India's premier hotel chain, The Indian Hotels Company, has only managed a 6% growth in its FY01 bottomline. This was despite a 16% growth in turnover during this period. A 39% decline in other income component was largely responsible for its shrinking profitability.
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Higher depreciation provisioning and effective tax rates also contributed to this not so impressive performance. However, the company has managed to improve its operating margins during the year by 90 basis points, despite major renovations in progress in several hotels in the group.
Its 4QFY01 were even better in operational terms. Its operating margins improved by 150 basis points during the quarter. A 58% jump in other income helped shore up its bottomline by 25% during 4QFY01. If however, we deduct the extraordinary items in the form of a voluntary retirement scheme, the net profit growth is actually 20%.
The company's renovation expenses continue to add to its interest and depreciation costs, which in turn pressurise its profits depite an improvement in operations.
At the current price of Rs 231 the stock trades at a P/E of 8.9 times its FY01 earnings. The company has outperformed our projections on the turnover growth paratmeter, but its bottomline is more or less as per our projections. We had projected a higher interest outgo (Rs 481 m) for FY01. Based on our projections, the stock trades at a P/E multiple of 7.4x FY02 earnings.
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