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Oriental Hotels: Green shoots visible
Jun 1, 2010

Oriental Hotels Limited has announced its FY10 results. The company has reported a 7.3% YoY and 45.7% YoY fall in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Revenue of Oriental Hotels fell by 7% during the year.
  • Operating (EBITDA) margins shrunk by 3.9% to stand at 27% during FY10 due to increase in staff costs, power and fuel costs and higher other expenditure as a percentage of sales.
  • Net profits fell by 46% on the back of lower operating profit, lower other income and a jump in interest expense.
  • The company has declared a dividend of Rs 7.5 per equity share for the year.


Consolidated financial picture
Rs(m) FY09 FY10 Change
Net sales 2,459 2,278 -7.3%
Expenditure 1,692 1,655 -2.2%
Operating profit (EBDITA) 767 623 -18.8%
Operating profit margin (%) 31.2% 27.3%  
Other income 31 15 -50.9%
Interest 49 133 174.0%
Depreciation 184 184 0.1%
Profit before tax 566 321 -43.2%
Minority Interest 6 1  
Tax 203 122 -39.9%
Profit after tax/(loss) 369 200 -45.7%
Net profit margin (%) 15.0% 8.8%  
No. of shares (m) 18 18  
Diluted earnings per share (Rs)*   11.2  
Price to earnings ratio (x)*   25.2  
* 12 month trailing earnings

What has driven performance in FY10?
  • Sales of Oriental Hotels for the year fell on the back of economic slowdown. However, the second half of the year saw some improvement as sales for 1HFY10 fell nearly 25% YoY

  • Operating income fell by 19% YoY during the quarter mainly due to rise in other expenditure. Other expenditure increased by 2% YoY during the year. Staff costs and power and fuel costs fell during the year. However, the fall was not in line with the fall in sales, resulting in higher staff costs and higher power and fuel costs as a percentage of sales.

    Cost break-up
    As a % of net sales FY09 FY10
    Total Cost of goods 10.4% 10.4%
    Staff Cost 18.9% 19.2%
    Power and fuel 7.7% 8.0%
    Other Expenditure 31.9% 35.0%

  • Net profit margins shrunk by 7.2% during the year to 8.8%. This was the result of lower operating income and higher interest expense. Interest expense increased by 174% during the year possibly due to the acquisition costs of the Trivandrum property and the building of the Coimbatore property.

What to expect?
At a price of Rs. 283, the company is trading at 12.5 times our estimated FY12 earnings. While the company has not performed as expected, the performance has improved on a sequential basis. During the year, the company has taken, on a long term lease, a 137 room hotel in Trivandrum which has been branded Vivanta by Taj and is in advanced stages of completing an addition of 64 rooms at Taj Fisherman’s Cove. As the economic recovery continues, we expect the company's results to improve.

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