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Indian Hotels: Celebration in full swing! - Views on News from Equitymaster

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Indian Hotels: Celebration in full swing!
Jan 30, 2008

Performance summary
  • On a standalone basis, the topline grows by 14.6% YoY led by higher room rates and stable occupancy rates.
  • Margins expand by 5.1% YoY mainly due to cost control.

  • Stronger operating margins leads to the bottomline growth of 31% YoY in the current quarter.

  • The company will be adding 614 rooms until March 2008 of which 200 rooms will be through management contracts.

Rs m 3QFY07 3QFY08 Change 9mFY07 9mFY08 Change
Net sales 4,544 5,206 14.6% 10,380 12,069 16.3%
Expenditure 2,641 2,760 4.5% 6,864 7,537 9.8%
Operating profit (EBDITA) 1,904 2,447 28.5% 3,517 4,532 28.9%
Operating profit margin (%) 41.9% 47.0%   33.9% 37.5%  
Other income 38 65 70.8% 405 496 22.5%
Interest (net) 156 239 53.1% 490 723 47.4%
Depreciation 230 211 -8.4% 668 631 -5.6%
Profit before tax 1,555 2,061 32.6% 2,763 3,674 33.0%
Tax 529 716 35.2% 885 1,248 41.1%
Profit after tax/(loss) 1,026 1,346 31.2% 1,879 2,426 29.1%
Net profit margin (%) 22.6% 25.8%   18.1% 20.1%  
No. of shares (m) 600 603   600 603  
Diluted earnings per share (Rs)*         6.3  
Price to earnings ratio (x)*         21.7  
*trailing twelve month earnings

What has driven performance in 3QFY08?
  • For 3QFY08, IHCL reported 15% YoY growth in topline. For 9mFY08, the sales were up 16% YoY led by a 17% YoY growth in room revenues. While the occupancy rate increased to 71% (70% in 9mFY07), the room rates jumped 17% YoY to touch Rs 9,907. F&B sales grew with banquets increasing by 17% YoY. Though certain cities witnessed a dip in occupancy and room rates due to new supply, overall room rates in major metros improved by 15% to 30%.

    Rs m 9mFY07 9mFY08 % change
    Room revenues 5,595 6,554 17.1%
    % of total revenues 53.9% 54.3%  
    F& B 3,592 4,076 13.5%
    % of total revenues 34.6% 33.8%  
    others 1,193 1,438 20.5%
    % of total revenues 11.5% 11.9%  
    Total 10,380 12,069 16.3%

  • The company has 16 international properties with nearly 2, 580 rooms. Rooms, restaurants, and public spaces have been closed at the Pierre in New York for renovation, while the banqueting business continues. The company plans to spend US$ 80 m on the refurbishment and to re-open the Pierre in January 2009. Its other properties continue to do well in line with the peers in international markets.

    International Properties
    Property Location Location ARR US$ OR (%)
    Blue Sydney Sydney 298 72
    Pierre New York 742 71
    Taj Boston Boston 361 64
    Campton Place San Fransico 346 68

  • The operating margins improved by 5.1% YoY in 3QFY08 on account of all expenses reducing as a % of sales. The operating leverage continues to benefit IHCL as bottomline yet again outperformed the topline with a growth of 31% YoY in 3QFY08. Higher operating margins, higher other income, lower depreciation costs aided the growth. Higher Interest expense was on account of full utilization of the FCCB funds for acquisition of Taj Boston and incremental debt raised for acquisition of Campton Place, San Francisco. The margins are in line with our estimates.

What to expect?
At Rs 136, the stock is trading at a price to earnings multiple of 14.8 times our FY10 estimates. Strong expansion plans, buoyant sector scenario continue to help the company in its performance. It has planned an expansion of more than 8,800 rooms including 2,800 management contracts over the next 4 years with cost of Rs 20 bn. Also, realizing the importance of the food segment, it has planned initiatives to open new restaurants. The company has received the approval for the rights issue from the SEBI and intends to complete the issuance by mid-April 2008. With its international properties also making its mark in their respective regions and the company always looking out at new opportunities, we are positive on the growth prospects.

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