Business travel takes its toll on EIH's profits - Views on News from Equitymaster

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Business travel takes its toll on EIH's profits

May 30, 2000

EIH Ltd, India's second largest hotel chain has reported a 25% decline in its net profits for FY2000 to Rs 725 m as against Rs 964 m reported in FY99. Total revenues also reported a marginal decline by 2% YoY in FY2000 to Rs 4,663 m. EIH Ltd, India's second largest hotel chain operates 14 hotels under the "Oberoi" and "Trident" brands. Of this the company owns 10 hotels (1,690 rooms) and manages the other four (636 rooms). Its Mumbai and Delhi hotels contribute to around 80% of the profits of the company. The company reported a net turnover of Rs 4.6 bn in FY2000.

(Rs m) FY99 FY00 Change
Total revenues 4,757 4,663 -2.0%
Profit after Tax/(Loss) 964 725 -24.8%
Net profit margin (%) 20.3% 15.5%  
Earnings per share* 18.40 13.83  
(annualised)      

The decline in business travel has taken its toll on the company's performance as a large chunk of profits come from its hotels in Mumbai and Delhi. The slowdown in the economy and political instability has affected the growth in tourism over the last few years and this lead to a decline in occupancy rates and average room rates for the hotel industry.

The prospects for the hotel industry are set to improve as the economy has picked up and the overall investment climate is more favourable. EIH has reported an improvement in its occupancy rate for April'2000 at 64.7% as compared to 62.8% in April'99. The company's occupancy rate and average room rate are expected to improve over the next year.

The market has already discounted the results and the fall in profits of EIH does not bring any surprises. On valuations, EIH Ltd is trading at 8.9x (on FY2000 earnings). This is low as compared to multiples of 20x-25x it had traded at few years ago and the negative news which has affected the hotel industry seems to be in the price.

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