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IHCL: Back to the future…

Mar 11, 2003

Indian Hotels (IHCL), the Tata Group's chain of hotels, has had one of its worst 18 months in recent memory. While its topline declined by 15% in FY02, the trend continued in 1HFY03 as well. However, 2HFY03 looks more promising, as the environment is lot better than what it was in FY02. We take a look as to how the company has performed over the last decade.

IHCL: Over the decade…
(CAGR %) FY93-FY97 FY98-FY02
Sales 20% -1%
Net Profits 35% -13%
NPM 7% -12%
Operating Margins 7% -14%

From FY93-FY97, IHCL enjoyed a healthy CAGR growth of 20% in its revenues. During the period, its profits clocked a CAGR of 35%. This period can be referred to as IHCL's golden years. At the time, the economy was seeing the build up of positive expectations of liberalisation and in FY97 GDP growth touched a high of 7.8%.

However, post FY97, the GDP growth tapered down and this seems to have affected the performance of hotels industry (see graph), which has continued till FY02. During the last 5 years, not only has the topline growth tapered down, the bottomline too has taken a hit. There was a 14% decline in the operating profits and a nearly same percentage drop at the net profit levels.

IHCL managed to save face in FY02 thanks to an extraordinary gain post hive off of its air catering business. Apart from the tapering GDP growth, increasing competition and the growing risk perception of India as an unsafe country, saw tourist traffic wavering.

However, the recent initiatives taken for infrastructure development (the completion of the golden quadrilateral, new airports, seaports and railways) will go a long way in improving prospects for growth of the hospitality industry in India. Also, the removal of expenditure tax is a welcome boon for this struggling industry. These measures may help India clock higher GDP growth going forward. If that happens, hotel companies can look forward to good years ahead. IHCL, being an industry leader will be well poised to take advantage of the same.


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