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Indian Hotels' food and beverage props up revenues - Views on News from Equitymaster
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  • Jun 8, 2000

    Indian Hotels' food and beverage props up revenues

    As per a newspaper article for FY2000, Indian Hotels Co. Ltd (IHCL) food and beverage income nearly equals the company's room revenues. The room revenues declined by 5% YoY to Rs 2,617 m in FY2000, while the food and beverage income actually showed a growth of 7% YoY during the year.

    Room revenues as a percentage of sales has declined during FY2000 to 44% as compared to 47% in FY99. On the other hand, food and beverage revenues as a percentage of sales has gone up from 41% in FY99 to 44% in FY2000. The main reason for this is a decline in occupancies and average room rates for the five star hotel segment in FY99. The company's strategy has been to increase revenues from food and beverage income so as to insulate the earnings from the effect of falling occupancy rates. They have refurbished restaurants, provided incentives, concentrated on institutional and flight catering to increase food and beverage revenues.

    The interest costs of IHCL went up from Rs 33 m in FY99 to Rs 155 m in FY2000 mainly on account of a debt taken by IHCL to the tune of Rs 2 bn during the year. In future too as the company has been aggressive on its expansion and refurbishment plans to gear up for competition both the interest as well as depreciation costs are expected to go up.

    On the occupancy rate front for FY2000, the company reported an occupancy rate of 61% for its luxury hotels, a 51% occupancy for its leisure hotels, and 59% for its business hotels. Average room rates on the whole declined for IHCL during the year.

    The company is expecting an improved performance in FY2001, as its revenues in the last quarter of FY2000 went up by 9.5% YoY. Keeping in mind that the economic recovery has taken off and the political situation has been quite stable, we expect occupancy rates and average room rates for metro hotels to go up during the year on the back of higher foreign and domestic business travel.

    IHCL's with its strong brand name, prime hotel locations, international marketing offices and aggressive expansion plans is very well positioned to take advantage of the growth in the hotel industry expected during FY2001. At the current price of Rs 208, the stock is trading at only 8.3x FY2000 earnings and the negative news regarding the hotel industry is in the price.



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