India's second largest hotel chain, East India Hotels (EIH), has recorded 13% growth in topline for FY01. However, sales growth in 4QFY01 seems to have slowed down to single digits as compared to the double digit growth in the previous quarters.
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Results for FY01 are significantly better than the preceding fiscal. In FY00, the company reported negative topline and bottomline growth of 2% and 25% respectively. The better performance was the result of higher occupancy rates and average room rates (ARR) at its prime hotels in Mumbai, Delhi, Bangalore and Calcutta. Also the company's increasing presence in the leisure hotel segment over the past couple of years has helped shoring up its revenues. The company has opened hotels in Rajasthan and Shimla. It also has plans for other tourist destinations like Kerala.
To improve its operations further and to keep up with the increasing competition in the luxury hotel market in India the company is on the look out for a tie-up with an international hotel company. This will help the company acquire presence in the large markets of Europe and USA.
Improved topline growth and greater control on costs has enabled the company to register significant growth in operating profits. The OPM of the company has increased by 370 basis points. This can be attributed to the revised room rates and strict control on costs during the year.
Therefore, despite the drop in other income the bottomline has exhibited impressive growth. The extra-ordinary item pertains to voluntary separation costs (VRS) of Rs 213.4 m, which is to be written off over a period of 5 years.
At Rs 234 the company trades on a multiple of 12.9x FY01 earnings. The three year average multiple for the company is 20x. However, the threat of competition has increased in its prime market, Mumbai, with a number of hotels to be commissioned. This could have affected valuations of the company.
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