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Taj GVK: Early signs of recovery - Views on News from Equitymaster
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Taj GVK: Early signs of recovery
Feb 6, 2010

Performance summary
  • Topline increased by 6% YoY in 3QFY10 on the back of higher room occupancy rates.
  • Operating (EBITDA) income fell marginally by 2.7% during the quarter. This fall is due to a jump in fuel, power and light costs as well as an increase in raw material costs, staff costs and other expenditure.
  • Net profit fell by 9.7% during 3QFY10 due to lower operating income as well as higher interest costs and a steep rise in depreciation.
  • Net profit for 9mFY10 fell by 46% YoY while the net profit margins were lower by 10.2%. This was a result of the economic slowdown resulting in lower room occupancy rates along with fall in average room rates.


Financials
Rs(m) 3QFY09 3QFY10 Change 9mFY09 9mFY10 Change
Net sales 607 644 6.0% 1,813 1,659 -8.5%
Expenditure 344 383 11.1% 999 1,055 5.6%
Operating profit (EBDITA) 262 261 -0.5% 814 604 -25.7%
Operating profit margin (%) 43.2% 40.6%   44.9% 36.4%  
Other income - -   - -  
Interest 12 27 126.5% 26 93 257.4%
Depreciation 31 49 56.3% 89 146 63.5%
Profit before tax 219 185 -15.7% 699 366 -47.6%
Exceptional Items (7) -   (7) -  
Tax 77 63 -18.7% 243 125 -48.7%
Profit after tax/(loss) 135 122 -9.7% 449 241 -46.3%
Net profit margin (%) 22.3% 19.0%   24.7% 14.5%  
No. of shares (m) 63 63   63 63  
Diluted earnings per share (Rs)*         5.1  
Price to earnings ratio (x)*         27.8  
On a trailing 12 months basis

What has driven performance in 3QFY10?
  • TAJ GVK had been suffering due to an economic slowdown, specifically in the IT and KPO/BPO industry. More recently the company which has 3 of its 5 properties in Hyderabad suffered due to the Telengana political issue. However, the company has shown rise in occupancy rates at all its properties in Hyderabad on a YoY basis. While the occupancy at the company’s Chandigarh property was flat on a YoY basis, the company’s property in Chennai registered a slowdown. This is because of an extraordinary event which took place in 3QFY09 increasing the hotel’s occupancy rate. Average room rate for the company increased by Rs 600 over that in corresponding quarter of FY09.

    Cost break-up
    As a % of net sales 3QFY09 3QFY10 9mFY09 9mFY10
    Total Cost of goods 8.7% 9.2% 8.4% 9.3%
    Staff Cost 16.5% 17.2% 15.6% 19.2%
    Power and fuel 5.6% 7.3% 6.1% 8.4%
    Other Expenditure 25.9% 25.8% 24.9% 26.7%

  • While the company’s topline’s grew, the margins suffered to a higher growth in fuel, power and light expense, staff costs and costs of goods.

  • The bottomline was affected due to lower operating income. Moreover, the interest costs grew by 126% YoY and depreciation costs grew by 56% YoY affecting the net profit of the company.

What to expect?
At a price of Rs. 142 the stock is trading at 23 times our estimated FY12 earnings. Taj GVK is showing signs of recovery along with the entire hospitality industry. The Begumpet property in Hyderabad is expected to be operational by 3QFY11 and the management expects a further increase in average room rates in the next fiscal. We shall soon have a relook at our assumptions for the stock.

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