxury hotels have showed a positive growth after a period of 5 years. This change in trend highlights the improvement in the hotel sector, as these hotels account for 85% of the company's bottomline.
The company's operating margins dipped by 100 basis points in 3QFY01 to 29.7%. This was primarily due to higher staff costs and higher lease fees for its hotel in Delhi, the Taj Mahal. Staff costs are up primarily due to a wage settlement in the current financial year at its key properties in Mumbai, Delhi and Calcutta. Besides the company's bonus settlement of the previous year as well as for the current year to the tune of Rs 30 m was paid in the current financial year itself.
The company's tax outgo has reduced in 3QFY01 as the company is getting the tax benefit of its VRS expense of Rs 360 m in the current financial year. The company will however be amortising the cost of the VRS over a period of 72 months. The company will gain from annual pre-tax savings of Rs 180 m per annum from this VRS due to reduction in staff costs.
The company has managed to control its food and beverage costs due to lower raw material expenses in the 3QFY01. Food and beverage costs as a percentage of food and beverage income has reduced by 1% in this quarter.
The company's other income went up primarily due to sale of its idle assets. This idle asset is a piece of land at Andheri, Mumbai. The company realised Rs 46.7 m from the sale of this asset. The company clarified that it has not sold off its 17 acre plot in Sahar, Mumbai near the international airport. It however stated that it had dropped plans of opening a hotel on this plot as North Mumbai would face a lot of competition. The company has stated that it will continuously try and sell off idle assets in the subsequent quarters too.
The company has budgeted a Rs 380 m renovation programme for the current financial year. Of this Rs 120 m would be spent for Mumbai, Rs 110 m for its Delhi hotel and Rs 120 m for its Calcutta hotel.
The company is in the process of consolidating its accounts, which is expected to substantially add to its bottomline. The company is also restructuring its international operations so as to increase accountability to shareholders of IHCL.
On the whole, though IHCL's results maybe lower than market expectations, we feel that the company has shown considerable improvement in its topline. The benefits of this is not being felt primarily due to higher expenses related to renovation and operations. We feel that in FY2002 the company's margins will be considerably better as some of the costs would stand reduced.
On the current price of Rs 247 it is trading at 9.5x FY01 EPS of Rs 26.1.
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