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Taj GVK: A muted performance - Views on News from Equitymaster
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Taj GVK: A muted performance
May 2, 2012

Taj GVK Hotels & Resorts Limited has announced the fourth quarter results of financial year 2011-2012 (4QFY12). The company has reported a 2.6% YoY increase in net sales and 46.7% YoY decline in net profits respectively. Here is our analysis of the results.

Performance summary
  • Net sales of the company for 4QFY12 increased by 2.6% YoY.
  • Both Operating profit and operating margin saw a decline of 24% YoY and 10.3% YoY respectively. This was due to increase in expenditure on a new hotel at Hyderabad.
  • Net profit for 4QFY12 declined by 46.7% YoY and net profit margin declined by 8.9%.
  • Net sales and net profits for the full year ended March 2012 declined by 1.8% YoY and 32.3% YoY respectively.
  • The company has declared a dividend of Rs 1.5 per share for the financial year 2011-12.


Financial Performance Snapshot
(Rs m) 4QFY11 4QFY12 Change FY11 FY12 Change
Sales 697 715 2.6% 2608 2559 -1.8%
Expenditure 420 504 20.1% 1630 1759 7.9%
Operating profit (EBITDA) 277 210 -24.0% 977 800 -18.1%
Operating profit margin (%) 39.7% 29.4%   37.5% 31.3%  
Other income 0 0        
Interest (net) 27 50 88.3% 114 151 32.9%
Depreciation 53 64 22.3% 206 221 7.2%
Profit before tax 197 96 -51.6% 657 428 -34.9%
Exceptional Item 0 0        
Tax 68 27 -60.9% 224 134 -39.9%
Profit after tax/(loss) 129 69 -46.7% 434 293 -32.3%
Net profit margin (%) 18.6% 9.7%   16.6% 11.5%  
No. of shares (m)         63  
Diluted earnings per share (Rs)*         4.7  
P/E ratio (x)*         12.9  
(*On a trailing 12-month basis)

What has driven performance in 4QFY12?
  • The net sales of the company for 4QFY12 increased by 2.6% YoY on account of marginal improvement in average room rates (ARR) and new room additions. During the quarter, the company's hotel in Chennai has clocked improved occupancy levels of 72%. However, for the full year ended March 2012, net sales declined by 1.8% YoY. The company's Hotel at Chennai has clocked improved occupancy levels of 67% in FY12.

    Cost break-up...
    As a % of net sales 4QFY11 4QFY12 FY11 FY12
    Total Cost of goods 9.20% 10.33% 10.09% 9.86%
    Staff cost 16.51% 14.09% 17.94% 19.24%
    Power, fuel & light 7.43% 8.92% 8.04% 9.01%
    Other Expenditure 27.14% 37.21% 26.87% 30.39%

  • Operating profit declined by 24% YoY on account of increase in expenditure. This was due to rise in fixed costs from newly opened hotels. Operating margins have also declined by 10.3% YoY.

  • At the bottomline level, net profits declined by 46.7% YoY while net profit margin declined to 9.7% from 18.6% compared to the same quarter previous year. This was due to high interest cost. For the full year ended March 2012, net profit declined by 32.3% YoY. New investments and tax provisions have also impacted the company's performance.

  • The company is entitled for deduction of 100% of the cost of Vivanta by Taj - Begumpet hotel, which became operational in the third quarter of the current year (3QFY12), under Section 35AD of the Income Tax Act, 1961 because of which taxable income of the company for the year under normal provisions of the Act would be Nil and liable for tax on book profits under Section 115JB of the Income Tax Act. Hence, credit for such tax is taken into account and provision is made for deferred Tax.

What to expect?
Leisure destinations such as Agra, Goa, Jaipur and Kerala witnessed occupancy growth of 3% YoY to 80% from 77% during 4QFY12, mainly on account of the holiday season. Among business destinations, South Mumbai, NCR and Kolkata also witnessed occupancy growth up to 3% YoY to 78% from 75% during 4QFY12 driven by an increase in MICE (meeting, incentives, conferencing, and exhibitions) activities. However, occupancy is expected to remain flat across the Hyderabad region due to higher room supply.

The company's room inventory at the end of March 2012 stands at 1,083 rooms. It also plans to develop at least three more properties simultaneously in Mumbai, Bangalore and Hyderabad which will serve under the Ginger brand. The company, through its special purpose vehicle Green Woods Palaces and Resorts Private Limited (Green Woods), is setting up a 5 star deluxe luxury hotel project of 275 rooms near Terminal 1C, Santacruz, Mumbai at Mumbai International Airport, under the ‘TAJ' brand. Taj GVK would invest Rs 1.1 bn on the project.

Going forward, the hotel industry could see low ARRs due to increase in new room supply and low demand. At a price of Rs 60, the stock is trading at 5 times our estimated FY14 earnings. We maintain a positive view on the stock.

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