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IHCL: Lower forex loss improves profits
Feb 13, 2013

The Indian Hotels Company Limited (IHCL) has announced its standalone results for the quarter ended December 2012. The company has reported a 4.4% YoY growth in sales and 28% YoY growth in net profits. Here is our analysis of the results.

Performance summary
  • Net sales for 3QFY13 increased by 4.4% YoY on account of improved business in the company's domestic hotel portfolio.
  • Operating margins increased by 1% YoY. Operating profits increased by 7.8% YoY.
  • The company posted a 28% YoY growth in net profit. Net profit margins improved by 2% YoY.
  • On a consolidated basis, for the nine month ended December 2012, the company reported a 10.8% YoY increase in net sales and a wider net loss of Rs 411 m as compared to a net loss of Rs 213 m in the same period last year.

Standalone and Consolidated financials
  Standalone Consolidated
(Rs m) 3QFY12 3QFY13 Change 9MFY12 9MFY13 Change
Net sales 5,215 5,446 4.4% 24,622 27,268 10.8%
Expenditure 3,810 3,931 3.2% 21,055 23,770 12.9%
Operating profit (EBDITA) 1,405 1,514 7.8% 3,567 3,499 -1.9%
Operating profit margin (%) 27% 28%   14% 13%  
Other income 96 61 -36.3% 603 481 -20.1%
Interest (net) 313 252 -19.5% 1,674 1,246 -25.6%
Depreciation 265 305 15.0% 1,893 2,174 14.8%
Profit before tax 922 1,018 10.4% 603 560 -7.2%
Exceptional Item (148) (15) NA (4) (5) NA
Tax 269 357 32.7% 665 567 -14.8%
Profit after tax/(loss) 505 646 28.0% (66) (12) NA
Minority interest       (253) (324) NA
Share of profit of associates       106 (74) -170.0%
PAT after minority and sh. of assoc. profit 505 646 28.0% (213) (411) NA
Net profit margin (%) 10% 12%   -12% -19%  
No. of shares (m)   808        
Diluted earnings per share (Rs)   1.6        
P/E ratio (x)*   39.3        
(* On a trailing 12 months basis)

What has driven performance in 3QFY13?
  • The topline of the company grew by 4.4% YoY. Growth has been led by food and beverages (F&B) and banqueting sales as well as increase in occupancy. Operating performance (occupancy/ARRs), however, still remains under pressure, given demand supply mismatch in the domestic market. On the international front, ARRs for Pierre have seen marginal improvement (5% YoY) though the ARR gap to neighboring peer hotels remains wide (USD $250/night).

    Cost break-up
      Standalone Results Consolidated Results
    As a % of net sales 3QFY12 3QFY13 9MFY12 9MFY13
    Total Cost of goods 7.0% 8.6% 10.7% 10.3%
    Staff cost 23.9% 20.6% 34.6% 34.7%
    License fees 6.1% 7.5% 5.0% 5.6%
    Power, fuel & light 6.4% 7.2% 7.4% 7.9%
    Other Expenditure 28.1% 28.2% 27.8% 28.7%

  • IHCL's operating (EBITDA) income increased by 7.8% YoY. Operating margins increased by 1% which came as a surprise to us. Increase in EBITDA was mainly due to lower employee cost.

  • During the quarter the company reported a 28% YoY increase in net profit. Overall consolidated profit for the quarter of Rs 498 m (Rs 490 m for 3QFY12) remained flattish primarily because of sluggish performance of international and other subsidiary hotels. However IHCL's current debt of Rs 3.8 bn will soak away most of its profits.

What to expect?
The company added 509 rooms in 9MFY13 and is looking to add 350 rooms in 4QFY13. For FY14/15, room addition target is 1710 rooms, which is primarily coming from management contracts (800 rooms) and Ginger expansion (360 rooms). On Orient Express Hotel (OEH) bid, Indian Hotels is evaluating various options after the initial offer was rejected by OEH board. The company expects clarity on the same by March end. The company is still awaiting final approvals for the Sea Rock hotel. They are also expecting a smooth renewal in its leases for three key hotels in Mumbai and Delhi, though one Delhi hotel could see a higher revenue share.

IHCL's plan of expanding via asset-light model (management contracts) will help expand its footprint and sequentially add to the top line. We believe, off loading non-performing properties from its portfolio will be a positive trigger for the stock. At the current price of Rs 62, the stock trades at around 1.2x our estimated FY15 book value per share. We maintain our Buy view on the stock.

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