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Hotel Leelaventure: Interest expenses take toll - Views on News from Equitymaster

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Hotel Leelaventure: Interest expenses take toll
Feb 2, 2011

Hotel Leelaventure Limited has announced its 3QFY11 results. The company has reported an 11.4% YoY growth in its sales and a 23.6% YoY fall in net profits. Here is our analysis of the results.

Performance summary
  • Top line of Hotel Leelaventure increased by 11.4% during the quarter on the back of economic recovery.
  • Operating (EBITDA) margins fell by 0.9% to stand at 39.1% during the quarter. This fall in margins has been due to sharp increase in other expenditure partly offset by lower staff and power and fuel costs (all as a percentage of sales).
  • The company’s bottom line fell by 23.6% during the quarter. This was on the back of a sharp increase in interest costs.
  • For 9mFY11 the company’s net profit fell by 16% YoY while net profit margins fell by 2.9% to stand at 7.5%. This performance came on the back of sharp increase in interest costs.

Standalone financial picture
Rs(m) 3QFY10 3QFY11 Change 9mFY10 9mFY11 Change
Net sales 1,277   1,423 11.4%   3,036   3,537 16.5%
Expenditure 766  867 13.1%   2,133   2,422 13.6%
Operating profit (EBDITA) 511  556 8.7%  903   1,115 23.5%
Operating profit margin (%) 40.0% 39.1%   29.7% 31.5%  
Other income 44  53 20.3%  128  143 12.4%
Interest 48  201 322.5%  173  408 136.2%
Depreciation 140  122 -12.5%  463  496 6.9%
Profit before tax 369  286 -22.4%  394  354 -10.2%
Extraordinary items   -      -     7    -    
Tax 80  66 -18.1%  85  88 4.5%
Profit after tax/(loss) 289  220 -23.6%  317  266 -16.1%
Net profit margin (%) 22.6% 15.5%   10.4% 7.5%  
No. of shares (m) 388  388    388  388  
Diluted earnings per share (Rs)*         0.9  
Price to earnings ratio (x)*         42.3  
* 12 month trailing earnings

What has driven performance in 3QFY11?
  • The top line of Hotel Leelaventure saw strong growth aided by higher buoyancy seen in the hotel sector, marked by an increase in influx of foreign tourists. The company's business hotels in Mumbai, Bangalore and Gurgaon performed well during the quarter along with the company's resorts in Goa and Kovalam.

    Cost break-up
    As a % of net sales 3QFY10 3QFY11 9mFY10 9mFY11
    Total Cost of goods 7.0% 6.9% 7.3% 7.1%
    Staff Cost 19.9% 19.1% 23.0% 22.7%
    Power and fuel 8.5% 7.8% 10.7% 9.5%
    Other Expenditure 24.5% 27.1% 29.3% 29.3%

  • Operating profit for the quarter grew at a slower rate of 8.7% YoY. This was due to a sharp increase in other expenditure. Other expenditure increased by 23% YoY during the quarter. Lower growth in staff costs and power and fuel cost as compared to the top line helped support operating profits. While staff costs increased by 7% YoY, power and fuel costs increased 1% YoY.

  • Net profit for the quarter fell by 23.6% YoY during the quarter. This was a result of increase in interest costs and in effective tax rates. While interest costs increased by 322.5% YoY during the quarter, effective tax rate increased from 21.7% in 3QFY10 to 22.9% in 3QFY11.

What to expect?
At a price of Rs. 39, the company is trading at 42.3 times its trailing twelve month earnings. As a result of an economic recovery, we are witnessing a recovery in sales growth. The company is taking advantage of its positioning in the luxury segment and position in the metros, benefiting from increase in foreigner and leisure traffic. The company has seven properties with over 1,860 rooms. The company had a soft launch of its new 260 room Delhi property in October. A 332 room property in Chennai is coming up and is expected to be operational by mid 2011. This property will take the room inventory of the company to over 2,197 rooms. However, FCCB worth US$ 67 m maturing in April 2012 is a cause for concern.

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