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Indian Hotels: High costs weigh on bottomline - Views on News from Equitymaster

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Indian Hotels: High costs weigh on bottomline
Feb 1, 2011

The Indian Hotels Company Limited has announced its 3QFY11 results. The company has reported a 10.8% YoY growth in sales and a 22.6% YoY fall in net profits. Here is our analysis of the results.

Performance summary
  • Net sales for 3QFY11 increased by 10.8% YoY on the back of recovery in occupancy and higher ARR (average room rentals).
  • Operating (EBITBA) margins fell by 4.8% during the quarter. This has been due to higher raw material costs, staff costs and other costs (all as a percentage of sales).
  • Net profit fell by 22.6% YoY this quarter. This was due to fall in operating income, lower other income and higher effective tax rate recorded during the quarter.
  • For 9mFY11 the net profits of the company fell by 49.2% YoY while net profit margins fell by 4.9%. This performance came on the back of fall in operating income, lower other income and extraordinary loss (gain same quarter last year). When adjusted for the onetime loss, net profit grew by 19.7% YoY.

Standalone financials
Rs m 3QFY10 3QFY11 % Change 9mFY10 9mFY11 % Change
Net sales 4,379 4,853 10.8% 10,300  11,426 10.9%
Expenditure 2,867 3,411 19.0% 7,932 9,083 14.5%
Operating profit (EBDITA) 1,512 1,443 -4.6% 2,368 2,343 -1.0%
Operating profit margin (%) 34.5% 29.7% 23.0% 20.5%
Other income 36  31 -15.4% 353 243 -31.0%
Interest (net) 442 327 -25.9% 1,196 963 -19.5%
Depreciation 260 298 14.6% 763 804 5.5%
Profit before tax 847 848 0.2% 762 819 7.5%
Extraordinary item  (7)  (26) 507  (35)
Tax 190 320 68.5% 337 310 -7.9%
Profit after tax/(loss) 650 503 -22.6% 932 473 -49.2%
Net profit margin (%) 14.8% 10.4% 9.0% 4.1%
No. of shares (m) 723 760 723 760
Diluted earnings per share (Rs)*         1.4  
Price to earnings ratio (x)*           65.3  
* On a trailing 12 months basis

What we expect?
At a price of Rs. 92, the stock is trading at 19.8 times our estimated FY13 earnings (RPro subscribers click here). Will will update our analysis shortly

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