EIH Ltd, India's second largest hotel chain has reported a net profit of Rs 167 m for the 1QFY01, a growth of 28.5% YoY. The company's net sales grew by 10.9% YoY for the 1QFY01 to Rs 1,066m. After four years, the company has reported a growth in its net profit this quarter due to improvement in occupancy rates and average room rates.
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The above results are an indication that the worst is over for EIH and for the hotel industry. EIH has seen an improvement in occupancy rates this quarter to 62% in 1QFY01 from 58% reported in 1QFY00. Its average room rates (ARRs) are also on the line of recovery and for the month of June these grew by 1.2% YoY.
The company has got exciting times ahead as occupancy rates will pick up further from October onwards as the 2H marks the peak season for the hotel industry. The improvement in the economic scenario as well as the stable political situation should continue to provide a favourable climate for the hotel industry.
The negative news affecting the hotel industry has been factored into EIH's low valuations. Increasing room supply in metro cities is not a worry as most of the projects are delayed or some have been stalled due to lack of adequate funds.
On valuations, EIH Ltd is trading at 9.2x (on FY00 earnings). This is low as compared to multiples of 20x-25x it had traded at few years ago. Given its capital cost advantage, prime hotel properties and widespread network it seems an attractive play on the Indian hotel sector.
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