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Taj GVK: Bogged by terror - Views on News from Equitymaster
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Taj GVK: Bogged by terror
May 7, 2009

Performance summary
  • Topline declines by 21% YoY during 4QFY09 and 8% YoY during FY09 on account of the global slowdown and terror attacks.
  • Operating margins decline by 13.2% and 4.6% during 4QFY09 and FY09 respectively.
  • Net profits during FY09 decline by 25% YoY. The fourth quarter is the worst affected as bottomline declines by 60% YoY.


Standalone financials
Rs( m) 4QFY08 4QFY09 Change FY08 FY09 Change
Net sales 716 569 -20.5% 2,584 2,382 -7.8%
Expenditure 358 360 0.6% 1,355 1,359 0.3%
Operating profit (EBDITA) 359 210 -41.5% 1,228 1,023 -16.7%
Operating profit margin (%) 50.1% 36.8%   47.5% 43.0%  
Other income - - - - - -
Interest 8 36 374.7% 21 62 189.2%
Depreciation 38 47 24.3% 124 136 9.8%
Profit before tax 313 127 -59.4% 1,083 826 -23.8%
Extraordinary item   (2)     (9)  
Tax 113 46 -59.1% 380 289 -23.8%
Profit after tax/(loss) 201 80 -60.4% 704 528 -24.9%
Net profit margin (%) 28.0% 14.0%   27.2% 22.2%  
No. of shares (m) 62.7 62.7   62.7 62.7  
Diluted earnings per share (Rs)*         8.4  
Price to earnings ratio (x)*         6.8  
* 12 month trailing earnings

What has driven performance in FY09?
  • The impact of the economic slowdown and terror attacks was clearly reflected in Taj GVK’s quarterly performance. The topline declined by 21% YoY inspite of it being the peak season. For the full year, the sales declined by 8% YoY. While the half year had witnessed a growth of 4% YoY, the remaining half faced the brunt. As per Crisil, the occupancy rates in Hyderabad fell from 73% in March 2008 to 51% in the corresponding month of the current year. The company has underperformed our estimates by 6% YoY.

  • The operating margins declined by 13.2% and 4.6% during 4QFY09 and FY09 respectively. All the operating costs (as percentage of sales) saw an increase. Margins being a play on room rates and occupancy, lower sales led to the pressure. The margins are marginally lower than our estimates.

  • Net profits during FY09 declined by 25% YoY. Lower sales and higher interest costs led to the fall. The fourth quarter was the worst affected with the bottomline declining by 60% YoY. The company has lined up capex plans which led to higher interest costs.

What to expect?
At the current market price of Rs 57, Taj GVK’s stock is trading at a price to earnings multiple of 6.3 times our FY11 estimates. The company has underperformed our estimates for the full year. 2008 was definitely a year to forget for the hotel industry. While the environment in the coming quarters is expected to remain challenging for the sector and Taj GVK, the long term fundamentals remain positive.

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