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Indian Hotels: A year of narrowing losses - Views on News from Equitymaster
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Indian Hotels: A year of narrowing losses
Jun 5, 2015

The Indian Hotels Company Limited (IHCL) has announced its results for the quarter ended March 2015 and the full year FY15. On a standalone basis, the company has reported 5.7% YoY increase in net sales and loss of Rs 1,192 m at the bottomline. Here is our analysis of the results.

Performance summary
  • Net sales for 4QFY15 increased 5.7% YoY. The topline increased 3.0% YoY on a consolidated basis.
  • Standalone operating profit increased 0.9% YoY in 4QFY15. Higher raw material costs and 'other expenses' capped the operating margins. The full year consolidated operating profit was down 12.7% YoY.
  • The company has made significant diminution to the carrying values of major investments made in various subsidiaries. The total amount of this extraordinary write-off was Rs 2,039.5 m.
  • Due to the exceptional expense, the company reported a loss of Rs 1,192 m at the standalone bottomline.
  • The board did not recommend any dividend this year considering the poor financial performance.

Standalone and Consolidated financials
  Standalone Consolidated
(Rs m) 4QFY14 4QFY15 Change FY14 FY15 Change
Net sales 5,777 6,108 5.7% 40,662 41,886 3.0%
Expenditure 4,252 4,569 7.5% 35,066 37,001 5.5%
Operating profit (EBDITA) 1,525 1,538 0.9%  5,596 4,886 -12.7%
Operating profit margin (%) 26.4% 25.2%   13.8% 11.7%  
Other income 36 213 487.0%  598 987 65.2%
Interest (net) 232 198 -14.6%  1,685 1,756 4.2%
Depreciation 320 292 -8.7%  3,081 2,913 -5.5%
Exceptional Item (4,325) (1,965)   (5,548) (3,529)  
Profit before tax (3,315) (704)   (4,122) (2,325)  
Tax 339 487 43.6%  1,110 1,146 3.3%
Profit after tax/(loss) (3,655) (1,192)   (5,231) (3,471)  
Minority interest - -   (133) (0.4)  
Share of profit of associates - -   (175) (310)  
PAT after minority and sh. of assoc. profit (3,655) (1,192)   (5,539) (3,781)  
Net profit margin (%) -63.3% -19.5%   -13.6% -9.0%  
No. of shares (m)         807.5  
Diluted earnings per share (Rs)         (4.7)  
P/E ratio (x)*         N.A  
(* On a trailing 12 months basis)

What has driven performance in 4QFY15?
  • IHCL's standalone revenue for 4QFY15 increased by 3.9% YoY. Room rates haven't picked up in any significant manner in FY15. Due to the continuing economic sluggishness and the oversupply in key metros, the occupancy rates (OR) as well as average room rates (ARR) have not picked up yet.

    Cost break-up
      Standalone Results Consolidated Results
    As a % of sales 4QFY13 4QFY14 FY13 FY14
    Cost of goods 7.9% 8.6% 10.2% 10.5%
    Staff costs 22.3% 21.4% 34.0% 33.7%
    License fees 6.3% 6.5% 5.3% 5.1%
    Power, fuel & light 6.9% 7.0% 7.7% 7.7%
    Other Expenditure 26.5% 27.0% 28.5% 29.2%

  • IHCL's standalone operating profit increased by 0.9% YoY. The operating performance in the quarter was impacted by marketing initiatives as well as raw material costs.

  • The bottomline was severely impacted by the mark down in the investments that the company has made. At the consolidated level, the company recorded a loss of Rs 3,781 m.
What to expect?

The write down of investments in 4QFY15 came as a bit of a surprise. This negatively impacted what could have been a profitable year for the domestic business. If there are no more negative surprises, the domestic business should generate profits in FY16.

The international business is another matter entirely. The company has sold of some of its loss making international properties. A few more could be sold down the line. However, the management is keen to maintain a presence in marquee locations. It is unlikely that the international business will break in to the black in FY16. Thus, the near term outlook for the company remains clouded. Keeping in mind the muted financial prospects (at least in the near term), the uncertain economic outlook of the developed world as well as the stock's valuations, we maintain our view that investors should not buy the stock at current levels.

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