The Tata group hotel chain, Indian Hotels, declared its FY03 results yesterday. The company has posted a 2% topline dip, with bottomline reducing to half over the same period. An indicator of good times ahead is the 4QFY03 performance. The topline during the March quarter grew by 19% YoY, while the bottomline spurted sharply by 173% YoY. Let us take a deeper look and analyse the numbers.
Operating Profit (EBDIT)
Operating Profit Margin (%)
Profit before Tax
Profit after Tax/(Loss)
Net profit margin (%)
No. of Shares
Diluted Earnings per share*
To start with Indian Hotels has reported a 2% decline in topline for FY03. But the thing to note here is that last year’s figures also include the erstwhile Taj Air Catering Service (TACS). On a like to like basis, i.e., excluding TACS numbers, the hotel group has actually reported an encouraging 10% revenue growth. The company has outperformed our FY03 revenue expectations of Rs 5,383 m. We had expected the company to grow its topline by 7% in FY03. The out-performance has largely come as a result of sharp improvement in March quarter revenues, which saw nearly 20% YoY growth.
Similarly, though the PAT for FY03 does look depressed (down 51%), the picture improves dramatically if one excludes the extraordinary items. During the year, IHCL sold 2 of its properties (Hotel Blue Diamond and Taj Residency) to its associate company PIEM Hotels for Rs 233 m. If one excludes the extraordinary items, then the PAT is down by mere 1.4%. This clearly indicates that the company’s strategy of renovation and focus on Food & Beverage (F&B) seems to be paying off. On the net profit level again, Indian Hotels has outperformed our conservative estimate of Rs 227 m.
The improvement in FY03 was largely led by increase in the occupancies across all SBUs. Occupancies during the year grew by 10% YoY. This helped the company post a healthy revenue growth, despite average room rates (ARRs) continuing to remain under pressure throughout the year. Shifting of preference from South Mumbai to North Mumbai also became apparent, as out of the 10% revenue growth, 6% was contributed by the newly acquired Taj Lands End (North Mumbai). Though the performance of Taj Lands End is encouraging, it highlighted the pressure on its other key properties.
Aggressive marketing initiatives also helped Indian Hotels improve its occupancy levels. However, the concern has been on the ARR front. Heavy discounts were the order of the day to attract the domestic traveler. Though occupancies increased in the Luxury segment from 60% in FY02 to 65% in FY03, ARRs went down by 12%. The business segment posted a marginal growth in ARRs during the year. Net, net, both Luxury and Business hotels could manage only 5% growth each in room revenues during FY03. It was the Leisure segment that saved the day for IHCl. This division posted an 11% increase in the ARRs coupled with 4% increase YoY occupancies, helping it post a healthy 15% room revenue growth.
Coming to the operational level, during the year total expenditure has gone up by 11%. All the company’s expense heads saw a YoY increase be it staff, power or material expenses. This is despite the company’s so called efforts to cut costs. Consequently, operating margins dipped marginally to 17.8% in FY03. Depreciation too went up by 5%, as the company added 4 properties to its existing portfolio, including Taj Lands End. However, a 19% dip in interest outgo helped Indian Hotels post a significant 49% growth at the PBT level.
At Rs 243, the scrip is quoting on a multiple of 27x FY03 earnings. With the worst possibly over for the industry, the company can look forward to better times. On the expansion front, IHCL is on the lookout for setting up hotels in new territories like China, Russia and other travel destinations around the world. Apart from this on the domestic front, IHCL continues to make its existing properties more and more user friendly with renovations in key hotels like Taj Mahal, Mumbai, and Taj Lake Palace, Udaipur. So, with the management being clear on its strategy going forward, FY04 is likely to be a turnaround year for the company. With this in mind, we will take a relook at our projections for FY04 and upgrade those.
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