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Oriental Hotels: Hit on all fronts
Jul 24, 2009

Performance summary
  • Topline declines by 30% YoY in 1QFY10 on the back of economic slowdown and off season blues.
  • Operating margins fall from 34% to 16% during the quarter.
  • Net profits fall by 94% YoY mainly on account of decline in topline and operating profits.


Financial picture
Rs(m) 1QFY09 1QFY10 Change
Net sales 530 369 -30.3%
Expenditure 349 310 -11.3%
Operating profit (EBDITA) 181 60 -66.9%
Operating profit margin (%) 34.1% 16.2%  
Other income 9 3 -62.8%
Interest 0 20 -
Depreciation 31 34 10.0%
Profit before tax 158 9 -94.0%
Tax 55 3 -94.1%
Profit after tax/(loss) 104 6 -93.9%
Net profit margin (%) 19.6% 1.7%  
No. of shares (m) 17.9 17.9  
Diluted earnings per share (Rs)*   15.4  
Price to earnings ratio (x)*   13.4  
* 12 month trailing earnings

What has driven performance in 1QFY10?
  • Oriental Hotel witnessed a 30% YoY decline in net sales. Global economic slowdown coupled with off season (first two quarters are generally off season) blues hampered the performance. Oriental Hotels mainly attracts business and leisure travelers. With slowdown affecting both the segment, the company did witness pressure on its room rates and occupancy rates. As per the industry, the occupancy rates have declined by more than 30% in all major cities during the first two months of the quarter. This has also led to a reduction in room rates by more than 10%-15%. The company has agreed to acquire on assignment a lease for a plot in Coimbatore to build a 180 room hotel over the next 18 months. However, there is no mention of the cost involved yet.

    Cost break-up
    As a % of net sales 1QFY09 1QFY10
    Total Cost of goods 11.4% 10.9%
    Staff Cost 18.0% 26.8%
    Power and fuel 7.3% 9.9%
    Other Expenditure 29.1% 36.1%

  • Operating margins reported an 18% YoY fall during the quarter. All the expenses other than cost of goods saw a rise as a percent of sales. Margins being a play on room rates and occupancy, lower sales led to the pressure. The company’s performance in margin terms is the lowest in the last 3 years.

  • The bottomline also faced the heat as led by decline in sales and drop in operating profits; it tumbled a whopping 94% YoY. Other income was also lower by 63% YoY.

What to expect?
At the current market price of Rs 207, Oriental Hotel’s stock is trading at a multiple of 8.0 times our estimated FY12 earnings. The company has not performed as per our expectations. The ongoing financial crisis has continued to mar the performance of the segment. The condition may improve only when the peak season starts i.e. form the third quarter.

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