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EIH: Hit by terror attacks
Jul 2, 2009

Performance summary
  • Economic slowdown and terror attacks leads to a topline decline of 7% YoY during FY09.
  • On account of decline in sales, the operating profits fall by 14% YoY
  • Net profits fall by 22% YoY during FY09.
  • The board recommends a dividend of Rs 1.2 per share (dividend yield of 1%).


Standalone picture
Rs(m) FY08 FY09 Change
Net sales 11,408 10,573 -7.3%
Expenditure 6,816 6,631 -2.7%
Operating profit (EBDITA) 4,592 3,942 -14.1%
Operating profit margin (%) 40.3% 37.3%
Other income 143 158 10.1%
Interest 750 825 10.1%
Depreciation 453 542 19.7%
Profit before tax 3,532 2,733 -22.6%
Extraordinary item (34) -
Tax 1,326 1,028 -22.5%
Profit after tax/(loss) 2,172 1,704 -21.5%
Net profit margin (%) 19.0% 16.1%  
No. of shares (m) 393.0 393.0  
Diluted earnings per share (Rs) *   4.3  
Price to earnings ratio (x)*   28.1  
* 12 month trailing earning

What has driven performance in FY09?
  • East Indian Hotels (EIH), like its peers, saw a topline decline of 7% YoY during FY09. While the hotel segment revenues declined by 8% YoY, revenues from other services increased by 21% YoY. Tough business conditions amid the financial crisis and the terrorist attacks on its hotels in Mumbai led to the fall. The terror attacks on the company’s two properties, The Oberoi and Trident, in November last year compelled EIH to close these hotels temporarily. While the Trident was restored and re-opened in late December last year, The Oberoi will be re-opening next year. Also its new property, Trident (BKC in Mumbai) will be commencing operations during FY10.

  • The company is adequately insured against the damage for both the hotels. The insurance company has made a provisional assessment of Rs 968 m as loss due to business interruption.

  • On account of the decline in sales, the operating profits saw a fall of 14% YoY. The margins stood at 37% for FY09 down from 40% last year. On the PBIT front, the profits from the hotel business saw a fall of 12% YoY.

  • Excluding the extraordinary item (Rs 34 m in FY08), the net profits declined by 23% YoY led by decline in sales and operating profits.

What to expect?
The stock is currently trading at Rs 122, implying a price to earnings multiple of 28.1 times its 12-month trailing earnings. The management has indicated that the challenging environment would continue as it largely depends on foreign travelers. Hence, with room rates and occupancy levels falling, pressure would continue. At the current juncture, the risk-reward ratio is skewed towards the former.

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