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Hotel Leelaventure: Interest costs drag profits

May 26, 2011

Hotel Leelaventure Limited has announced its results for financial year 2010-2011 (FY11). The company has reported a 17.1% YoY growth in its sales and a 7.8% YoY fall in net profits. Here is our analysis of the results.

Performance summary
  • Standalone top line of Hotel Leelaventure increased by 17% YoY during the year on the back of strong demand.
  • Operating (EBITDA) margins increased by 1.8% to stand at 29.5% during the year. This increase in margins has been due to fall in power and fuel costs and other expenditure partially offset by higher staff costs (all as a percentage of sales).
  • The company's bottom line fell by 7.8% during the year. This was on the back of a sharp increase in interest costs.
  • The company has declared a dividend of Rs 0.15 per share.

Standalone financial picture
Rs(m) FY10 FY11 Change
Net sales 4,492 5,258 17.1%
Expenditure 3,249 3,707 14.1%
Operating profit (EBITDA) 1,243 1,551 24.8%
Operating profit margin (%) 27.7% 29.5%  
Other income 286 275 -3.6%
Interest 245 576 135.5%
Depreciation 683 684 0.1%
Profit before tax 600 566 -5.7%
Extraordinary items 7 -  
Tax 196 187 -4.5%
Profit after tax/(loss) 410 378 -7.8%
Net profit margin (%) 9.1% 7.2%  
No. of shares (m) 378 388  
Diluted earnings per share (Rs)*   1.0  
Price to earnings ratio (x)*   39.9  
* 12 month trailing earnings

What has driven performance in FY11?
  • The top line of Hotel Leelaventure saw strong growth aided by higher buoyancy seen in the hotel sector, marked by an increase in influx of foreign tourists. The company's business hotels in Mumbai, Bangalore, Gurgaon, Goa, Kovalam and Udaipur performed well. The new property in Delhi has also got a good response

    Cost break-up
    As a % of net sales FY10 FY11
    Total Cost of goods 6.8% 6.8%
    Staff Cost 21.2% 21.8%
    Power and fuel 9.8% 8.5%
    Other Expenditure 34.5% 33.5%

  • Operating profit for the year increased by 24.8% YoY. This was due to a slower than top line growth in power and fuel costs and other expenditure. While power and fuel costs increased by 1% YoY, other expenditure increased by 14% YoY. Operating profit could have been higher but for a sharp increase in staff costs. For the year, staff costs increased by 22% YoY.

  • Net profit fell by 8% YoY during the year. This was a result of increase in interest costs. Interest costs increased by 136% YoY during the year.

What to expect?
At a price of Rs. 39, the company is trading at 39.9 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 seven properties with over 1,860 rooms. The company officially launched its new 260 room property Delhi property in April. A 332 room property in Chennai is coming up and is expected to be operational by mid 2011. This property will take the room inventory of the company to over 2,197 rooms. More properties for the company are coming up in Agra, Jaipur and Ashtamudi, Kerala. However, FCCB worth US$ 67 m maturing in April 2012 is a cause for concern. However, considering that the company failed to display the intended performance over our investment horizon of 2-3 years we discontinue our coverage on the stock.

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