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Hotel Leela: Hit on all fronts
Jun 30, 2009

Performance summary
  • Reports a 34% YoY decline in the topline during 4QFY09. Like its peers, it too faces lower sales on account of the terror attacks. For the full year, the sales are down by 12% YoY.
  • The operating margins during 4QFY09 plunge to 13.5% as compared to 35% in the corresponding quarter last year. During the full year, the margins stood at 35% (45% during FY08).
  • For the full year, excluding the exceptional items, the company’s net profits are down 37% YoY.


Financials
Rs(m) 4QFY08 4QFY09 Change FY08 FY09 Change
Net sales 1,546 1,020 -34.1% 5,201 4,598 -11.6%
Expenditure 998 882 -11.7% 2,865 2,975 3.8%
Operating profit (EBDITA) 548 138 -74.8% 2,337 1,623 -30.5%
Operating profit margin (%) 35.4% 13.5% 44.9% 35.3%
Other income 437 345 -21.1% 649 577 -11.1%
Interest 89 79 -10.8% 356 267 -24.8%
Depreciation 159 194 22.0% 453 549 21.1%
Forex gains/ loss 41 104 157.8% 41 (105)
Profit before tax 778 315 -59.6% 2,217 1,279 -42.3%
Tax 499 291 -41.7% 732 476 -35.0%
Extraordinary item 14 646 4418.2% 14 646 4420.3%
Profit after tax/(loss) 294 670 127.8% 1,500 1,450 -3.3%
Net profit margin (%) 19.0% 65.7%   28.8% 31.5%  
No. of shares (m) 377.8 377.8   377.8 377.8  
Diluted earnings per share (Rs)* 3.8
Price to earnings ratio (x)*   8.5
* 12 month trailing earnings

What has driven performance in FY09?
  • Hotel Leela reported a 34% YoY decline in the topline during 4QFY09. Like its peers it too faced lower sales on account of the terror attacks. For the full year, the sales were down by 12% YoY. The global economic slowdown, infusion of additional inventory in destinations like Bangalore and Mumbai and price correction in the average room rentals have also made the past few quarters tough for the hotel industry. Hotel Leela had cut rates at its Bangalore property to Rs 11,000-12,000 (April-May) from Rs 15,000 last year. Its Mumbai hotel too saw lower room rates at Rs 9,000 per room from about Rs 12,000 last year. As per the industry, the hotels in Mumbai registered an occupancy level of 30-35%, compared with 50-55% last year. Bangalore’s occupancy rate was seen at 45%, against 60% last year. All these factors led to the decline in sales. The company also sold its maiden offshore casino in Goa to the MDLR as it did not form part of the company’s core competence. It had acquired an offshore casino license from the Goa government in 2006 and spent more than Rs 46 m to set up the land-based infrastructure for a floating jetty, besides the Rs 50 m casino fee every year. Hotel Leela opened its property in Udaipur in April 2009, and is looking at entering Hyderabad and Pune besides completing the ongoing projects in New Delhi and Chennai by 2010.

  • The operating margins during 4QFY09 declined to 13.5% as compared to 35% in the corresponding quarter last year mainly on account of decline in sales. The terror attacks and economic slowdown affected the company’s performance was affeted. During the full year, the margins stood at 35% (45% during FY08). The company’s margins during 9mFY09 were at 41%. The fall is mainly on account of the last quarter (peak season).

  • Excluding the extraordinary item (buyback and cancellation of FCCB), the bottomline for 4QFY09 declined by 92% YoY mainly due to lower operating margins and other income. In April this year, it bought back nearly US$ 50 m foreign currency convertible bonds (FCCBs) at discount from the international markets. Further, Hotel Leela till March 31, 2009, had bought back and cancelled FCCBs worth US$ 33 m, constituting 33% of its US$ 100 m bonds due in April 2012. Further, excluding the exceptional items (reversal of provision for revaluation of foreign currency loans), the company reported losses to the extent of Rs 81 m. For the full year, excluding both, the extraordinary and exceptional items, the company’s net profits were down 37% YoY.

What to expect?
At the current price of Rs 32, the stock is trading at price to earnings multiple of 8.5 times its trailing 12 months trailing earnings. Faced with falling occupancies and a severe downturn in demand, hotel majors had to lower the room tariffs, thereby affecting their financial performance. While the near term outlook remains bleak on account of continued slowdown and swine flu worries, business travel is expected to pick up from October. While the company is expanding its room inventory, risks on the execution front remain.

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