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Hotel Leelaventures: Green shoots visible - Views on News from Equitymaster
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Hotel Leelaventures: Green shoots visible
May 26, 2010

Hotel Leelaventure Limited has announced its FY10 results. The company has reported a 5.1% YoY and 71.7% YoY fall in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Top line of Hotel Leelaventure fell by 5% during the year on the back of economic slowdown.
  • Operating (EBITDA) margins shrink by 16.4% to stand at 29% during the year. This drop in margins has been due to higher costs of material, staff costs, power and fuel and other expenditure as a percentage of sales.
  • Net profits fell by 72% YoY on the back of lower operating income, lower other income, higher depreciation costs and lower extraordinary gains during the year.

Consolidate financial picture
Rs(m) FY09 FY10 Change
Net sales 4,598 4,362 -5.1%
Expenditure 2,970 3,096 4.2%
Operating profit (EBDITA) 1,628 1,266 -22.2%
Operating profit margin (%) 35.4% 29.0%  
Other income 577 262 -54.6%
Interest 272 245 -10.0%
Depreciation 549 683 24.4%
Profit before tax 1,384 600 -56.6%
Extraordinary items 542 7  
Tax 476 196 -58.7%
Profit after tax/(loss) 1,450 410 -71.7%
Net profit margin (%) 31.5% 9.4%  
No. of shares (m) 378 378  
Diluted earnings per share (Rs)*   1.1  
Price to earnings ratio (x)*   42.8  
* 12 month trailing earnings

What has driven performance in FY10?
  • While the top line of Hotel Leelaventures fell by 5%, the top line for 4QFY10 grew by 27% YoY aided by higher buoyancy seen in the hotel sector, marked by an increase in influx of foreign tourists. This is a sign of recovery for the sector. The company's resorts in Goa and Kovalam performed well during the quarter.
    Cost break-up
    As a % of net sales FY09 FY10
    Total Cost of goods 6.3% 7.0%
    Staff Cost 19.4% 21.9%
    Power and fuel 9.7% 10.1%
    Other Expenditure 29.2% 32.0%

  • Operating profit for the year fell by 22% YoY. This was due to higher growth in cost of goods, staff costs, power and fuel cost and other expenditure as compared to the top line. However, operating profit for 4QFY10 grew by 137% YoY on the back of higher sales and cost saving measures taken by the company.

  • The company bought back and cancelled US$ 25 m of foreign currency convertible bonds which included zero coupon bond as well as 1% coupon bond. For this reason, we see a fall in other income as well as lower interest costs.

  • Net profit margin fell by 72% during the year as a result of lower sales, rising operating costs during the year and absence of onetime gains from FCCB buyback. When adjusted for one time gain, net profits fell by 56% YoY.

What to expect?
At a price of Rs. 47, the company is trading at 42 times its trailing twelve month earnings. As a result of an economic recovery, we are witnessing a recovery in sales growth. The company is taking advantage of its positioning in the luxury segment and position in the metros, benefiting from increase in foreigner and leisure traffic. The company has six properties with over 1,600 rooms. The company has a new 260 room property coming up in Delhi which is expected to be operational before the Commonwealth games. A 332 room property in Chennai is also coming up and is expected to be operational by mid 2011. These two properties will take the room inventory of the company to over 2,162 rooms. Given the economic recovery, and the buoyancy in the hospitality sector, we will take a relook at our assumptions for this company.

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