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EIH: Margins slide

Jul 25, 2001

EIH Ltd, India's second largest hotel chain has reported a 34% YoY decline in its 1QFY02 net profit to Rs 110.2 m. This was driven by lower occupancy rates as a result of lacklustre business travel at its hotels in metro cities during this quarter. The company's turnover as a result fell by 5.8% YoY to Rs 1,004 m in 1QFY02.

(Rs m)1QFY011QFY02Change
Sales 1,066 1,004 -5.8%
Other Income 78 90 14.9%
Expenditure 846 846 -0.1%
Operating Profit (EBDIT) 219 158 -28.0%
Operating Profit Margin (%)20.6%15.7%
Interest 52 49 -5.8%
Depreciation 64 69 8.3%
Profit before Tax 182 130 -28.6%
Extraordinary items - -
Tax 15 19 30.2%
Profit after Tax/(Loss) 167 110 -33.9%
Net profit margin (%)15.6%11.0%
No. of Shares (eoy) 52 52
Diluted Earnings per share* 12.7 8.4
* annualised

Despite the fact that the company managed to curtail its expenditure in 1QFY02 at about the same level as 1QFY01, its operating margins declined from 20.6% in 1QFY01 to 15.7% in 1QFY02.

On the costs front, the company managed to reduce its consumption of provisions, stores and wines expenses to Rs 91 m in 1QFY02, a decline of 4% YoY. Its staff costs went up marginally by 1.9% YoY to Rs 267 m in 1QFY02 as compared to Rs 262 m in 1QFY01. The real savings came in from a reduction in other expenses from Rs 489.5 m in 1QFY01 to Rs 365 m in 1QFY02, a drop of 25.5% YoY.

The fall in the company's profit before tax of 28.6% YoY would have been worse off in this quarter had it not been for higher other income of Rs 90 m in 1QFY02 and lower interest costs due to reduction in its debt.

The hotel industry has faced a tough quarter in the current financial year due to slowdown in business traffic from the US as well as higher room supply in metro cities. EIH derives around 52% of its profits from its South Mumbai hotels and around 22% from its New Delhi hotel. The opening of new five star hotels in North Mumbai in the past year coupled with a lull in domestic and foreign and domestic travel has taken a toll on the company's bottomline.

Due to rearranging of certain figures in 1QFY01, the company has now reported a net profit of Rs 152 m for 1QFY01, as compared to Rs 167 m reported previously for 1QFY01. However, as the detailed break up is not available we continue to give their previously reported figures in the table above.

As these results are lower than our expectations, we will need to revise down our FY02E forecasts. On the current price of Rs 230, it is trading at 12.7x FY01 EPS of Rs 18.1. The three year average multiple for EIH is 20x. The stock is down 1.4% currently.

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