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Taj GVK: Hurt by macro - Views on News from Equitymaster

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Taj GVK: Hurt by macro
Feb 5, 2009

Performance summary
  • Topline declines by 14% YoY during 3QFY09 and 3% YoY during 9mFY09. Opens its Chennai property (215 rooms) in mid December.
  • Witnesses a 3.4% YoY and 1.7% YoY decline in its margins during 3QFY09 and 9mFY09 respectively.
  • Excluding the extraordinary item, the profits during 3QFY09 are down by 26% YoY.


Standalone financials
Rs( m) 3QFY08 3QFY09 Change 9mFY08 9mFY09 Change
Net sales 707 607 -14.2% 1,862 1,806 -3.0%
Expenditure 377 344 -8.7% 997 999 0.2%
Operating profit (EBDITA) 330 263 -20.4% 865 807 -6.7%
Operating profit margin (%) 46.6% 43.3%   46.4% 44.7%  
Other income 1 1 -16.7% 6 6 14.3%
Interest 6 12 92.1% 14 26 83.1%
Depreciation 29 31 7.6% 86 89 3.4%
Profit before tax 296 220 -25.5% 770 699 -9.3%
Extraordinary item   (7)     (7)  
Tax 103 77 -25.5% 266 243 -8.8%
Profit after tax/(loss) 193 137 -29.1% 504 449 -10.9%
Net profit margin (%) 27.2% 22.5%   27.1% 24.9%  
No. of shares (m) 62.7 62.7   62.7 62.7  
Diluted earnings per share (Rs)*         10.4  
Price to earnings ratio (x)*         4.3  
* 12 month trailing earnings

What has driven performance in 3QFY09?
  • Global slowdown and terror attacks in Mumbai played spoilsport in the performance of Taj GVK. The topline declined by 14% YoY during 3QFY09 and 3% YoY during 9mFY09. It opened its Chennai property (215 rooms) in mid December. While the first half of the year witnessed a 4% YoY growth, the December quarter saw one of the worst performances in recent times.

  • Taj GVK witnessed a 3.4% YoY and 1.7% YoY decline in its margins during both the period under consideration. Higher staff and fuel costs took a toll on its profitability. On account of commissioning of a new property, the costs were on the higher side. Further, decline in room rates, added to the woes. The margins are in line with our estimates.

  • Excluding the extraordinary item, the profits during 3QFY09 were down 26% YoY. Lower margins coupled with lower other income and higher interest costs led to the decline. For 9mFY09, the bottomline was down 10% YoY.

What to expect?
At the current market price of Rs 45, Taj GVK’s stock is trading at a price to earnings multiple of 4.5 times our FY11 estimates. The performance is in line with our estimates. As per our interactions with the management, Chennai is not witnessing a major slowdown like Hyderabad on account of it being a manufacturing hub. Hence the company’s new property should get better response. Despite the travel warnings issued by the countries having stopped, travel booking have renewed and the Indian government’s effort to promote tourism, the performance would remain muted in the medium term.

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