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Taj GVK: Supply woes - Views on News from Equitymaster
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Taj GVK: Supply woes
May 2, 2008

Performance summary
  • Topline grew by just 6% YoY in FY08 on account of around 5% to 10% growth in average room rates.
  • Margins for FY08 remain stable at 47.4%.

  • Strong cash flows have led to lower interest cost burden

  • The bottomline for the whole year grew by 9.5% YoY

    Rs( m) 4QFY07 4QFY08 Change FY07 FY08 Change
    Net sales 678 714 5.3% 2,430 2,575 6.0%
    Expenditure 340 357 4.9% 1,280 1,355 5.9%
    Operating profit (EBDITA) 337 357 5.8% 1,150 1,220 6.1%
    Operating profit margin (%) 49.8% 50.0%   47.3% 47.4%  
    Other income 7 3 -63.8% 13 16 23.6%
    Interest 7 8 4.2% 31 28 -9.6%
    Depreciation 28 38 37.0% 124 124 0.4%
    Profit before tax 309 314 1.5% 1,008 1,083 7.5%
    Tax 121 113 -6.9% 365 379 3.8%
    Profit after tax/(loss) 188 201 6.9% 643 704 9.5%
    Net profit margin (%) 27.8% 28.2%   26.5% 27.4%  
    No. of shares (m) 62.5 62.5   62.5 62.5  
    Diluted earnings per share (Rs)*         11.3  
    Price to earnings ratio (x)*         13.4  
    * 12 month trailing earnings

    What has driven performance in FY08?
    • For FY08, the company reported a 6% YoY growth. The food and beverage (F&B) segment reported 15% YoY increase in income. While occupancy rates in Hyderabad stood at 79%, it was 75% for Chandigarh. The average room rates witnessed about 5% to 10% rise and not 30% as it used to witness in the previous years. On account of new supply coming in Hyderabad (Vista, Hilton, Hyatt) the room revenues grew at a slower pace. With the opening of the new international airport, the hotel catered to the international crew and the visitors ratio stood at 60: 40 for international and domestic travelers. For the quarter, Chandigarh witnessed higher occupancy and room rates as compared to previous year on account of the IPL tournament.

    • The company has lined up Rs 5 bn capex for next 2 to 3 years. It plans to add at least one property in each financial year, which will result in an increase in the room capacity from the current 684 rooms to 1,400 rooms in the next 2 to 3 years. The Rs 1.6 bn hotel project in Chennai is nearing completion and will be operational by May of this year. The Taj Deccan at Hyderabad is being renovated and the proposal to add 180 rooms to the hotel at a cost of Rs 1 bn is awaiting statutory approvals. Civil works on a new five-star hotel at Begumpet are currently on. The new hotel will have 189 rooms and is expected to be ready by December 2009. The service apartments in Taj Krishna are expected to come up by end of 2010. As the Hyderabad market is very sensitive to room additions, Taj GVK and other hotel majors have lined up big expansions with around 900 rooms in FY09 and around 600 rooms in FY10 expected to come up. This would lead to lower room rates and occupancy levels. The company has yet on purchased any land for its Amritsar venture. It expects around Rs 70 m revenues from the arcade at Taj Krishna.

      Cost break-up
      As a % of net sales 4QFY07 4QFY08 FY07 FY08
      Total Cost of goods 7.8% 7.4% 8.2% 8.2%
      Staff Cost 12.5% 13.5% 13.1% 13.7%
      Power and fuel 3.5% 4.3% 4.8% 4.9%
      Other Expenditure 26.4% 24.7% 26.5% 25.9%

    • Margins for FY08 remained stable at 47.4%. The margins are in line with our FY08 estimates. The bottomline for the whole year grew by 9.5% YoY. On account of lower growth in the topline, the bottomline has also witnessed a slower growth. Further, higher other income and lower interest costs aided the performance.

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Feb 23, 2018 01:39 PM

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