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Hotel Leela: Difficult times ahead - Views on News from Equitymaster

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Hotel Leela: Difficult times ahead
Feb 9, 2009

Performance summary
  • Topline declines by 15%YoY during 3QFY09 and 2% YoY during 9mFY09.
  • Operating margins decline by 11% YoY for the quarter on account of higher expenses
  • Excluding the forex transactions, the profits during 3QFY09 are down by 38% YoY.


Rs( m) 3QFY08 3QFY09 Change 9mFY08 9mFY09 Change
Net sales 1,430 1,213 -15.2% 3,603 3,551 -1.5%
Expenditure 690 718 4.0% 1,867 2,093 12.1%
Operating profit (EBDITA) 740 495 -33.1% 1,737 1,458 -16.1%
Operating profit margin (%) 51.7% 40.8%   48.2% 41.1%  
Other income 53 63 20.8% 178 260 46.4%
Interest 83 49 -41.3% 267 188 -29.5%
Depreciation 100 124 23.2% 295 356 20.7%
Forex gains/ loss 31 (116)   86 (209)  
Profit before tax 609 386 -36.6% 1,353 1,174 -13.2%
Tax 90 65 -27.8% 233 185 -20.7%
Extraordinary item - -   - -  
Profit after tax/(loss) 550 205 -62.7% 1,206 780 -35.3%
Net profit margin (%) 38.4% 16.9%   33.5% 22.0%  
No. of shares (m) 370.5 377.5   370.5 377.5  
Diluted earnings per share (Rs)*         2.8  
Price to earnings ratio (x)*         6.3  
* 12 month trailing earnings

What has driven performance in 3QFY09?
  • Hotel Leela like its peers too faced the brunt of economic slowdown and terror attacks. The company was already witnessing some pressure as a result of lower spends by corporate as its properties in Bangalore and Mumbai catered to business travelers. In November on account of terror attacks, the situation worsened as this hurt the leisure travel segment. The company’s properties in Goa and Kovalam Beach hotels cater to this segment. The topline declined by 15%YoY during 3QFY09, while was down 2% YoY during 9mFY09.

    Cost break-up
    As a % of net sales 3QFY08 3QFY09 9mFY08 9mFY09
    Total Cost of goods 6.4% 6.0% 6.6% 6.2%
    Staff Cost 14.1% 18.2% 14.8% 17.8%
    Power and fuel 7.0% 9.2% 8.4% 9.5%
    Other Expenditure 20.8% 25.8% 22.0% 25.5%

  • The operating margins declined by 11% YoY for the quarter on account of higher expenses (particularly power and fuel costs). For 9mFY09 the margins stood at 41%, down by 7.1% YoY. The operating expenses increased by 12% YoY.

  • Excluding the forex transactions, the profits during 3QFY09 were down by 38% YoY. During 9mFY09, the bottomline declined by 12% YoY. Inspite of lower interest costs, on account of decline in sales and operating margins the company’s net margins dropped from 38% to 17% during the quarter.

What to expect?
At the current price of Rs 18, the stock is trading at price to earnings multiple of 6.3 times its trailing 12 months trailing earnings. While the company is expanding its room inventory, execution risks remains. Also the coming quarters will be difficult as the recessionary pressure continues to hurt the travelers.

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